Idle money is losing value: How investing in these funds can protect your savings

Liquid funds are increasingly gaining attention among retail investors as savings account returns continue to decline. With traditional bank savings accounts offering minimal interest, parking idle cash in them may actually erode wealth over time. Liquid funds, on the other hand, provide a safer and smarter alternative for short-term parking of money.

Liquid funds are a type of debt mutual fund that invests in ultra-short-term instruments with maturities of up to 91 days. These include treasury bills, commercial papers, certificates of deposits, and other money market securities. Some funds even offer instant redemption up to a specified limit, while most follow a T+1 settlement cycle, meaning requests submitted before 2 p.m. are settled the next day.

Chartered Accountant Nitin Kaushik recently highlighted on X that money sitting idle in a savings account is quietly losing value every year due to inflation.

This “soiling effect” can be illustrated with numbers:

Average savings account return: 2–3% (post-tax)

Inflation: ~6%

This implies that ₹1 lakh parked in a savings account today will be worth only around ₹94,000 in real terms next year. Essentially, idle cash is silently shrinking.

What options do people usually consider?

Keep cash in a current account: 0% return

Park in fixed deposits (FDs): Locked in, penalties for premature withdrawal

Invest in equities/stocks: Market risk, unsuitable for emergencies

Clearly, what investors need is a solution that is safe, liquid, and offers better returns. Enter: Liquid Funds.

Liquid funds function as “supercharged savings accounts.” They are debt-based mutual funds investing in highly secure, short-term instruments such as treasury bills, government securities, and commercial papers. Tenures are limited to 91 days, providing safety and liquidity. Most funds allow easy redemption, often within a day, making them ideal for emergency requirements or short-term financial goals.

Average returns

Liquid Funds: 6–7% (pre-tax)

Savings Accounts: 2–3%

Fixed Deposits: 5–6% (locked-in)

Even after accounting for taxes, liquid funds generally outpace savings accounts and fixed deposits, helping investors beat inflation while retaining liquidity.

Key points to check before investing

Expense Ratio: Lower is better (

Exit Load: Usually NIL; some may charge 0.01% for

Assets Under Management (AUM): Higher AUM indicates trust and stability (₹30,000 Cr+ recommended)

Portfolio Quality: Prefer funds with government securities and top-rated corporate instruments

Key benefits

Better than leaving money idle in banks

Ideal for emergency funds

Withdraw anytime without heavy penalties

Safer than equities for short-term investments

It is important to note: Liquid does not mean risky. Liquid funds are a smart cash management tool.

If you are parking money for short-term needs such as next month’s rent, kids’ school fees, emergency expenses, or upcoming purchases like a TV, car, or wedding, liquid funds are a compelling choice.

In summary, idle money is dead money. Instead of letting inflation silently erode your savings, consider liquid funds as a safer, more rewarding, and highly flexible alternative to traditional bank accounts. They allow you to maintain liquidity, earn higher returns, and safeguard your short-term cash against inflation—making them an essential tool for smart financial planning.