Where Will You Park Your Idle Cash ? ?

Where Will You Park Your Idle Cash ? ?

Have you ever thought of an option where your money lying absolutely idle in your current account with 0 % interest or your savings a/c with 4-6 % interest could fetch you a return of anything between 7.00 % - 9% with liquidity absolutely your beck & call ?

Well, the answer lies in investing in Liquid / Liquid Plus Funds.

Let’s first define what are we talking about? Liquid funds come in the category of Debt Mutual Funds and as the name suggests invest in short term paper, typically of less than one year term like short term commercial papers, certificates of deposit and floating rate bonds.

There is a very low credit risk attached to these instruments. They are open ended schemes i.e. the entry & exit into these funds is always at the call of the investor and that too without paying any additional load (expense).  Liquid funds /Ultra Short Term fund therefore are considered to be safest due to the low credit risk and the feature of high liquidity.

But which should you choose—a liquid fund or an ultra ST fund (Earlier Liquid Plus Fund)?

While liquid funds invest in securities with residual maturity up to 90 days, ultra ST funds can invest in securities with maturity higher than 90 days. At present, the average maturities for liquid funds are around 45-60 days; for ultra ST funds, they are about 150 days or lower.

Corporates or individuals can easily identify the excess and unutilized amounts lying in their respective current or savings accounts at a given point of time and can consider certain exposure to Liquid funds for better returns.

Now, the big question: Why do you keep liquid cash?

The answer is simple – “At least in the case of most of people., we must set aside some money for any emergency like loss of job, sudden Death in family, Medical Emergency and so on.

Evey Individual Should Keep at least 3 to 6 times of their Monthly Net outflow  as Contingency Fund   Either by parking in Cash , Saving /current  Bank A/c or through Mutual Fund Liquid Fund

Better post-tax returns make liquid funds attractive despite savings rate deregulation:

The interest on savings bank account is, however, added to an individual's income ( If Saving  Bank  Interest Earned over and Above Rs 10,000, (Bank Interest up to  Rs 10,000/- is Tax Free as per Finance Bill 2012-13)  and taxed at the rate applicable to the individual. This means if you are in the higher tax bracket, you will pay a tax of 30.9% on your interest from savings bank account.

"The favorable tax treatment means the post-tax returns on liquid and liquid plus funds are likely to be higher than the interest earned on savings bank account,"

 Create Your 

"Emergency Fund "  Today..!! 

Contact Your Financial Planner For Setting up Your Emergency Fund.

Mehul Bheda ( B.Com, RFC, CFP)

(M) +91 9819592326