Most Indians are unaware of the bitter fact that their money in the savings account which earns just 4.0% is being eroded by inflation (Wholesale Price Index = 9.04% as at May 2011, source: D&B). Having said this, many people also want some low risk alternatives to their savings deposits. The market today, offers the option of good alternatives through mutual funds; which however, entail higher risks than savings deposits.
source: iFAST Compilations
The results on the chart are striking. The amount of INR 10,000 placed into DWS Ultra Short Term Fund (DWS UST) seven years ago, the value would now be worth INR 15,855; the same amount in the Birla SunLife Ultra Short Term Fund (BSL UST) would now be worth INR 15,903. Meanwhile, the INR 10,000 in savings accounts would only be worth INR 12,823. In fact, the return from Birla Sun Life Ultra Short Term (Rs. 5903) is more than double the return gained from savings account (Rs. 2823) over a period of time.
Below, we list down two mutual fund products with a risk rating of 1 i.e., lower risk funds. Unlike savings, you may not receive guaranteed interest income on these products, but the probability of downside for the lower risk products is not too high, and we believe the risk-reward ratio to be good.
Table 1: Recommended Funds
# The exit load of Birla Ultra Short Term Fund for redemption/switch-out <= 15 days from the date of allotment: 0.25% of applicable NAV
And there are mutual fund products which can earn even higher returns provided one is willing to move up the risk ladder even more.
In conclusion, investors should review the money they hold in savings accounts The investor today, should have second thoughts before going forward to deposit his money in fixed deposits and savings account as there are alternatives out there which may entail slightly higher risk, but promise better returns.