Liquid MF investment Vs.Savings Account in a Bank

A tax deduction of Rs. 10,000 is available for interest earned on savings bank account in the current year’s budget. Taking into consideration the fact that the interest rates as high as 7% are being offered by certain banks, keeping a lot of cash in your bank accounts is now no longer considered to be foolish:

	Interest after tax (including deduction)
Investment / Tax Slab	30%		20%		10%
	Liquid Fund	Savings A/c	Liquid Fund	Savings A/c	Liquid Fund	Savings A/c
50,000	3,337.33	3,068.18	3,337.33	3,068.18	3,337.33	3,068.18
1,50,000	10,011.99	9,729.31	10,011.99	9,729.31	10,011.99	9,729.31
3,00,000	20,023.97	17,261.14	20,023.97	18,343.48	20,023.97	19,425.82
3,50,000	23,361.30	19,743.87	23,361.30	21,196.28	23,361.30	22,648.70
5,00,000	33,373.29	27,192.06	33,373.29	29,754.69	33,373.29	32,317.33
8,00,000	53,397.26	42,088.43	53,397.26	46,871.52	53,397.26	51,654.60

Look at some additional points :

1) The average returns of liquid funds over the past 1 year has been close to 9% vis-à-vis 6-7% provided by savings accounts.
2) Dividend Distribution Tax (DDT) on liquid funds is currently at 27.0375% while interest on savings accounts is taxed as per tax slab i.e. 30.9%/20.6%/10.3%.

 Remember Liquid funds give you daily NAV, meaning daily market returns are passed on ; RBI has asked banks to calculate daily rates on SB account balances.

When you you prioritize convenience over extra returns, savings bank accounts should be your choice. In case you are having a hefty balance in savings accounts, you may be offered a premier account with fringe benefits like dedicated relationship manager and other personalized services which you’ll not find in liquid funds.

No ATM withdrawal for Liquid funds and they take some time to process and credit money to your account.

Mind it when the interest rates go down.Party may not continue at that time.

Those who read this also read:
1. Freeing of Savings Bank Rates 
2.Small Savings are not so Small..