january 12, 2015
Almost every individual maintains savings account(s) with any of the public or private sector banks. These savings accounts are used to park spare money for immediate, future use. Salaried individuals nowadays get direct credit of salaries in these accounts, hence, savings account become the default location where the monthly money gets credited. It has been observed that over a period, individuals accumulate large sums of money in their savings account, sometimes even in lacs.
Individuals also use savings account to keep large sums of cash which they are supposed to use to make payments for major asset purchase like real estate, car in near future or even for large expenses like international vacations.
Where and how to earn higher returns
The purpose of savings account is to keep money safe and liquid (ready for use). However, banks also pay interest on the savings account money to the depositors at a rate of 3.5-4% per annum.
You can earn much higher interest on your savings account money by investing the same money in ultra short term mutual funds. These funds offer safety and liquidity to the investors just like savings account and offer higher rate of returns. Currently, the rate of return on these funds is 8.5-9.25% per annum, which is almost double of what savings accounts offer.
On large sums of money, one can gain substantially from the income generated by ultra short term funds as compared to savings account. To quote an example, on a one lac deposit, an investor can make approx. 600-700 rupees on a monthly basis, quite attractive if your compare it with a savings account return.
Mode of Investment
Individuals can invest lumpsum money in these funds and can also save money on a monthly basis through systematic investment (SIP) mode.
Withdrawal
Investors can withdraw money anytime from their fund. The redeemed money is directly credited to the investor’s bank account within one working day.
Recommended Ultra Short Term Funds
| S.No. | Scheme Name | Category | Compounded Annual Returns(%) | ||
|---|---|---|---|---|---|
| 1yr | 2yrs | 3yrs | |||
| 1. | ICICI Prudential Savings Fund | Ultra Short Term | 9.26 | 9.22 | 9.36 |
| 2. | BSL Cash Manager Fund | Ultra Short Term | 9.05 | 8.90 | 8.95 |
| 3. | SBI Magnum Income Fund-FRP-Savings Plus Bond Plan | Ultra Short Term | 8.95 | 9.07 | 9.33 |
The mutual fund schemes listed above are consistent performers. As can be seen, the returns in these funds are much higher than that of savings account. Instead of keeping money in a savings account, investors can put money in these funds for safety and liquidity and earn higher returns.
Happy Investing!
Pawan Agrawal is the founder and managing partner of Investguru. You may reach him at pawan@investguru.in .