Differences to remember while investing in fixed deposits and Liquid funds 1

Differences to remember while investing in fixed deposits and Liquid funds

  • February 2, 2025
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Investments in any business do not guarantee you profit. Rather, it can prove wrong, and you may lose your money. You cannot be sure that a particular company may give you gain at the very beginning. Incurring loss may also prove fatal to the person who has invested the money he has saved his entire lifetime. To keep your cash with fixed deposits, investing securely and getting better gains is better. As the level of risk involved is low, you can be fearless about your investment.

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It would help to keep these things in mind while investing in FD.

  1. You cannot withdraw your money before the maturity of your FD.
  2. If you opt to withdraw your money before the maturity period, you may be fined by the bank.
  3. Banks may provide you with a loan, but the interest rate may be higher than the interest rate on the FD.

There is another way you can invest safely without worrying about maturity tenure. You can invest in liquid funds for a better return.

What is the liquid fund?

Liquid funds are mutual fund investments where you can invest your money in debt instruments like FDs, treasury bills, and commercial papers. These debt instruments have lower maturity tenure so that a debt manager can sell them easily and immediately.

Features of Liquid funds

  • The liquid funds have low lock-in periods, so you can easily sell your funds and get cash instantly.
  • You can redeem your funds in 1 working day.
  • You get the money by evening if you sell them before 2 pm. But if you sell them after 2 pm, you will get the money the next morning.
  • You are not charged entry and exit charges.
  • The interest rate is higher than the FD’s. The interest rate ranges from 4 percent to 8 percent per annum.
  • You can invest in direct plans with low charges and higher returns.

Which one is better Fixed Deposits or Liquid Funds?

Tax charges:

Mutual fund companies pay 28.325 percent tax on dividends before giving them to investors. So the money that the investors get is tax-free. If you have invested in growth plans and plan to sell them before one year and have any tax returns to your income, you will have to pay income tax.

Returns:

The liquid funds have a shorter period of securities, and 4 percent to 8 percent returns are offered to the investor. While the bank offers 4 percent to 9 percent interest based on the fixed deposit tenure, you will get a low-interest rate if you have applied for the lower term of fixed deposit. To understand the benefits of FD, you need to know the returns they provide.

For instance:

So if you plan to invest for a period shorter than six months, liquid funds might prove beneficial as they provide a higher interest rate. Still, if you plan for more than six months, the interest rate will be similar to 6 months, but the banks may increase interest rates due to longer tenure.