Liquid funds and FDs are popular low-risk investment options for Indian investors. Investors seeking steady but nominal risk-free returns opt for FDs, while those looking for higher returns choose liquid funds. So, if you have idle funds at hand, you can decide between liquid funds and FDs according to your risk profile and return expectation. This article summarises the liquid funds vs. FD debate to help you choose the right investment option that aligns with your needs.

• Liquid funds offer higher returns but also come with a higher risk exposure.
• FDs are safe investment instruments that offer guaranteed returns and complete capital protection.
• Returns from liquid funds are market-linked and can fluctuate depending on market conditions.

Liquid funds are debt mutual fund schemes that invest in fixed-income securities like government bonds, treasury bills, CDs, commercial papers, and money market securities. These short-term debt funds invest in securities that mature in a maximum of 91 days, ensuring easy liquidity for investors. Liquid funds are designed to provide investors with capital preservation and liquidity benefits to investors, while also delivering returns that surpass those of savings accounts and FDs.

Alternatively, fixed deposits are risk-free investment instruments that offer a fixed interest rate on the deposited lump-sum corpus for a specific investment tenure. Offered by banks and NBFCs, FDs offer around 6%-8% interest, which is higher than interest yields from savings accounts. FDs also offer easy liquidity benefits and loanability perks for investors who need urgent access to funds to meet emergency requirements.

Here’s a comprehensive table that sums up the liquid funds vs. FD debate in detail:

From the liquid funds vs. FD debate, it’s clear that both investment options have their pros and cons. You should choose liquid funds over FDs if you are comfortable with slightly higher risks for potentially higher returns. Liquid funds invest in debt instruments with maturities of up to 91 days, making them relatively safe and liquid options compared to other types of mutual funds. However, since returns from liquid funds are market-linked, they remain riskier than FDs. In a nutshell, liquid funds are ideal for low-to-medium-risk investors.

If you’re wondering how to choose between liquid funds and FDs, remember that FDs are suitable for certain types of investors. If you have a low to zero risk tolerance and prioritise capital preservation, FDs may be the ideal investment instrument for you. FDs are also good options for investors seeking regular income from a long-term investment. Investing in a company fixed deposit can also help you earn higher returns. However, you must remain vigilant while choosing a company FD. Reviewing the ratings given by credit agencies like CRISIL is essential to ensure your invested capital is safe and protected.

Liquid funds and FDs are good investment options for investors seeking capital protection and good returns. While FDs are safer than liquid funds, these mutual fund schemes offer better returns against minimal risks. Instead of choosing a side in the liquid funds vs. FD debate, you can consider investing in both to balance out risk and returns.