A savings account is just what the name suggests, and is not an investment account!!!
March 23, 2018
You should leave as much in your savings account as you are comfortable with. This amount will depend on many things like daily cash requirements and your own cash flows. Typically, for an individual’s savings account, the balance is usually just slightly higher than the monthly salary credit. Very often, individuals also transfer further money into their primary savings accounts, since that account is usually linked to their monthly recurring expenses and/or investments. Savings accounts offer liquidity and also a reasonable interest rate to the customers. Therefore, many customers park as much money as they can in their savings accounts; from which they meet their regular expenses and investments, and which also serve as their emergency buffer fund.
One should keep 1 month’s expenses in the savings bank account and 3-6 months’ regular expenses in a liquid mutual fund. You can also add the known immediate expenses to this figure. Earnings would be by way of dividends; and even after dividend distribution tax, post-tax returns are better than from a savings bank. The liquid funds can be exited overnight, with no exit loads.
Investors find that there are often comparisons between usage of a savings bank account and a mutual fund liquid account because both are treated as a route where investors can keep their money for a short period of time and use it as per their need.
Mutual fund investing: contribution to economy
Development of financial sector:
Development of financial sector enhances the four pillars of the financial system: efficiency, stability, transparency, and inclusion. Mutual fund investing plays an important role in this development. They pool the resources from the small investors together, thus increasing participation in the financial markets. Next, mutual funds provide services to small investors to make informed decisions. Such detailed services and analysis help lighten the risk factor for these small investors. Thus, it helps investors to reinvest in mutual funds.
Mutual funds allow investors to pool in their money for a diversified selection of securities, managed by a professional fund manager. It offers an array of innovative products like fund of funds, exchange-traded funds, Fixed Maturity Plans, Sectoral Funds and many more.
On an average over the last one year, the best of the liquid fund has provided returns in the range of 8-8.5%, on an annualised basis. This is notably higher than 4-6% which is offered by a savings bank account. For someone who wants to maintain a steady flow of cash, one can opt for dividends which will be credited on a daily, weekly or monthly basis.
Expert Managers:
Backed by a dedicated research team, investors are provided with the services of an experienced fund manager who handles the financial decisions based on the performance and prospects available in the market to achieve the objectives of the liquid fund scheme.
Diversification:
Going by the adage, ‘Do not put all your eggs in one basket’, liquid funds help mitigate risks to a large extent by distributing your investment across a diverse range of assets. Liquid funds offer a great investment opportunity to investors who have a limited investment capital.
Higher Return Potential:
Based on medium or long-term investment, liquid funds have the potential to generate a higher return, in comparison to savings account.
Safety &Transparency:
Fund managers provide regular information about the current value of the investment, along with their strategy and outlook, to give a clear picture of how your investments are doing.
Moreover, since every mutual fund is regulated by SEBI, you can be assured that your investments are managed in a disciplined and regulated manner and are in safe hands.
Every form of investment involves risk. However, skillful management, selection of fundamentally sound securities and diversification can help reduce the risk, while increasing the chances of higher returns over time.
Ease of operation:
In terms of ease of operation the advent of technology has changed things. For a liquid fund there is no need to go to the bank to get cash on redemption. The amount comes back to the investor pretty quickly. Redemption or purchase of a liquid fund, is all online. Redemption upto 2 lacs can be done even on Sundays.
CONCLUSION:
Mutual fund investing has certainly played a great role in shaping the economy. Fund houses have to strive for more innovative schemes and a better approach to attract investors. Mutual Fund investing has the ability to satisfy a diverse range of investors with the help of various risk-return preferences. If a focused and a targeted approach is adopted by government and market regulators, the Mutual Fund industry has the potential to be an integral part of our developing economy.
