Using Credit Cards + Liquid Funds: Can This Smart Strategy Boost Your Savings Returns?

I’ve been doing SIPs straight from my bank, but my elder uses in installments cards for expenses and parks his net successful a liquid money to gain other returns. Is this a bully strategy for redeeming and earning more? How speedy is liquid money withdrawal, and are location taxation implications I should watch for if I adopt this approach?

Advice by Rajani Tandale, Senior Vice President, Mutual Fund astatine 1 Finance

A increasing number of salaried individuals are adopting smarter rate travel strategies to make their money activity harder. One specified attack involves utilizing a in installments paper for monthly expenses while parking nan net successful a liquid communal money to gain further returns. The logic is simple: in installments cards typically connection an interest-free grace play of 30 to 45 days. Instead of letting money beryllium idle successful a savings relationship during this period, it tin beryllium temporarily invested successful a liquid fund, which mostly offers returns successful nan scope of 5–6% per annum, importantly higher than astir savings accounts.

Liquid costs put successful very short-term indebtedness instruments specified arsenic treasury bills and commercialized papers, making them comparatively low-risk and highly liquid. Most liquid costs travel a T+1 colony cycle, meaning nan redemption proceeds are credited to your slope relationship connected nan adjacent moving day. Additionally, galore money houses now connection instant redemption features - typically up to ₹50,000 per time aliases 90% of nan invested magnitude - wherever costs are transferred wrong minutes, providing an further level of elasticity for users.

However, this strategy demands financial discipline. The cardinal request is to guarantee that nan in installments paper measure is paid successful afloat earlier nan owed day to debar hefty liking charges, which tin scope betwixt 30–45% per annum and quickly erode immoderate gains made from liquid money investments. It's besides important to see nan taxation implications. As per nan taxation rules effective from April 2023, gains from liquid costs are taxed astatine nan individual’s slab rate, irrespective of nan holding period. Earlier, investors could use from indexation if held for much than 3 years, but that use nary longer applies.

There whitethorn besides beryllium nominal exit loads if nan finance is redeemed wrong 7 days, but these are mostly negligible. For example, redeeming connected Day 1 mightiness incur a 0.0070% charge, gradually reducing each time thereafter. While liquid costs are comparatively low-risk, they are still taxable to insignificant liking complaint aliases in installments risks and are not wholly capital-guaranteed for illustration fixed deposits.

For financially disciplined individuals, particularly those who already usage in installments cards responsibly, this strategy tin thief optimize monthly rate travel while earning a humble yet meaningful return connected idle funds. Starting mini and knowing nan operational specifications of nan money and nan redemption timeline is advisable. With nan correct setup and self-control, this method tin beryllium a smart, tax-aware measurement to boost short-term returns without importantly expanding risk.

Beyond higher returns, utilizing liquid costs strategically allows investors to support liquidity while earning humble income. However, experts accent that subject is crucial. Missing a in installments paper costs tin swipe retired gains, arsenic liking charges scope from 30% to 45% annually.

Additionally, post-April 2023 taxation changes mean liquid money gains are taxed arsenic per individual income slabs, eliminating erstwhile semipermanent benefits. Investors should besides facet successful insignificant exit loads connected very short-term withdrawals, though these are minimal.

Despite humble risks, nan expert noted this attack suits those assured successful managing in installments responsibly. Done right, it turns idle rate into an opportunity for other earnings.

Published on: Jul 12, 2025 2:20 PM IST