MF VS Saving Account

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Savings Account VS Mutual Funds

One should keep 2-3 month's expenses in the savings bank account. Further 3-6 months regular expenses should be invested in a liquid mutual fund. Anything more than this in the savings bank is an opportunity cost, loss of interest income, and negative returns; if inflation-adjusted returns are considered.
Dividends are Tax free
long-term capital gains tax - 11.33% (including cess and surcharge) or 22.66% with indexation benefit, whichever is lower


Factor Saving Account Liquid Mutual Fund
Typical Returns 4-6% 6-7%
Tax (Most Important)* As Per Tax Slab 0% after 3 yrs
Lockin Period NIL NIL
Entry Load and Exit Load NIL NIL
Compounding Quarterly Daily
Typical Net Return
(Post Taxes & Penalties)		 3% 6-7%
Risk Factor Low Low

*Savings account can attract a tax rate as high as 30% depending on your personal tax rate. Debt Mutual Funds have lesser than 5% tax if held for more than three years and same Arbitrage funds have zero tax