Earn interest up to 8.10% p.a. by investing in a Bajaj Finance Fixed Deposit | Rated CRISIL AAA/ STABLE and [ICRA]AAA(stable)

A fixed deposit is one of the oldest and most trusted forms of investment in India. Before shares and mutual funds came into the limelight, the fixed deposit was the go-to option for a lot of investors. Over the years, different types of funds started gaining popularity for their various benefits. One such form of investment is liquid funds. But when it comes to liquid funds vs FD, which is the better option among the two? To answer this, in this article, we will explore details about FD vs liquid funds. However, before we get into the same, let’s first understand what is a liquid fund.

What are Liquid Funds?

Liquid funds are debt funds that invest in short term fixed income instruments. The instruments where a liquid fund invests mature within a tenor of 91 days. These fixed income instruments can be commercial papers, high rated corporate or government bonds, treasury bills, etc. For providing safety in the form of capital preservation, the funds are invested in high-rated market instruments. The main objective of a liquid fund is to provide liquidity and protection to your money. For all these reasons, liquid funds are considered to be safer than other classes of mutual funds. Now, your next question would be, “Is liquid fund better than FD?”. In that case, let’s see if you should invest in liquid funds.

Who Should Invest in Liquid Funds?

As compared to other mutual funds, liquid funds are safer. If you have a low to medium risk appetite and want to invest any surplus or idle amount, you can go for liquid funds. Liquid funds are considered a better option than keeping your money in a normal savings account as you get better returns. If you receive any incentive, bonus or any other gains, you can consider investing them in liquid funds. In terms of liquid fund returns vs FD, a liquid fund usually offers better returns than a fixed deposit. So,to answer your query “Are liquid funds better than FD?”, let’s first understand a fixed deposit.

What are Fixed Deposits?

In a fixed deposit, you deposit a lump sum amount at a predetermined rate of interest and for a fixed tenor. You get the interest income along with the invested amount at the time of maturity. Almost all banks and several NBFCs provide the facility of starting a fixed deposit. The interest rates offered for FDs are higher than that of a normal savings account. You can choose to receive this interest income either on maturity or on periodic intervals like monthly, quarterly, half-yearly or annually.

Who Should Invest in a Fixed Deposit?

A fixed deposit is an ideal investment option if you have zero to low-risk tolerance. As a fixed deposit is offered by a bank, it will be under the purview of the Reserve Bank of India. If you want to invest in an FD by NBFCs, you should check the credibility ratings by CRISIL and ICRA to ensure it is a safe option. If you are looking for long term investment, assured returns and a low-risk option, you should go for a fixed deposit.

Fixed Deposit Vs Liquid Funds

When deciding which is better, FD or liquid fund, a comparison between the two is a must. Here is a detailed look at liquid funds vs FD.

Liquid Funds Vs FD

Aspect

Liquid Funds

FD

Scale of Returns

Higher

Lower

Premature withdrawal

With low penalties

With higher penalties

Minimum investment Value

Lower

Higher

Suitability

For both short-term and long-term investors

For both short-term and long-term investors

Risk Factor Involved

Medium

Low

Tax on liquid funds vs fixed deposits

If liquid funds are held for more than 3 years, returns are taxed at 20%

For three years or less, they are taxed as per the applicable slab rate

Interest income is added to annual income. It is then taxed according to applicable income tax slab rate

TDS of 10% is applicable

Tax saving FD offers deductions up to ₹1.5 lakh

When it comes to liquid funds and fixed deposits, fixed deposit is a safer choice even though liquid funds have the opportunity for better returns. You can also invest in Bajaj Finance Fixed Deposit on Bajaj Markets for one of the best interest rates in the market. It is advised that you choose the best-suited option based on your financial goals and risk appetite.  

FAQs

  • ✔️Can I lose money in liquid funds?

    Liquid funds are considered one of the safest mutual funds. They invest in good companies for a short duration thus reducing the risk factor. If you stay invested, the risk of losing money is almost zero.

  • ✔️How does a liquid fund work?

    A liquid fund is a debt fund that invests your amount in fixed income instruments for a short duration. These instruments are treasury bills, commercial papers, high-rated corporate and government bonds, etc.

  • ✔️When does a liquid fund mature?

    Liquid funds have a maturity of up to 91 days.

  • ✔️Can I keep ₹50 lakh in FD?

    Yes, you can keep ₹50 lakh in an FD as there is generally no upper limit on the deposit amount.

  • ✔️Can I add money to the fixed deposit?

    No, you cannot add money to an ongoing fixed deposit. You will have to start a new fixed deposit investment.