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Reader’s question: I am earning Rs 2 lakh per month. After setting aside Rs 40,000 monthly for equity SIPs and Rs 50,000 for other expenses. I still have Rs 1 lakh left to put in a savings account. Can you recommend alternatives to a savings account for my remaining Rs 1 lakh? My idea is to avoid a savings account since the money will be lying idle – Abhishek Sharma
You're already doing the right things: regular SIPs and keeping expenses in check. But letting Rs 1 lakh sit in a savings account every month is a missed opportunity.
Bank savings accounts are a financial staple for good reason. They are safe, regulated and your money is available as and when you need it.
But there's a catch: most savings accounts in India offer negligible interest rates, which barely keep pace with inflation. In other words, your money isn't really working for you; it's just waiting.
The good news is that with a little structure, your Rs 1 lakh can do considerably more. Here's a simple three-layer approach to put it to work.
Layer 1: Keep some cash on hand (10-20 per cent)
Yes, we did just criticise savings accounts, but a small buffer in one still makes sense. Life is unpredictable. Whether it's an urgent payment or an unexpected bill, having instantly accessible cash means you never have to liquidate an investment at the wrong time. Think of this as your financial shock absorber, not an investment.
Layer 2: Liquid funds for the bulk of your money (50-60 per cent)
This is where your money starts earning its keep. Liquid funds, a category of debt mutual funds, invest in short-term instruments like treasury bills and commercial paper. They have a maturity period of 91 days and typically return around 6-7 per cent annually, meaningfully higher than a savings account. More importantly, they are redeemable within 24 hours on business days, so liquidity isn't really sacrificed.
Taxation is another advantage. Unlike bank fixed deposits, where interest is taxed every year, gains from liquid funds are taxed only when you redeem them, giving you greater control over your tax liability.
Layer 3: Short-duration debt funds for the remainder (20-30 per cent)
For money you won't need for six months to a year or even more, short-duration debt funds offer somewhat higher return potential compared to liquid funds, while remaining relatively stable. They invest in bonds and instruments with slightly longer maturities (3-5 years), making them well-suited for a medium-term parking spot.
The bottom line
There’s nothing wrong with parking some money in your bank savings account. However, given that savings accounts typically pay meagre interest, it is best to invest your money in instruments that generate moderate yet steady returns while offering low risk and easy access. And that’s where debt funds, such as liquid funds and short-duration funds, come in handy.
Of course, not all liquid funds or short-duration debt funds are created equal. Choosing the right one requires looking at more than just returns, which is exactly where Value Research Fund Advisor comes in. With personalised recommendations tailored to your risk profile and goals, it takes the guesswork out of selecting debt funds.
This article was originally published on June 03, 2026.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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