When it comes to the question of avenue of investment, it can be confusing with the number of choices that we have on the market. Investments can determine the quality of life that we are going to lead in the future.
In this regard, many of us might have come across investment options like liquid funds, deposits in the bank etc.
Depositing excess money in the bank has always been a common investment practice. Over the years, fixed deposits have been a favourite choice of Indians.
Liquid funds, even though they have been around for quite some now, you can see it catching on only recently. For beginners, it’s a type of mutual fund where the investments are mostly concentrated on money market instruments like commercial papers, certificate of deposits, treasury bills etc.
Even though both have advantages and disadvantages attributed to them, it is actually difficult to make up your mind and choose one to go ahead with your investment plan.
Liquid Funds vs Fixed Deposits, Which One Should You Go For?
Here’s a look into the features of both these investment options to get a better picture.
Returns
The rate of interest determines the extent of returns to be received by the investor. While liquid assets are known give anywhere between 4 to 8% per annum, fixed deposits offer higher returns with rates ranging from 4% to 9% per annum. Some of the NBFC, offers one of the highest FD rates in India at 8.25%.
So if the primary objective of your investment happens to be making profits, then you can opt for fixed deposits without batting an eyelid.
Tax Liability
The dividends received from liquid funds are tax-free after it reaches the hands of investor, but in any case the mutual fund company is liable to pay 28.325% as dividend distribution tax on the financial instruments before disbursing it to the investors. On the other hand, the returns on fixed deposit will attract tax only if the interest amount exceeds 10000Rs, this again can be avoided through efficient planning.
FD calculator on its portal that lets you do the FD interest calculation. With this, you can get to know the amount receivable on the maturity date and thereby plan your investment portfolio accordingly.
Volatility
The returns in the liquid funds are immensely influenced by the changes in the market. Hence they are more vulnerable than other options. Fixed deposit rates always remain constant and are not known to succumb easily. Choose a banking institution which has ratings like FAAA rating from a renowned institution like CRISIL, which will let you know about how much you can trust the institution with your money.
Saving Habit
As you get your returns within a shorter period of time, the obligation to save doesn’t arise at any point in time in case of liquid funds. With fixed deposits, you have no choice but to keep a substantial amount in a bank or NBFC for a few years at least.
Whatever your choice for investment, the above points would have surely underlined the benefits of fixed deposit over liquid funds. Take into account how you would like to have your investments performed, since you are the best judge of your financial situation, meaning that you know how to invest your money better than anyone else out there.
