Got money to invest, but finding it difficult to choose between and the returns offered by liquid mutual funds and the stability of fixed deposits? Well, you are not the only investor. Choosing a side between liquid funds vs fixed deposits fight is indeed tricky. Especially, if you consider the several advantages offered by these investment options.
But, what is liquid fund and fixed deposit?
Liquid funds are one of the types of mutual funds that invest your capital in short-term money market instruments such as government securities, treasury bills, term deposits, call money, commercial papers, Certificate of Deposits (CD), etc. that have a maturity period of up to 91 days. In short, these are mutual funds that invest in debt securities.
Bank fixed deposits or FDs are a popular savings instrument among investors. This investment instrument is offered by several banks and Non-Banking Financial Companies (NBFC) that provide individuals with a higher rate of interest than regular savings account until the maturity period. Let’s understand the differences between liquid funds and fixed deposits.
Liquid mutual funds vs. fixed deposits
| Parameter | Liquid Mutual funds | Fixed deposits |
| Risk | Medium to high risk | Low risk |
| Return | No guaranteed return; subject to market conditions | Fixed pre-specified return |
| Liquidity | High liquidity | Medium to high liquidity |
| Tax treatment | Favourable tax status for long-term investment | As per the tax slab of the investor |
| Withdrawal | Investors can exit with an exit load | Investors can exit after paying a penalty |
There is no standard answer to whether one should go with mutual fund investments of liquid funds or fixed deposits. Whether you invest in mutual funds or not should entirely align with your personal goals and risk appetite. You can also consult a financial expert who can help you to invest in mutual funds online or choose the right investment avenue for you. Happy investing!
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