Most of us manage liquidity by parking funds in savings/current accounts and short-term fixed deposits. These are very convenient and easy to manage. The potential drawbacks are as follows:

1. Current accounts do not give any returns.

2. Savings account give returns in the range of around 3% p.a. currently. There might be some exceptions for higher amounts/ some banks etc.

3. There might be small penalty on pre-mature exit of short-term deposits.

Mutual fund industry has wonderful products on managing liquidity ranging from as low as one day to any time frame. The potential benefits are as follows:

1. Daily returns based on the short-term money market rates. The current rates range between 5%-6% p.a. as the short-term rates have increased drastically.

2. 24*7 Instant liquidity for upto Rs 50,000. For higher amounts next business day.

3. Weekend parking (Friday, Saturday and Sunday) possible to earn returns when you are holidaying/ not working. Invest on Friday morning and get funds back on Monday morning. This gives 3 days returns every week.

4. Taxation same as banking products for exits within 3 years.

5. Very low level of volatility and largely very low risk products. However, the returns depend on short term money market rates.

Our advice is as following:

1. Retain roughly around Rs 3-4 lakhs odd in savings account as interest income up to Rs 10,000 is tax free under Sec 80TTA.

2. Balance, park in Overnight funds for liquidity within next 7 days and in liquid funds for liquidity after 7 days.

3. Corporates/Business entities can park large chunk between overnight and liquid funds. They could also use the weekend parking to make returns during weekends.

4. Resident Investors and NRI’s having balances in NRO account should be using this.

5. NO TDS on gains for Resident Investors.

Numbers:

1. Rs 10 lakhs invested every weekend in overnight funds over the year would yield extra Rs 25,000 p.a. Current account would yield NIL and Savings account might not have provision for weekend parking.

2. Rs 10 lakhs invested in liquid fund for 30 days would yield Rs 5,000. Current account would yield NIL and Savings account might yield maximum Rs 2,500.

3. The above numbers are calculated taking liquid/overnight fund returns @6%p.a. (subject to short term money market rates) and savings account @3%p.a.

Note:

1. Market linked investments like Mutual Funds, ETFs and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.

2. Past performance of any asset class is not an indicator of future performance.

3. The above are broad suggestions and not Investment Advice as individual cases might differ.

4. Please connect with us to understand the implications of the above in your financial portfolio.

Naveen Julian Rego-CFP

SEBI Registered Investment Adviser

Reg. No. INA 200004250

2nd March, 2023