How to utilize Mutual Funds instead of Bank Deposits ?

Investment opportunities

How to utilize Mutual Funds instead of Bank Deposits ?

At the last Monetary Policy Committee (MPC), the Repo rate for for Banks was reduced by 25 Basis Points. Currently, the REPO rate is at 5.15 Percent. It is noteworthy that the REPO rate has been reduced five times this year.

Usually, when the interest rate decreases, the bond yield increases. Similarly when the interest rate increases, then the Bond rates will decrease. So if one consider this situation and invests it, can get significant income.

SBI (State Bank of India) had also cut its savings rate for its customers to 3.25 Percent, earlier it was 3.5 Percent. Interest rates for Bank Deposits are also below 7 Percent for One year term and below 9 Percent for a period of Five years.

Mutual Funds Schemes can be used as an Alternative for Bank Savings and Deposits. For Cash related transactions like Salary, Money Transfer, Paying EMI, one may rely on a bank savings account. But investing in Mutual Funds Schemes that offer slightly more interest income than banks for Savings and Investment.

Liquid Funds:

Liquid Funds in Mutual Funds can be used in lieu of Bank Savings rate. Liquid funds can attract with a rate of 6-7 Percent per annum, where the savings account rate comes below 4 Percent.

Liquidity is also good and Low risk Investment is the main feature of Liquid Funds. It can be used as alternative for Bank Savings Account rate. Liquid Funds comes by all Mutual Fund AMCs and few of the Liquid funds facilitates with faster convenience on Transferring money from Liquid Funds to Bank Account with less than 2 Minutes like Aditya Birla, HDFC Mutual, Nippon India and Axis Mutual Fund. Some Liquid funds schemes offers Free ATM Card service and Unlimited Withdrawal with No Cost.

Debt Funds:

Debt Funds in Mutual Funds can be used for Short Term Goals like 1 to 5 Year Term. It is an alternative for 5 Year Recurring or 5 Years Fixed Deposit. The rate of return comes with 7-10 Percent per annum. If you have been investing for more than 3 years in debt funds, there is a Tax Indexation Benefit available. Such a facility is not available in Bank Deposits. Duration based Debt Funds can be selected and invested to suit our Goals.

Hybrid (Balanced) Funds:

One can select a Hybrid Fund (Earlier, Balanced Fund) for a Five year Financial Goal. The rate of income would be 10-12 Percent. It is a Mixed investment, a combination of Equity and Debt. This allows one to use the money in the form of Bonds rather than fully investing in Stocks.

Asset Allocation Funds:

Those with Long term goals and needs can make good returns when investing in Equity Funds. Equity funds should not be used for the Short term needs, because the Equity are subject to Market Risk and High Volatility in the near term. At the same time, one may also consider about Asset Allocation based Funds. Through Asset Allocation, we can diversify our investment into Equity, Bonds, Gold, Real Estate and Other business opportunities.

Tax Savings Mutual Funds:

For Tax Savings, we can choose Tax Savings Mutual Funds Schemes instead of Tax Saving Bank Deposits and Postal Savings Schemes. There is a minimum Lock-in period available in ELSS (Equity Linked Savings Scheme) Mutual Funds compared to other Tax Savings Instruments. Returns are also good in the long run, when investing in Tax Savings Mutual Funds.

We cannot afford the Savings and Investment Plans that the banks offer. There is no such Fixed returns in Mutual Fund Schemes as like available in Banks. However the efficient use of Mutual Funds Investing is beneficial when the bank interest rates are declining. Mutual Funds may also offer a Day to Day Transaction service and as an alternative account to a bank account in the Future.

Kindly share your views / comments with a smile 🙂


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