Demonetisation has forced people to park their expired currency and excess cash in their bank accounts. Now banks have huge cash deposits due to this demonetization drive and probably struggling with the excess cash flow and few avenues to deploy the same.
With limited credit offtake, presently there are very few opportunities for banks to deploy these surplus funds. Banks have opted for government bonds to invest this surplus cash which led to spike in the government bond prices. As you know, presently your savings bank account offers about 3.5% to 4% interest, while FDs offer about 6 – 6.5% interest rate. Banks offer this depositors money to borrowers under various loan products such as home loan (9% – 10%), personal loan (12% – 15%) at higher interest rates to earn income from the same.
In November month, banks have received huge cash deposits and since they do not have that much of borrowers at present due to lower credit offtake, banks are forced to lower their deposit rates to maintain the loan to deposit ratio profitable.
Bank FD rates and Savings account rates are down to multi-year lows and expected to fall further. Your ideal cash in the bank account is earning just about 3.5% – 4% returns. The solution to this is Cash Equivalent funds, which are also called Liquid Funds. These funds invest in short-term money market instruments similar to bank FD portfolio investments. Liquid funds endeavour to generate about 50bps to 100bps (0.5% to 1%) higher returns compared to bank FDs.
Why park your money into Liquid Funds?
- Offers 0.5% to 1% higher returns compared to bank FDs
- Average returns by top 10 Liquid funds were 7.8% for one years period
- High Liquidity as you can sell your liquid fund anytime
- Get your money back after redemption within 2 working days
- Carry lowest risk within debt mutual funds category to generally keep your capital safe
|
Top Rated Liquid Funds Performance |
Returns (Annualized %) |
|||||
|
Scheme |
Week |
Month |
3 Months |
Year |
Since Inception (SI) |
Benchmark S.I. |
|
Reliance Liquid-Treasury Plan (Growth) |
6.0 |
6.7 |
6.8 |
7.8 |
11.0 |
7.7 |
|
SBI Premier Liquid Fund (Growth) |
5.9 |
6.4 |
6.7 |
7.7 |
9.8 |
8.1 |
|
Kotak Liquid Fund (Growth) |
5.9 |
6.7 |
6.8 |
7.7 |
9.4 |
7.6 |
|
Indiabulls Liquid Fund (Growth) |
6.1 |
6.7 |
7.0 |
7.9 |
8.9 |
7.1 |
|
Tata Liquid Fund - Plan A (Growth) |
5.7 |
6.5 |
6.7 |
7.7 |
8.3 |
7.6 |
|
Axis Liquid Fund (Growth) |
5.9 |
6.6 |
6.8 |
7.7 |
8.2 |
8.5 |
|
DHFL Pramerica Insta Cash Plus (Growth) |
6.0 |
6.6 |
6.8 |
7.8 |
8.1 |
7.7 |
|
ICICI Prudential Liquid Plan (Growth) |
5.9 |
6.8 |
6.9 |
7.8 |
8.0 |
7.2 |
|
DSPBR Liquidity Fund (Growth) |
5.9 |
6.6 |
6.8 |
7.7 |
7.7 |
6.8 |
|
Birla SL Cash Plus (Growth) |
5.9 |
6.6 |
6.8 |
7.8 |
7.7 |
6.8 |
Hope now you now know that there is an investment avenue in the form of liquid funds, which can yield you better returns. Let your money earn higher returns than your bank savings account or FD by investing into Liquid funds. Get your ideal portfolio based on your investment objective, risk profile and investment duration by visiting www.5nance.com.
Happy Investing!
