Effect of Savings Bank Interest Rate Deregulation over Liquid Funds
Recent RBI's
decision of Savings Bank Interest Rate Deregulation may affect money flow and
growth of Liquid Funds.
Earlier for
retail investors, liquid funds were trusted as suitable and superior to savings
bank accounts for parking their surplus cash. But now with the Reserve Bank of
India (RBI)’s decision to deregularize the savings bank account interest rate,
liquid funds have become irrelevant against a guaranteed 6% & above in some
(three) of the bank's saving account as mentioned in previous post of RBI De-regularizing: Savings Bank Interest Rate will increase now.
The major
reasons (advantage) of a savings bank deposit account disqualifying liquid
mutual fund scheme (short-term) is that investors don’t have
hectic job of selecting the right mutual fund scheme, prolonging waiting time for payout (Cashing Mutual Funds) to our banks, returns varying based on market fluctuations and go through the time consuming & tedious paperwork imposed by the mutual fund regulator. After the recent decision of the RBI to deregulate interest rate, bank deposits will fetch them a uniform & higher rate of interest for the depositors than liquid funds which assures maximum of 6% most of the times.
hectic job of selecting the right mutual fund scheme, prolonging waiting time for payout (Cashing Mutual Funds) to our banks, returns varying based on market fluctuations and go through the time consuming & tedious paperwork imposed by the mutual fund regulator. After the recent decision of the RBI to deregulate interest rate, bank deposits will fetch them a uniform & higher rate of interest for the depositors than liquid funds which assures maximum of 6% most of the times.
Though for
corporate investors, Liquid and money market funds allow the source of liquidity
advantage for them to park their surplus cash for the short term purpose. As
their short-term surplus cash is normally lying in a corporate bank (current)
account which fetches them no interest. Liquid funds are ideal source of income
& liquidity for them.
But if a
individual investor is willing to enjoy more tax benefit, tax free dividends
and somewhat better return than saving bank account but less than Fixed
Deposits, then you can preferably select appropriate liquid(cash) mutual fund
which provides higher edge over savings bank account.
It is apparent
that tough competition is awaited in coming period between Savings Bank
Accounts and Liquid Mutual Funds. Let’s start to enjoy fruitful benefit from
both of them.
Happy Investing!
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