Which Funds do I Invest in ? Liquid Funds OR Debt Funds.! for getting money auto-creidted on particualr dates?

POSTED BY Vaibhav Kini ON April 15, 2012 5:53 pm COMMENTS (10)

Which Funds do I Invest in ? Liquid Funds OR Debt Funds.! for getting money auto-creidted on particualr dates?

Hello Forum,

I just found about this wonderful forum while researching on the Liquid Funds, however I have not answers to my satisfaction, so would appreciate if someone could throw in some light on the same..

I have build a strategy of my own to raise money every month by making small TERM DEPOSITS / FIXED DEPOSITS which mature every month though they might have the same OPENING DATE and the MATURITY DATE differs by a month for each FD..

Now, the rate of interest for these various FD’s differs depending on the duration..

Someone just mentioned that LIQUID FUNDS are preffered over FDS, so I would ike to know how I can do that?

My perinent question is that :
1. Can I Invest in these Funds online from my banking online account for the same bank/ different bank Liquid Fund? Ex: SBI Savings account website and Investing in the HDFC/AXIS or even SBI Fund?

2. If Yes for the above then does it happen the same day as analogous to opening an electronic FD in HDFC and ICICI? and also does it have a facility of Auto-Credit..

3. The Nationalised Banks still have the Paper FDS where you request them at the counter and you need to personally visit the bank and handover on maturity?
Can I avoid that and still get the same or better returns through a LIQUID FUND?

My Idea is to have 12 X FDs for Rs 7000 and the Maturiy of the First FD is going to be 6 months and then the second FD 7 months and so on so forth and the last FD would be 18 months..

Naturally all the FDs wont have the same interest rate the longer the duration the better the rate however in all of these above I have to still visit the nationalised bank..

So how do I get to make more money as well as make sure that I get the Rs 7000/- Principal and Interest in my account by the particular date?

Warm Regards
Vaibhav Kini

10 replies on this article “Which Funds do I Invest in ? Liquid Funds OR Debt Funds.! for getting money auto-creidted on particualr dates?”

  1. Vaibhav Kini says:

    Dear Ashal,

    I am looking for a Ball-park Int Rate figure which can help me compare, best would be to understand the way of calculation?

    Please also answer regarding the ease with which I can manage the LF or Debt Funds once I am with / without a DEMAT account for the same bank lF/DF or different bank LF/DF

  2. Vaibhav Kini says:

    But More than keeping things simple I want to know about various untapped resources such as these, can you please provide an example in an excel file if possible as to how the Int is calculated for a LF?

    I know that the Mutaul Funds work on NAVs so how come a Liquid Fund has an Interest Rate?…Like when I go in for a FD I check the Int Rate Table for different durations but I did not find anything similar for a Liquid Fund as its mostly ambigious…

    Apart from the major benefit of Liquidity, I want to know whether the Returns for a 6 month LF would be less than 9 month LF not just in terms of duration but also in terms of the Int Rate?

  3. Vaibhav Kini says:

    I just tried opening a eFD thru SBI, however it mentions that the duration needs to be more than 180 days..

    SBI being such a great nationalised bank it allows FD’s of smaller proportions compared to the HDFC’s and ICICi’s but alas they disallow the FD for smaller duration..

    While researching on this , I just found that this is called Treasury Management..

    Can someone also please explain the difference between Liquid and Debt Funds in short and is this is the right time to invest in Debt Funds when the Interest Rates are up as I had heard that its inversely proportional to the Bank Interest Rate

    1. BanyanFA says:

      Interest rates are not associated with Liquid Funds. They are NAV based. But the growth / return on Liquid funds @ 8.5 – 9% may be loosely called as interest rate return. But technically they are not interest generating funds.

      For 6 months duration, Liquid funds may generate more returns.
      For 1 year duration, you may consider debt funds which would provide more returns if the interest rates start easing off ! One of the best debt funds coming into my mind is BSL Dynamic Bond Fund. However, within 1 year duration, there may be a lot of volatility in the debt fund’s return considering the day to day inflation / RBI’s monetary policy stance scenarios.

