Many banks have not revised savings account rates despite an increase of 2.50 percent in the repo rate by the Reserve Bank of India (RBI) in its February policy. On the other hand, short term funds are seen giving decent returns. So, should investors look at short term funds like liquid funds or money market funds? To discuss this, CNBC-TV18 spoke to Rahul Jain, President and Head of Nuvama Wealth.

According to Jain, liquid funds are a viable option for investors who are seeking better returns on their short-term investments. Jain stated there are avenues like liquid funds, money market funds, where the rates have gone up. So, moving money from saving bank account to liquid funds makes lot of sense.

He said, “Moving your money from a saving bank account to liquid fund in this type of times makes a lot of sense. Because at the end of the day, whatever you end up making more on your investments is like extra saving only. That is how your wealth gets created over a period of time.”

Currently, savings rates are around 3 to 3.5 percent for larger banks. On the other hand, liquid funds are giving around 6-6.5percent returns right now.

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Liquid funds are essentially mutual funds that invest in fixed-income instruments with maturities of up to 91 days. Some examples of such instruments include commercial paper, G-Secs, and treasury bills. These funds are considered to be one of the safest debt funds available in the market because of their shorter maturity period.

One of the primary advantages of liquid funds is that they carry minimum credit risk, as a large part of the portfolio is made up of G-Secs. G-Secs, or Government Securities, are issued by the government and are considered to be one of the safest forms of investment as they are backed by the government's creditworthiness.

Investors with an investment horizon of at least 90 days should consider liquid funds as they provide higher returns than traditional savings accounts, while still maintaining a high level of safety. Additionally, liquid funds provide easy liquidity, which means that investors can withdraw their funds as and when required.

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Jain also mentioned that liquid funds are an excellent option for investors who want to park their money for a short duration. As compared to other mutual funds, liquid funds have a lower expense ratio, which means that investors can save on costs while earning higher returns.

For full interview, watch accompanying video

(Edited by : Anshul)