Don't worry about interest rate cuts if you're looking to invest in liquid funds, as they're not affected by rate cuts
17-Mar-2015 •Research Desk
I have a huge amount lying in my savings account. I sold stocks to buy a home and this was the sum I received. I would like to park the amount in a scheme which gives me more returns than a savings account until I finalize a house. Please advise a suitable product. I am skeptical about liquid funds because of the news that interest rates may be cut anytime now. Is my fear genuine or can I invest in liquid funds say for a month?
You should not worry about rate cuts as you are planning to invest in liquid funds. These funds do not get affected by rate cuts as they mainly invest in securities with a residual maturity of less than 60 days. Liquid funds usually give a return in the range of 8 per cent plus and are suitable for parking your surplus cash. This is far higher than savings bank accounts. However, do note that short term gains in liquid funds are taxed at your slab rate. Even after accounting for taxes, liquid funds currently offer better returns than savings bank accounts.