A very frequently recommended debt fund as a substitute to bank account is the liquid fund. Liquid funds invest in highly liquid money-market instruments and provide easy liquidity. They invest in securities with a residual maturity of not more than 91 days. Investors can park money in them for a short period of, say, a few days to a few months. Compared to other funds, these funds fluctuate very little. Moreover, liquid funds are taxed like any other debt fund. When profits are realised in less than three years, the same are taxed as per your tax rate, while the profits realized after three years are taxed at 20 per cent with indexation. Investors who come in the 30 per cent tax bracket can opt for a dividend payout if they require cash on a regular basis.
Impact: In general, liquid funds give higher returns compared to bank savings deposits and have a high liquidity, making them a suitable replacement to the savings bank account.
