Returns from Liquid funds


I have invested in one of the liquid funds. After analysing my return for last 6 months I found that it is less than my bank fd rates. Is it better to shift my investments from liquid fund to FD. I have parked that money for emergency purpose.

Yes, If you are not going to pledge liquid funds for trading, then Yes.

Liquid fund rates have drastically reduced in the last 2 years. For now, it is better to park you emergency corpus in an FD. Also liquid funds are mostly used to park temporary cash. Your emergency corpus must be safe and accessible at all times. So don’t think about returns for that amount.

But in FD there can be penalty if one breaks before right? Also if it is for emergency fund maybe we should not see for returns unless there is large difference, anyhow this is just my opinion. Can vary with every individual.


Not all banks have this clause. Some allow partial withdrawal from FD without penalty. You have to look for it. In certain banks, the savings account itself is giving 6% returns. Without doing anything you are getting 6%. In these times. 100% liquidity, Zero charges. And on top of it you can get tax exemption up to Rs 10,000 under section 80 TTA.

There has to be a minimum threshold. If the one year liquid funds returns are less than even 3.5% that a normal savings bank account is giving then keeping money in liquid funds is a loss. Given that the total amount is not more than 5L that is the limit of DICGC insurance of a bank account. Yes, one can open multiple banks accounts, if need be.

In short, how much is the fund amount, for how long to be parked, safety and minimum returns to meet if parked elsewhere, liquidity etc are to be taken into consideration.

In current times, given the market scenario, my benchmark for a liquid fund is to meet minimum 4% annual return else it is of no use. I am not expecting more that increases risk factor too. But a 4% has to be met else it is a loss and I can park elsewhere.


Liquid Funds are not for returns, its just a simple tool for parking cash. Using them for your Emergency Fund is a brilliant thing. Yes the returns may be on par or less than FD or CASA account but it takes away the urge to liquidate into cash when a non-emergency situation occurs due to various other factors (Family or Extended Family requests) It’s a mental hack really. In this day and age where the RBI interest rates are plummeting, an entity paying north of 6% on FD is always a red flag to me, irrespective of how good their health on paper is.


But with sensible thinking, you can’t discard returns for the sake of safety.

Why not dig a well and keep the money in pots like how treasures were hidden back in old times. If you read my words paying attention, I have clearly mentioned the factors - how much you want to park, for how long, safety, liquidity, along with a returns of 4% has to be considered.

FYI, I have parked my money in Post Office Savings Account, which is 100% safe. 100% Liquid, I can withdraw in the middle of the night even on a holiday and weekends (Unlike a liquid fund where I have to wait T+1). 100% Sovereign Guarantee by Govt of India as Post Office doesn’t come under RBI but directly under the ministry of finance and commerce. And there is no upper limit. I can park 100 cr as well which is equally safe giving me 4% returns. Unlike bank account where upto 5 Lakh is only safe under DICGC insurance.

That’s why my benchmark is 4% return from a liquid fund. If it has delivered 4% returns in the last 1 year, I would consider it. Else not.

Thinking sensibly, do you think I am expecting too much by asking 4% from a liquid fund?


How is it possible if the post office itself is closed?

Simple. Open an IPPB account and link your Post Office Savings Account. You can transfer money in and out on the IPPB App anytime.


You have completely missed the boat along with temper. Discussion here is for the Emergency Fund in a Liquid Fund not to find the safest of all instruments. Instant liquidity is detrimental, although it is an ‘emergency’ fund. T+1 plays a mental trick for someone wanting to liquidate for reasons other than an emergency, and in an actual emergency in the middle of the night most will be swiping their credit card anyway for instant liquidity and payoff later using the emergency fund when things are settled. I will take the 0.5-1% lesser returns as the opportunity cost for not liquidating immediately. Cheers

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Do post office have chequebook, rtgs , neft
Facility ?

No bro. You have misunderstood me. About my temper, that my usual tone, if you read me often, you’d know. :pray: Secondly, regarding the user behavior of not able to liquidate instantly, so it depends from person to person. For e.g. I pay everything with my credit card and pay just 2 days before the due date so I never pay late fees and instead earn reward points. So my credit card pays me back instead. It’s all about discipline. But I would agree with one thing that nothing is written on stone. And planning depends from person to person, as each one of us is unique. I’m sure you’d agree with me on this.

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Cheque book. Yes.
ATM: Yes
Post Office Savings Account (DOP) - NEFT/ RTGS: No.
Indian Post Payments Bank (IPPB) - NEFT/ RTGS: Yes.

You can transfer funds from DOP to IPPB and vice-versa. From IPPB you can transfer it to your any other bank account using UPI, NEFT and RTGS. So IPPB acts as a bridge between DOP a/c and your any other bank a/c. Got it?


Then ;; Why don’t brokers allow payin and payout facility , deposit withdrawal facility in trading and demat accounts. With the post office account or post payment bank account ?

Like I mentioned POSA (Post Office Savings Account) doesn’t come under RBI. It is regulated by ministry of finance and commerce directly. And IPPB is a Payments bank, so may be there is some compliance requirement for brokers. Banks are of different kinds - Commercial banks, Scheduled Commercial banks, Small Finance Banks, Payment Banks, Co-operative banks. etc. I don’t know in much detail.


@RLM last but not the least, with IPPB a/c you get home delivery of cash withdrawal/ deposit of cash in your IPPB a/c. Say, you want to withdraw money from your SBI a/c, instead of going to an ATM, you transfer it to IPPB a/c and call customer care to raise a request for cash withdrawal at your home. The postman would come to your doorstep in 2 working days and after fingerprint authentication, he would give you cash. Similarly, in case you want to deposit some cash to you SBI a/c you can call IPPB customer care and request cash deposit collection at the doorstep. Again postman would come to your house to collect cash and deposit it in your IPPB a/c instantly. Now, you can transfer from IPPB a/c to your SBI using UPI or NEFT. The best part is the IPPB a/c doorstep service is free since the time covid started to encourage people to stay at home. It’s a great hack in such times.


But whether it covers all areas?

An interesting thread on Reddit which mentions how Liquid Funds AUM is shrinking while TER is on a rise.

Where did that money from Liquid funds go to?

  1. Equity funds following the rally last year
  2. Fixed deposits, maybe since liquid funds fare poorly compared to bank FDs in the last year.
  3. Savings accounts with higher interest rate like IDFC and Small Finance Banks where interest rate is little higher.

What more?

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Indusind bank gives 5% on saving balance (on the balance above ₹1 lakh)
Equitas Small Finance Bank ,Bandhan Bank also gives 6% on SB balance above 1 lakh.
There are many players who offer 5.5 to 6% for 91D Fd like Karnataka/DCB/Equitas etc