What do we do with the surplus of income over expenses i.e our savings. We keep some money for meeting our near term emergencies or commitments like paying our kids’ school fee, a weekend getaway, a family function, etc. and we invest the rest. In this article we will focus on the former viz the money we keep with ourselves. Most people keep this money as hard cash in their homes or deposit the money in their savings bank account. In the financial world, it is practically a sin to keep cash at home, because of two reasons. 1. It is risky, can be lost or stolen and 2. It is not giving any return. Those people who are keeping this money in savings account do offer protection to their money but the return that you get is negligible.
Your money should at least cover the rate of inflation, because Rs. 1 Lac today will not be of as much value a year later. So, if you are looking for safety and similar convenience of withdrawal of your cash but with better returns, then Liquid Funds is your best bet.
What is a Liquid Fund?
A Liquid fund is a category of debt mutual funds, which invests in short term debt securities like certificate of deposits, treasury bills, commercial papers, term deposits, etc. having maturity of up to 91 days.
So if you want to park your extra cash and you need the money soon, say in a week or a month or few months , you don’t have to adjust with the low returns offered by your savings bank account, you can stash the cash in Liquid Funds. You can invest in a liquid fund even for one day.
Savings account balances are huge in case of salaried people whose money keep on accumulating with every salary in their saving accounts.
Let’s take an example of Mr. Ram, who is working in Infosys. Mr Ram gets a salary of Rs 100,000 per month and he is saving Rs 40,000 to Rs. 60,000 a month, which is getting accumulated in his saving account. For simplicity sake, lets assume
At the end of 6 months:
Value of Mr Ram’s money in Savings Account @ 4% interest p.a. = Rs. 303,456
If Mr. Ram moves his savings in a Liquid Fund on the first day of each month
Value of Mr Ram’s money in Liquid Fund @ 8% interest p.a. = Rs. 306,829
Just by moving his money from his saving account to a liquid fund, Mr Ram earns Rs 3,372 extra on the same investment.
Why should you invest in a liquid fund?
Now you can earn extra income by moving your money from your cupboards, savings or current accounts into liquid funds. You get better returns and you can withdraw whenever you need.