RBI Policy: Will liquid funds offer better returns than bank FDs?

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Liquid funds to become attractive

While fund managers are confident of debt funds to provide much better accruals, at the same time, given the uncertainty on expected inflation, high fiscal and current account deficit, longer end of curve might continue to remain volatile. With this view in mind, it would be prudent to invest in shorter duration debt funds as accruals are decent and duration risk is contained.

From an investor’s perspective, the return potential of liquid and debt funds has improved significantly after the sharp jump in bond yields over the last six months. Currently, liquid funds have given an average absolute returns of 1.80% in the last six months. In the last one year, these schemes have delivered 3.39% returns, shows data by ValueResearchOnline.

The interest rate on fixed deposits have also started to move up and are expected to move higher in the coming months. However, Pathak believes debt funds will become more attractive. “The gap between the bank savings rates and liquid fund returns will widen and remain attractive for your surplus funds,” says Pathak.

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