What is the difference Liquid funds vs. Savings accounts?

  • Asked By
  • Updated On:
  • Replies:

Short Answer

Based on return liquid funds outperform savings account by anything between, 2-4 % points which is 50-100 % higher return than the savings account. So, purely on the basis of returns investing in liquid funds seems a better option.

Detailed Answer

One of the important questions on financial planning is, Should I move my money from savings account to Liquid funds? Here, we try to answer this question. Before that, lets try to understand why do people keep money in savings account , for me there are 3 reasons:

  1. To ensure liquidity , so that money can be used whenever required.
  1. Get some returns as money in the bank is more secure and gives some basic returns in the pocket.
  1. Financial laziness where you don't worry about what your money does in your account.

So let's look at how much interest rates you earn on savings accounts with different banks , below is the current saving bank interest rates offered by different banks

Saving Bank Interest Rates

Bank Name with Interest Rates offered

  • ICICI Bank 4% p.a.
  • Kotak Mahindra bank 6% p.a
  • SBI 4% p.a.
  • HDFC bank 4% p.a.
  • Axis bank 4% p.a.

If you look at most of the top saving banks give interest rate in the range of 4-6 %

Now let's look at yearly return on top liquid Funds in last one year to get an idea on how they fare as compared to your favorite savings account, below table summarizes the data, please note I have only taken top 5 funds as per Crisil ratings.

Top Liquid funds returns

Fund Name with Annual Returns

  • Indiabulls Liquid Fund 8.20%
  • L&T Liquid Fund 8%
  • Tata liquid Fund 8%
  • Axis Liquid Fund 8%
  • HDFC liquid fund 8%

So simply based on return liquid funds outperform savings account by anything between, 2-4 % points which is 50-100 % higher return than the savings account , so purely on the basis of returns investing in liquid funds is a no brainer.

Now lets look at other big concern liquidity, one of the reason keep money in savings account is on the go liquidity you can withdraw money at any time, through an ATM or from the bank, Liquid funds also provide similar kind of liquidity. Liquid funds can be redeemed at any time with no exit load and the funds hit your account in 24 hours. Some AMC's like Reliance also provide ATM cards powered by HDFC bank, where you can redeem the money.

So all in all Liquid funds have high liquidity and can compete with savings account on that front.

Risk Assessment :- Liquid funds invest in short-term securities mostly with maturity of 91 days , normally interest rates do not change too much in short term, hence interest rate risk is taken care of , so liquid funds do not carry much risk

So, experts advise not to keep more than 1-2 months of your planned expenses in savings account. You can move rest of the money to liquid funds and develop your emergency funds for 5-6 months using liquid funds but based on your risk profile and priorities.

Tagged With: liquid fundssavings accountliquid funds vs savings accountmutual funds
Categories: Mutual Funds
Ask Your Query for FREE, Get quick answers from our FINTRAKK community!
Discussion (0)
Related FAQs
What are Liquid Funds? Meaning & Details

Liquid funds, a type of mutual funds which invest in different money market instruments. The withdrawals from these funds are processed within 24 hours and that's why these are regarded as liquid assets. The fund manager gets flexibility to meet immediate redemption requests.

What is difference between Fixed Deposit vs Mutual Fund? Meaning

Fixed Deposit (FD) are saving tools offered by banks to deposit lump sum amount for a fixed period of time on a higher interest rate than saving accounts. Mutual funds are investment products which pool money from numerous small investors to create a fund.

Which is best 5paisa vs Zerodha stock broker?

You might have read about different stock brokers in India. Here I'll review two of the most popular discount brokers in India: 5Paisa v/s Zerodha Comparison.

What are DP charges in Zerodha? How often are these charges levied on the Zerodha?

DP charges apply if you sell shares from your demat account. This is an income source for depositories (CDSL or NSDL) as well as its Depository participants (Stock brokers). DP charges are applicable only one time per scrip in a single day irrespective of the quantity you actually sell.

Which is better Zerodha or Groww for Mutual Funds?

Zerodha as well as Groww, both allow investors to invest in Mutual funds. Groww does not charge any Account opening fees or Annual maintenance Charges but Zerodha charges Rs 200 for Account opening and Rs 300 for AMC. This makes Groww a cheaper and better option when it comes to investing in mutual funds.

Which is better investing in equity, mutual funds, or keeping money in banks?

Equity and mutual funds are perfect if you want to invest in companies while seeing your money grow in a short period. Moreover, the chances of compounding your investments are higher. But the risk associated is equally greater considering the growth of companies and their performance in offering returns. But then keeping money in the bank is the safest way to keep your earnings. But then, due to inflation and low returns on interest, that value of the money kept might be cut down drastically.

Is Demat account required for Mutual Funds in India?

No, a Demat account is not required to invest in mutual funds in India. Instead, there are a number of other options, such as Asset Management Companies (AMCs) or offline distributors through which you can directly invest in mutual funds without opening a demat account.

Angel Broking vs. Paytm Money - Which is better?

Angel Broking and Paytm Money both these platforms are popular among traders. But if you are a beginner or if you want to switch to a new trading platform and you are considering choosing one of these two, and then you came to the right place.

What is difference Between EPF & PPF?

Whenever we talk about retirement corpus, Employee Provident Fund and Public Provident Fund come to our mind. These schemes are meant for long-term savings and support our after retirement plans. These instruments are known to be secure & steady with guaranteed earnings. You can start with small savings and end up with significant retirement corpus!

Can OCI invest in Indian Mutual Funds?

Yes, Overseas Citizens of India (OCI) can invest in Indian mutual funds. Checkout ways how an OCI can start investing in the Indian mutual fund industry.