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Old 12th June 2009, 10:44   #1
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Default same liquidity as savings account, but better returns?

friends,

i have some dough and i need it for some house project (buy land, construct house). but i just started hunting for a suitable land which may take 1 to 6 months. also i am sure the construction expenses will also be incremental and i will not be required to pay on day1. At the end of 1 to 2 years from now, all this money will be spent.

i have this money in my savings account as of now, and i am looking for ways to maximise my returns at the same time having the liquidity that I need for the above mentioned project.

any suggestions? needless to say i can not do anything risky :-)

Will the so-called private banking people be of any help in this particular situation.

thanks.
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Old 12th June 2009, 10:49   #2
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I am not in the banking sector, but short term fixed deposits will earn you slightly better interest. IIRC, SBI has a short term fixed deposit for as low as 15 days.
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Old 12th June 2009, 11:51   #3
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Do consider liquid/floating rate mutual funds.
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Old 12th June 2009, 12:27   #4
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Check your bank for flexi-deposit scheme, some banks call it Quantum Optima etc etc...
Its basically means that all the money in your a/c will be swept to a Fixed Deposit account, in multiples of 1000 or 5000 depending on bank. When you withdraw the latest FD will automatically broken and money given to you. The total amount will be shown as the regular deposit+fixed deposit amount, you will get interest for the term the money was in Flexi Deposit.

All in all its flexible and your money gets good interest.

OTOH if you know the amount you will spend in next 6 months, invest the rest of the amount in FD or good debt fund and withdraw accordingly.
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Old 12th June 2009, 12:36   #5
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Quote:
Originally Posted by bullinb View Post
Do consider liquid/floating rate mutual funds.
1. Do not go near these equity business since you don,t want any risk.
2. Never go to any private banks for such deals.

Best is to pick some PSU banks like SBI, IB or Canara Bank. Check with them in person and you will get better options. Infact, SBI personal banking is excellent now a days. Do walk in once.
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Old 12th June 2009, 13:34   #6
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Quote:
Originally Posted by mjothi View Post
1. Do not go near these equity business since you don,t want any risk.
2. Never go to any private banks for such deals.

Best is to pick some PSU banks like SBI, IB or Canara Bank. Check with them in person and you will get better options. Infact, SBI personal banking is excellent now a days. Do walk in once.
I guess he meant Liquid Mutual fund. they do not invest in equities and are as safe as bank deposits (they invest in turn in Money Market instruments, treasury bills, bank deposits etc). You can expect may be 6-7% pa return in these funds in today's interest rates and can withdraw any time without any charges (1% penal interest in case of bank FDs)

If maximum convenience is desired, you can opt for ICICI Quantum optima or HDFC Sweep in. i believe you can directly issue a cheque from SB and they will break fixed deposit automatically. Corporation Bank (PSU) also has something similar.
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Old 12th June 2009, 13:48   #7
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Yes, This type of stuffs are very much available with most of the bank now-a-days. I am using the same feature in my Kotak Mahindra Account and successfully earning a better amount then a mere saving bank account's roi.

It's something like a cut off amount is decided and there after you money is invested into FDs, whenerver you require the money you can issue a check and the FDs will be broken up.

In kotak mahindra the limit is setted up according to type of account you hold, like for my account wherein minimum amount limit is 20K the limit is settled up @ 40K. Whenever i have more then 40K in my account the balance amount is transffered into FD.
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Old 12th June 2009, 14:13   #8
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i use the method quoted by setuniket.
I have a State Bank account and I'm using an option called SB plus.
Basically I give in a letter saying "On the 6th of each month please transfer money in excess of Rs. X in my account into the deposit account" This earns me a higher rate of interest. If I give in any cheque or withdrawal then the amount is swept back to my regular account as needed.
Eg. I keep the threshold amount as Rs. 10000 and the date as 6th. On the 6th if I have 50000 in my account, 10000 is kept in the regular account and 40000 swept to the FD account.
Say on the 20th I need to withdraw 20000 Rs. Then 5000 from my regular account (considering the rest 5000 as minimum balance ) and 15000 from my FD account (plus the interest accrued by the 15000 FD for 15 days) is used for that withdrawal. 25000 continues to be in my FD account and accumulates interest.
This offers me the flexibility and the safety I need - no risk.
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Old 12th June 2009, 14:26   #9
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Quote:
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1. Do not go near these equity business since you don,t want any risk.
2. Never go to any private banks for such deals.
Liquid funds and floating rate funds invest in the cash/call and money markets. They are as safe as FD's and much more liquid. All the big corporates and many businessmen park their short term funds in them. Even banks use them.

If it is a substantial sum, ask your bank for an investment adviser. They should be able to better guide you.
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Old 12th June 2009, 14:29   #10
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thanks all for your suggestions. one doubt: will this automatic fixed deposit (quantum optima, etc.) offer better returns than say manually creating FDs with varying maturity periods matching my expenditure (cash outflow)?

i guess automatic fixed deposit works great for situations where monthly salary/income accumulates in my SB account and whaever is excess gets swept into FD. my situation is different: i have a starting amount that is large and i have an expected expenditure pattern that is spread out. assuming i have 2.4 lakh now and intend to spend it over a period of 2 years i can open 12 FDs each worth 20K expirng in 2, 4, 6, ... 24 months period. will the automatic FD (quantum optima,etc.) offer better returns than this?

how do liquid funds fare in the scenario?
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Old 12th June 2009, 15:30   #11
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Quote:
Originally Posted by androdev View Post
how do liquid funds fare in the scenario?
Liquid funds are safe enough but not as safe as bank FD's. There is credit risk involved because these funds hold money-market instruments of very short maturity. These funds (especially liquid-plus funds) learnt a harsh lesson during the turbulent economic times last year and are now under increased supervision of RBI. Its a good thing because although the returns have gone down (5-6% annualized as compared to 8% annualized till last year), their portfolios look a lot healthier and safer.

The biggest advantage of liquid funds over Bank FD's is the liquidity they offer. You can invest and redeem at will without worrying about an entry/exit load. The funds are remitted to your account with 24 hours of the redemption order being processed (on working days only).

You may have to incur premature withdrawl penalties with Bank FD's if you need the funds before the FD matures. No such hassle with liquid funds. Also, the chances of a bank going down are anybody's guess. And the Deposit insurance covers deposits till 1 lac rupees, not above that. Of course, you could have a number of deposits in multiple banks of 1 lac rupees each and sleep tight. You will get your money back even if all the banks failed.
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Old 12th June 2009, 15:39   #12
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The best option for you is to either liquid funds or short term debt funds. The best place to get all you need to know about these is Value Research: The Complete Guide to Mutual Funds. In both these categories, there isn't any entry and exit loads (provided to stick to the schedule) and the funds get settled in T+1 day.
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Old 12th June 2009, 16:00   #13
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I would look at Ultra Short Term debt/Money Market funds. Most have a daily dividend. Should get you about 6%.
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