Money in Savings Account versus Liquid Funds

Why Banks asks Us for maintaining higher balance in Savings Account…Be Smart, Park your idle money in Debt Mutual Funds instead…

Waiting for Markets to correct or parking money in SB for purchasing Iphone in a future date? Not advisable...

Psychologically we feel secured by having a larger amount of money parked in our Savings Accounts. But have you ever worked upon mathematically the cost of parking large amount of money in SB Accounts. Your Bank relationship manager will never tell you this, cause it makes loads of free money for Banks.

Here’s a small illustration of just maintaining 1 lac average monthly balance in a Saving account. SB Accounts generally provides us with a miser simple saving interest rate of 2.5-3% and some banks provides interest rate up to 4%. On the contrary, if the same money is parked in any of the Liquid Debt Mutual Funds, it may easily get us 7-8%.



Illustration shows a difference of 4% SB Interest versus 7% Liquid Funds yield…Surprise to know that we have just lost 75% of our interest money…

Problem is that we don’t apply our minds on percentages and thus forget about 3000 extra earnings because its so small…Now calculate it with the numbers of years we keep on maintaining average balances in Saving Accounts. It might fetch us some money for our extra EMIs or buy us an Iphone…

Parking money in Debt funds is easy and is as liquid as our Savings Accounts & you can invest even for 1 day...Check out

Debt funds are a type of mutual funds that invests in fixed-income securities, such as bonds, debentures, and government securities. Here are some common types of debt funds:

 1. Liquid Funds

- Invest in short-term debt securities with maturity up to 91 days

- Low risk, high liquidity

- Suitable for parking surplus funds for short periods

 2. Overnight Funds

- Invest in overnight securities, such as call money and repo

- Very low risk, high liquidity

- Suitable for managing short-term cash needs

 3. Ultra Short Duration Funds

- Invest in debt securities with maturity between 3-6 months

- Low risk, relatively higher returns than liquid funds

- Suitable for short-term investments

 4. Short Duration Funds

- Invest in debt securities with maturity between 1-3 years

- Moderate risk, relatively higher returns than ultra short duration funds

- Suitable for medium-term investments

 5. Medium Duration Funds

- Invest in debt securities with maturity between 3-4 years

- Moderate risk, relatively higher returns than short duration funds

- Suitable for medium-term investments

 6. Long Duration Funds

- Invest in debt securities with maturity more than 4 years

- Higher risk, potentially higher returns

- Suitable for long-term investments

 7. Dynamic Bond Funds

- Invest in debt securities with varying maturities based on interest rate expectations

- Moderate to high risk, potentially higher returns

- Suitable for investors who want to benefit from interest rate movements

 8. Credit Risk Funds

- Invest in debt securities with lower credit ratings

- Higher risk, potentially higher returns

- Suitable for investors who are willing to take on credit risk

 9. Gilt Funds

- Invest in government securities

- Low risk, suitable for investors who want to invest in government-backed securities

 10. Corporate Bond Funds

- Invest in debt securities issued by corporations

- Moderate risk, relatively higher returns than gilt funds

- Suitable for investors who want to invest in corporate debt

 When choosing a debt fund, consider your investment goals, risk tolerance, and time horizon to select the most suitable option.

Regards

Keyur Gandhi

Chief Executive Officer
Clarion Insurance Broking Services Pvt. Ltd.
M: +91 98254 04014, +91 99308 74014

Email: keyur.gandhi@veritasins.com, keybgandhi@yahoo.co.in

 

 

 

 

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