Which is better – liquid fund or a savings account?

Savings account have been people’s favourite when it comes to accumulating funds for decades. Banks, however, now-a-days offer several other options for investments.

People often find it difficult to choose between liquid funds and savings account in terms of accumulating their funds.

Let us try to understand what are liquid funds

The liquid fund is a type of Debt Mutual fund. It invests in instruments like treasury bills, certificate of deposits, commercial papers, government securities, inter-bank call money and term deposits. The maturity tenure of Liquid Funds is less than a quarter.

It provides safety and liquidity at the same time with moderate returns, as reported by IIFL. The IIFL report elaborates that the risk attached is comparatively lower as the fund manager deals in high credit rating securities within the portfolio. These come in various options like weekly, monthly, quarterly etc.

Liquid funds vs Savings account

The interest rates of liquid funds vary on daily basis according to the market but it is higher than that those offered by others.

On the other hand, the interest rates of the savings account are lower and it generally remain constant until maturity.

The Net Asset Value is also variable for liquid funds and fluctuates as per market. The risk attached to this is moderate to high.

In the case of savings account, the Net Asset value remains constant until maturity. Although there is no risk attached to savings account, the returns are lower. Besides, there is no lock-in period for liquid funds and the average return ranges from 8-8.5 per cent.

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