For instance a plain liquid fund, that invests in pure Bank Certificate of Deposits (Bank CD's) and Call money usually yield lesser than your repo rate of RBI. With Repo rate at 5% or so, your liquid funds should be yielding hardly 4% or so. And a liquid fund doesnot have any entry load or exit load, with no exposure to stock market and riskier assets. Typically it is more like a bank deposit, made through a mutual fund. The bargaining power of an institution like Mutual fund helps you get more returns.
Thanks to the liquidity crunch towards the end of the year, liquid funds are yielding as high as 8% to 9%., even for an investment of a month or so. No doubt this is a rare chance to earn higher returns on your idle funds that are in your Bank SB account or current account. With SB account yieiding just 3.5%, current returns of liquid funds are 200% higher. May be for a month or two, investors can expect such exceptional higher returns.
And when you are investing in a bank deposit, your bank is investing this money in a liquid fund or similar product to earn a trouble free return. In simple terms, your bank is profiting out of your investments. Why not you invest directly and earn good returns out of liquid funds ?
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