My experiment of investing in Liquid Funds for short duration has come to an end and it is time to share my experience, and also the profit I have managed to make in the last month or so.
Firstly, I would like to say that I did change the experiment somewhat in the middle and decided to keep the money with the Liquid Fund for the duration of 34 days, instead of the 30 I had originally planned to, though apart from that, everything else remained the same.
Also I filed for redemption at around 9:30AM yesterday and I got the money in my account today at around 11:30AM, so the en-cashing process took 26 hours, which isn’t all that bad and hopefully would be similar in future.
Coming back to my experiment of investing in liquid fund, I had invested Rs. 15,000 in SBI Magnum Insta Cash Fund Liquid Floater Plan with growth option on the 15th of February 2012 and received Rs. 15,130.99 today i.e. 20th March 2012. This means in a matter of 34 days, I got Rs. 130.99 as interest, which comes out to be an effective interest rate of 9.374% which if I may say so myself, isn’t bad at all for a relatively safe and short term investment!
In comparison, had I kept the same amount in my bank account for 34 days, I would have gotten Rs. 55.85 as interest i.e. I essentially made Rs. 75.14 extra in 34 days, just by going ahead and parking my money in a liquid fund, rather than letting it stay in my bank account!
While this may not seem like enough, but done on a regular basis and hopefully with larger amounts, all this extra interest should stack up well. Having said that, with the saving bank interest up to Rs. 10,000 being tax free in FY2012-13, gains from Liquid Fund for someone falling in the middle to top income tax slab wouldn’t be all the substantial, though with dividend option, it might just turn out to be a viable strategy and better than even the highest interest paying saving bank accounts in India.
At the end of the day, I am quite satisfied with the performance of my Liquid Fund (SBI Magnum Insta Cash Fund Liquid Floater) and received returns which were higher than what I had expected them to be, in fact I remember me saying that extra returns might not be enough to buy a 2 liter bottle of coke, in the end it turns out that I can even buy a small pack of chips to go with my 2 liter bottle of coke and still be left with 14 paisa to spend somewhere else :D.
Liquid Funds vs. Saving Bank Account Comparison
Amount invested: Rs. 15,000
Duration: 34 days
Interest in Saving Bank Account: Rs. 55.85 (4%)
Interest in Liquid Fund: Rs. 130.99 (9.374%)