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Going Short

Here’s where you should park money that you may soon need

I have some money that I plan to use after a month. Should I invest it in liquid funds instead of bank FD for better returns?

- Rajesh Mendon

If safety of principal is of prime importance to you, stick to bank FD. SBI currently pays interest at 3 per cent per annum on fixed deposits for a 30 day period. Although liquid funds have a tax advantage, their returns have subsided in the past two quarters. Their returns were much higher, more than 7 per cent till the last year, but they are unlikely to return more than 4.50 – 5 per cent per annum under the new norms that require them to invest in instruments with maturity of upto 91 days only.

Liquid funds returned 1.05 per cent and 1.11 per cent in the first two quarters of this calendar year. The difference in returns of the two will be a marginal.

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