Fixed Deposits vs Liquid Funds -Part II

14 June 2016 | 901 Views | By Mint2Save

We have had a thorough 5 point information article comparing Fixed Deposits with Liquid Funds. Let’s continue the quest and understand more differences between these two investment vehicles.

1. Redemption: For liquid funds, redemption can be done any time. You get your invested funds back into your bank account on the next day, when file in your redemption application before 2pm (in usual cases). When it is late in the afternoon, you get by next to next working day.

Coming to Fixed Deposits, the redemption is automatic when your fixed deposit matures. You don’t need to rush to the bank or sign any papers when you FD gets mature, the amount is automatically credited to your savings bank account.

In the case when you want an early redemption of a fixed deposits, a simple application and the swiftness of your bank does your task in hardly an hour.

2. Receipt: The Receipt for a Fixed Deposit consists of account number, the holder of the fixed deposit, interest rate, original value and maturity value. On the back side, there are general conditions regarding the fixed deposits along with details about renewal. The paper on which FD is printed in bank exclusive and might have a 3 D image or a hologram sticker of the bank.

On the other hand, liquid mutual funds are emailed over a simple piece of paper with the name, communication address, folio number, PAN Card number, phone number, email address and other details of the investor. The investment details are emailed and sent over postal mail to the registered communication address. The details are printed on a simple white paper and there are no holograms as such

3. Loan/OD over FD or Liquid Fund: This is a crucial factor where the fixed deposits are preferred over liquid funds.

Overdraft or loans over fixed deposits are usually offered at 1-1.5% over the rate at which Fixed deposit has been made. In case of multiple ones, average rate of the fixed deposits is taken and 1% over that is given. These loans or overdraft can be upto 95% of the maturity value of the fixed deposits. However, overdraft or loan can be taken only from the bank from which fixed deposit has been made.

If you want to take loan over your liquid fund receipt, it would be a tough task. The current value of the liquid fund would be taken, an appropriate margin of 20-30% would be applied and interest rate of around 13-14% would be charged over the loan.

4. Interest Application: As we know that there is no maturity (except Fixed Income Plans), the interest is charged on daily basis. This means that if you have internet to see the progress of your LF, you can check out the increasing value on your systems as the interest is charged on a daily basis.

In case of a fixed deposit, usually you cannot see interest charged on daily basis as the interest is charged on a quarterly basis.

This two part article defining differences between FD and LF takes up on the major concerns that demarcate these two. They also tell us about differences between mindsets of the Indian investor that varies with age. Middle and old aged do prefer to keep their money in Fixed Deposits, while Liquid Funds attract the young and high risk appetite investor. Both these instruments have their own positive and negative aspects and brushing through this two part piece, would help you decide quick.