You have some idle funds in your bank accounts but don’t have the time to invest. If you let it be, you will get only 4% per year on that money. To put things in perspective, Rs 6000 in your savings account will get you only Rs 60 every quarter. But there is a way to get better returns if you put that money in your savings account to work. How? It’s very simple. Let’s tell you all about it.
Decades ago when you put your money in a fixed deposit, you couldn’t get it back easily. That’s not the case now. You can use the auto sweep-in facility to sweep all that excess money in your savings account into a fixed deposit. You can sweep in only those funds that you won’t need. Banks allow you to set limits for the sweep-in.
For instance, if you don’t want more than Rs 10,000 lying in your savings account every month, you can choose that amount as your sweep-in limit. If you have funds of more than Rs 10,000 in your account, those funds will be swept into a fixed deposit every month. You can have the money in your fixed deposit swept right back into your savings account anytime you want. You will, of course, have to pay withdrawal penalty and will earn interest only for the deposit period. But this facility gives you great liquidity and better returns.
When you use a sweep-in and invest Rs 6,000 in a fixed deposit for a year you will get Rs 120 every quarter. Isn’t that much better than having money in your savings account? You could choose the monthly payout option for your deposit if you are planning to hold it for long. If you are the risk-taking kind, there’s another option for you.
Choose mutual funds
Mutual funds are well-regulated financial products and offer better returns than deposits. In fact, a number of people are investing in mutual funds in India. According to the Association of Mutual Funds in India (AMFI), more than Rs 34,800 crore was invested in mutual funds through the Systematic Investment Plan (SIP) route in 2017. There were close to 1.73 crore SIP accounts. You can set up an auto debit instruction in your internet banking account so that you can invest in mutual funds every month without the need to remember it. If you think equity mutual funds are too risky, then you can consider liquid funds.
Liquid funds are debt mutual funds that invest in short-term fixed income securities. These give returns that are slightly higher than fixed deposits. There is no entry load or exit load for investing in liquid funds. So, unlike fixed deposits, you can withdraw anytime without paying any penalties. Besides, the returns from liquid funds are capital gains and you can plan your taxes, unlike FD interest on which there are no exemptions.
The top 5 liquid funds have returned an average of 7.4% in the past year while fixed deposits dropped below 7%. Let’s see what you will earn if you invest in these avenues for a year.
|At the end of a year|
|Investment amount||Savings account||FD||Liquid fund|
|Rs. 1,000||Rs. 1,040||Rs. 1,070||Rs. 1,074|
|Rs. 10,000||Rs. 10,400||Rs. 10,700||Rs. 10,745|
|Rs. 1,00,000||Rs. 1,04,000||Rs. 1,07,100||Rs. 1,07,440|
So, don’t let those funds sit in your savings account. Start investing small amounts every month and see the difference.