      Another product which you can look out for is FMPs for exact same duration which matches your cash flow requirements.


  4. Vaibhav Kini says:

    Thanks Banyan & Ashal,

    I need to have a corpus on Rs 7000/- and above in my account at any date – 10th of each month..Now if i were to keep a huge amount like a 1 Lac or so I would just get savings interest @ 4pa..So what I do I pre-emptively start almost 6 months in advance for this 1 debit of Rs 7000..Hope that answers ..the reason for Multiple FD’s , No i am quite happy with this procedure that I follow..

    Though I use the SBI online extensively I have never tried to open FD’s electronically as when I had confirmed with the staff they mentioned that you would need to get the print-out on Maturity which according to me would defeat the entire purpose of going e-way..

    Nevertheless, I am very happy to learn from you that its very much possible and also that the FD can be Auto-Credited to the savings Account..

    Just to ask one more thing, is it possible to open the FD from one account and transfer the Maturity proceeds to another where I am the secondary account holder.
    As in the paper format I can simply transfer it to my mom’s account without any hiccups?

    Now that I have explained my strategy, I would like to know first of all the calculation procedure for the liquid funds..as I am aware of the FD Mat Amount..as my investments are spread over 1year 6 months in the FD procedure ..i.e first FD – 6months and the last FD for 18 months..

    How do I make a comparison, considering that I am in 10% Income Tax Bracket..?
    Are there are any fixed interest rates in LFs? and how Do I make it easier faster through SBI online and my KYC is done? for SBI as well as NON_SBI LF’s I dont have a SBI DEMAT account , would having one make it easier..

    Thanks in advance..

    1. Dear Vaibhav, for the situation that you are in 10% Tax slab & considering the ease of operation. I w’d ask you to keep the things as it is.

      In case of SBI netbanking, as & when you are redeeming your online FDs, first the amount ‘ll be credited from where the FDs were made originally. Once the amount is there, you may transfer it to any bank account be it in SBI or any other.



  5. Dear Vaibhav, First of all please break your myth. Now a days many PSU banks are offering online FDs (in fact most PSU banks). Check the below list –

    SBI & associates
    Union Bank of India

    Should I add more?

    From the above list, I do have personal accounts with netbanking facility in SBI & IOB & in many ways both are very good banks for netbanking purpose.

    Regarding the investments in liquid funds – my dear friend, the onus of redemption lies on you. You w’d have to intimate for the redemption of your money. If you opt for Dividend option, the money announced as dividend ‘ll be credited to your bank account.



    1. BanyanFA says:

      Hi Vaibhav,
      Thanks for quoting the link from my blog. However, before I could even respond, I was not sure what objective do you have in mind to have multiple FDs with different maturity horizon ? I don’t intend to question your objective, but may be there is a better way to reach your objective.

      With regards to your technical questions regards Liquid funds, my take is as follows :
      1. Yes, you can invest into these funds online, but not from your bank account. You would have to register with each of the mutual funds for online access and then it would be a smooth process. Just a caveat, some Mutual fund houses, specifically HDFC MF would allow investing into their Liquid fund only via online banking of HDFC Bank because of same day / next day payment involved. Others like Reliance AMC have got no such requirements.

      2. All AMCs now have electronic credit facility. Initially you have to do first transaction via paper form and there you need to express your desire to receive payments via electronic credit. Any future transactions can be as mentioned in point 1 above and the payments would be automatically credited in your bank account. I can assure you that this is a very smooth process. We have over 20 happy clients who can vouch that this is working smoothly for them.

      3. I don’t think what you mentioned is true these days. For example, SBI can automatically credit the funds into your account at maturity. You can go to their website to book FDs (no paper involved). Even you don’t need to visit the branch to collect the FD certificate.

      Banyan Financial Advisors

  6. Vaibhav Kini says:

    Just found a good link worth attaching

    there’s one more school of thought, if Im parking some funds in a FD for lets say 25 days since its possible to do so courtsey online FD , and the same if remained in my SB Acct will taht earn more due to the daily interest calculation as for period as low as 7-14, 14-30 the FD interest is not high..and whereas the SB saving interst rate is still 4% p.a

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