Many of us may have extra cash in hand without knowing how to use it. The first thing you do is put them in your
Savings Account. While this is the traditional way to go about it, you must know that a recent trend to invest in
liquid funds is catching on. Understanding where to park your hard-earned money is crucial in today's financial
landscape.
Understanding Liquid Funds
Liquid funds are debt mutual funds that invest in debt securities with a maturity of 91 days. They invest in
short-term money market instruments, such as treasury bills, certificates of deposits, and commercial papers,
offering the potential to earn market-linked returns. Their financial liquidity is their hallmark, enabling
investors to quickly withdraw their money, typically within one working day. These funds are ideal for those looking
to park their money for short periods, offering better returns than traditional savings accounts.
Understanding Savings Accounts
Savings Account is a familiar form of banking product. It provides a safe place to store your funds while earning
interest. Savings Accounts are excellent for financial planning,
offering easy access to your money and making them a reliable emergency fund. They are a cornerstone of liquidity
management, ensuring your cash is readily available when needed.
Difference between Savings Accounts and Liquid funds
When comparing Savings Accounts and Liquid Funds, it's essential to understand their distinct features and benefits.
Let's find out the key differences that set these popular financial instruments apart.
| Feature |
Savings Account |
Liquid Funds |
| Primary purpose |
Safekeeping of funds with steady
interest accumulation |
Short-term investment with potential for higher returns compared to Savings Account interest rate |
| Risk factor |
Low risk, with guaranteed returns |
Low to moderate risk, with no
guarantee of returns |
| Returns |
Generally lower, fixed returns |
Potential to earn market-linked
returns |
| Liquidity |
High liquidity, with immediate
access to funds |
High liquidity, with access to
funds typically within one
working day. |
| Capital safety |
High, with principal amount
typically guaranteed |
Relatively safe, but no guarantee
of principal |
| Regulatory body |
Regulated by RBI |
Regulated by SEBI |
| Interest rate fluctuation |
Not subject to market fluctuations |
Subject to market fluctuations |
| Tax implications |
Interest income is taxable at the
individual’s slab rate. However,
interest earned up to Rs
10,000 is
exempted from tax under Section
80TTA. |
Subject to short-term capital gains
tax |
Also Read:
What is a Savings Account and how does it work?
Similarities of Savings Accounts and Liquid funds
Despite their differences, both Liquid Funds and Savings Accounts are essential in crafting a balanced asset
allocation strategy. They serve as liquid assets, integral for principal protection and acting as an inflation
hedge.
- Asset allocation: In the realm of personal finance, diversifying your investments is key. Liquid funds and Savings Accounts complement each other
within an asset allocation strategy, balancing liquidity and growth potential.
- Ease of access: Both Savings Accounts and liquid funds offer easy access to funds. This is
crucial for investors who require quick liquidity for short-term needs or unforeseen expenses.
- Regulatory oversight: Both financial instruments are regulated, with Savings Accounts being
overseen by banking regulators (RBI) and liquid funds by market regulators (SEBI). This ensures a level of
security and standardization in practices.
Also Read: Should you
invest in Liquid Funds or Fixed Deposits?
Conclusion
Both Savings Accounts and liquid funds are crucial financial tools, each serving distinct yet complementary roles in
personal finance management. Understanding their similarities and differences is key to making informed decisions
that align with your financial goals and risk appetite.
Axis Bank offers both these options, catering to a diverse range of financial needs. Savings Accounts offered by Axis Bank are known for their
reliability, attractive interest rates, and ease of access, making them a solid choice for secure, everyday savings.
If you are looking to invest in Liquid Funds, you can seamlessly do so through Axis Bank's Net Banking or mobile
application.
Disclaimer: This article is for information purpose only. The views expressed in this article
are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd.
and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader
for taking any financial decisions based on the contents and information. Please consult your financial advisor
before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme
related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019).
Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other
facility from the Bank. T&C apply.
