InstaCash

A commonplace practice is to park surplus funds in a Bank Fixed Deposit, while funds for daily/monthly activities are placed in savings/current accounts. However, there is an alternative that could provide higher returns with similar flexibility than that of Fixed Deposits – investing in liquid mutual funds i.e InstaCash.

Liquid mutual funds are that category of mutual funds that invest in debt instruments – for e.g. Commercial Papers, Treasury Bills, Government Securities, etc. These investments are short term in nature and can be withdrawn without any difficulty, which is why they are also called insta redemption funds.

While FD’s might call for a penalty if withdrawn prematurely, liquid funds can be redeemed without attracting any penalty in the form of an exit load if withdrawn after a mere 7-day period. If withdrawn before 7 days, a small amount of exit load is levied.

When it comes to taxation of this form of investment, if held for more than 3 years, they are eligible for long term capital gains with indexation. If redeemed before 3 years, tax is applicable as per investors tax slab. In case the investor opts for dividend option, the fund would be subject to a dividend distribution tax.