In what way are liquid funds are superior to bank fixed deposits?
Ranjesh Chander, Delhi
Liquid funds score on two counts in comparison to bank fixed deposits—tax efficiency and the long lock-in that bank deposits may have. For instance, in a liquid fund, the liquidity factor is high owing to the lock-in period, which is as low as a day, against the long tenure in FDs. After an individual has kept his money in a liquid fund for more than a day, he can exit from that fund without being penalised, unlike the banks that penalise individuals who wish to exit before the FD matures. The post-tax return in a liquid fund is far better when compared to a bank fixed deposit. So, if you sell your funds before three years (36 months), you will have to pay short-term capital gains tax. Short-term capital gains are added to your income and taxed as per the income tax slab applicable to you. If funds are held for more than three years, your gains will qualify for long-term capital gains tax of 20 per cent with indexation benefit on your original investment.
