3 basic differences between Liquid Funds and Bank Fixed deposits
Investment Amount
While fixed deposits can be opened with amounts as low as Rs.1000/- the minimum threshold for liquid funds is usually Rs. 5000/-.
Also, fixed deposit holders earn a fixed rate of interest during the tenure of the deposit, while the amount of return fluctuates in the case of liquid funds.
Liquidity
Proceeds from a bank fixed deposit can be credited to your bank account on the same day if you have a savings / current account with the same bank. However, a penalty may be levied by the bank in the case of premature withdrawal.
As of today, all liquid Funds can be redeemed without attracting any exit load / penalty. Money is usually credited to the unitholder's bank account before 12:00 Noon on the next working day in case the redemption request is placed before 3:00 PM.
Taxation
Interest earned on all fixed deposits is taxed as per the income-tax slab rate (10, 20 or 30%) of the investor. Tax is deducted at source.
Interest upto Rs. 50000/- per annum is tax-exempt for investors above the age of 60 years.
Income earned from liquid funds is either classified as dividend or Capital Gains.
The section titled
'Other Than Equity Funds' contains details on how Liquid Funds are taxed.
