Sweep-In FD Vs Liquid Fund: What’s your best option?

financialexpress.com:

You may often get surplus money in hand, but may not have a plan to deploy the same in an appropriate investment instrument. In such a situation you’ll lose the return till the fund remains idle in your hand. The best way is to immediately invest the money as soon as you receive it unless you have a spending plan.

Sweep-in FD and liquid funds are two attractive investment options available in the market where you can deploy your surplus fund, but it’s important to use them in sync with your financial needs. So, let’s understand which is a better option for you – a sweep-in FD or a liquid fund?

When you keep your money in a savings account, it usually earns a very low rate of interest which is around 3% to 3.5% pa. If it’s a large sum, you may lose out a substantial amount in the long term, compared to other investment options.

The inflation is hovering around 5% over the last few years, which means a return on investment below the rate of inflation would result in a negative real return. So, to avoid such a situation, most banks nowadays allow you to set up auto sweep-in FDs in your bank account. In auto sweep-in FDs, you can fix a cut-off limit in your bank account and if the account balance increases above your set limit, the excess fund automatically gets transferred to the linked FDs.

The tenure of the sweep-in FDs varies from bank to bank, usually offered for a short term i.e., up to 1 year, but in some cases, it may go up to 5 years. Normally, banks allow transferring excess funds in multiples of Rs 1000 to sweep-in FDs, creating a minimum FD size of Rs 5000.

For example, your bank account’s cut-off limit is Rs 50000 and the minimum sweep-in FD limit is Rs 5000 with a multiple of Rs 1000. If your account balance