In today's era of soaring inflation, everyone wants to save and invest money to secure good future returns. While there are numerous options available, Fixed Deposits (FDs) and liquid funds are particularly popular choices for short-term investments.
In the past, savings accounts used to offer decent returns, but that is no longer the case. Consequently, people are considering options like FDs. Let us explore which option—FDs or liquid funds—might be more beneficial for you.
**How beneficial is investing in an FD?**
Banks often advertise high interest rates, but it is important to note that these attractive rates usually apply to long tenures. If you open an FD for a short period—say, 1 to 3 months—the interest rates offered by major banks can vary significantly.
**Short-term FD rates of major banks:**
**Tenure** | **SBI** | **HDFC Bank** | **ICICI Bank**
--- | --- | --- | ---
7 to 45 days | 3.05% | 3.25% | 2.75%
46 to 90 days | 4.90% | 4.25% | 4.00%
The data clearly shows that major banks are currently offering an average interest rate of only 2.75% to 4.90% on short-term FDs. This means that if you invest ₹1 lakh in an FD for 30 days, you would earn a mere ₹230 to ₹270 in interest. Effectively, this return is negligible.
**How suitable is investing in a liquid fund?**
If you wish to avoid bank FDs, 'liquid funds' can be an excellent alternative. These are a type of debt mutual fund that invests your money in safe, low-risk government and corporate bonds with a maximum maturity period of 91 days. Since liquid funds invest in instruments like Treasury bills (T-bills), government securities, and Certificates of Deposit (CDs), the risk involved is very low. Their primary objective is to safeguard your capital while ensuring immediate liquidity when needed.
Which offers better returns?
In terms of returns, liquid funds appear quite attractive. Data from early June 2026 indicates that liquid funds have delivered average absolute returns of 0.50% over the past month and 1.68% over three months.
If you invest ₹1 lakh in a good liquid fund for one month, you earn approximately ₹500. Investing the same amount for three months yields a return of around ₹1,680, which is significantly better than short-term bank fixed deposits (FDs).
What is the difference between the two?
Taxation-wise, earnings from liquid funds are taxed according to your income tax slab, just like bank FDs. However, a key difference is that with liquid funds, you do not pay tax until you withdraw the money and book a profit; conversely, with bank FDs, tax liability arises annually even without withdrawing the funds.
Withdrawing money from liquid funds within the first six days of investment attracts a nominal exit load. However, this charge is waived after the seventh day. This means you can withdraw your entire investment whenever you wish without any penalty or deduction—an option not available with bank FDs.
Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
