Banks offer 6–7% on FDs, but corporate debt funds can deliver better post-tax returns with similar safety. Here's what CFOs need to know.
The Idle Cash Problem
Many businesses leave working capital idle in current accounts (earning 0%) or lock them in FDs with heavy premature withdrawal penalties.
Liquid and Ultra Short-Term Funds
These mutual funds invest in highly secure, short-maturity debt instruments like Treasury Bills and Commercial Papers. They offer:
- Better Returns: Historically offering 50-100 basis points more than savings accounts or short-term FDs.
- High Liquidity: Redemption proceeds are typically credited within 1 working day without penalties (after a minimal 7-day exit load period for liquid funds).
- Tax Efficiency: Profits are taxed differently, and careful structuring can yield superior post-tax outcomes.