In this regime of increasing interest rates, there arises a question in the minds of astute investors: which is better to invest in fixed deposits or liquid funds? Both these investment vehicles are tied up with debt instruments that are usually chosen by investors for short-term investment. You can look at the mutual fund calculator to understand the returns from the liquid fund.
In this blog, we look at the difference between fixed deposits and liquid funds.
Fixed deposits are an investment vehicle given by banks and other financial institutions, with a fixed return. At present, the interest rates on fixed deposits range between 5-7%. You can choose a tenure in which to stay invested and lock the amount in for that time.
Liquid funds are investment vehicles that are invested in bonds, commercial papers, treasury bills, and government securities. A fund manager invests in these funds on behalf of the investor. The maturity period of these liquid funds ranges from 91 days to more than 3 months. Typically, those who wish to park extra money can use these mutual funds. Always use your mutual fund calculator to calculate returns. There is no lock-in period for these funds.
Now, that you know what are the 2 investment vehicles, here are some of the ways in which you can choose the better investment for you.
When it comes to the risk factor, you should know that the returns from the fixed deposit are “fixed” and not subject to any market volatility. Liquid funds are however subject to market volatility. So, if you look at the risk, there is an element of risk with liquid funds.
Fixed deposits have a fixed rate of return which is set by the banks and depends on a variety of economic factors. However, liquid mutual funds aim for higher returns and are not fixed returns. The fund manager’s task is to keep the returns relatively stable.
You can redeem your fixed deposits at any time before maturity, but you will have to pay a 1% penalty amount. Liquid funds can be redeemed at any time. Use a mutual fund calculator to calculate the returns.
After reading the above points, you should understand the importance of both liquid funds and fixed deposits. If you have decided to invest in liquid mutual funds, you can do so through Money Assist, a mutual fund broker. Also, use a mutual fund calculator to understand your returns from the liquid mutual fund.
