mutual fund
Now investors can use their mutual funds to make payments through UPI (Unified Payments Interface). With the recently launched Pay with Mutual Fund feature, investors can make payments directly from their liquid fund holdings, in which the required amount of units are redeemed instantly.
If you have a liquid mutual fund and the fund house supports this service, then the payment amount will be taken directly from your fund and the money will be transferred almost instantly through UPI. Currently, ICICI Prudential Mutual Fund and Bajaj Finserv AMC have started this facility in collaboration with Curie Money. This feature allows liquid funds to be used like a bank account, but with the possibility of market linked returns.
Why is this feature special?
Instant Liquidity: Liquid funds invest in short-term money market instruments and make money available immediately. Now you do not need to transfer money to the bank account first, you can make payment directly.
Better returns from savings account: Savings accounts usually give less than 4% interest. Whereas, liquid funds can give returns of up to 7%.
UPI payment facility: Most of us use UPI daily. Now it has become easier to withdraw and make payments by sourcing liquid funds directly, without the need for a separate app or bank transfer.
Flexible Cash Management: Both individuals and businesses can keep their short-term funds invested in liquid funds and use them as and when required.
Is it better than a savings account?
In many cases yes, but keep a few things in mind. The savings account is ultra-liquid, secure (insured up to ₹5 lakh) and returns are predictable. Liquid funds can give higher returns but there is also some risk. If you are parking money for short-term and do not want to take any risk, then a savings account is a safe option. But if you want to get additional returns by taking a little risk, then this feature can be better.
things to keep in mind
Understand the average returns of the fund and the redemption process.
The tax treatment of liquid funds is like that of bank fixed deposits or savings accounts.
You should not consider this as a complete alternative to emergency fund. It is better to keep some money in a savings account also.
Keeping in mind the need for investment and liquidity, keep it clear how much money will be used for payment.