Not in FDs: Here's where India's rich actually park their short-term money

Liquid Funds & Arbitrage Funds are ideal for parking short-term cash with stability + better post-tax returns than FDs.

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When it comes to managing short-term money, India’s high-net-worth individuals (HNIs) don’t rely on savings accounts or fixed deposits — despite their familiarity and perceived safety. Instead, the wealthy follow a structured, tax-efficient playbook that allows their idle money to keep working without being locked in.

 

Financial planner Vijay Maheshwari, CWM®, who manages over ₹500 crore in assets for 1,000+ families, recently decoded on LinkedIn how HNIs and ultra-HNIs truly allocate their short-term cash. His insights reveal a striking contrast between what most retail investors think is safe, and what the affluent actually use to maximise returns while retaining liquidity.

 

Here’s his explanation of where India’s wealthy park their money — and why their strategy works.

 

0–3 Months: Liquid Funds & Arbitrage Funds

 

The HNI choice for: Safety + easy access + better post-tax returns than FDs

 

For very short holding periods, the affluent stay away from savings accounts and prefer:

 

Liquid mutual funds, which invest in ultra-short-term debt

Arbitrage funds, which exploit price differences between cash and futures markets

 

Liquid mutual funds are a category of debt funds that invest in very short-term money market instruments, typically those maturing within 91 days. Because they lend to highly rated institutions and government-backed entities for extremely short periods, they carry minimal risk and almost no volatility. Investors can withdraw money within a day, which makes liquid funds a preferred option for parking surplus cash without compromising on accessibility. For many HNIs, these funds serve as a more efficient alternative to a savings account, offering slightly higher returns and better post-tax outcomes, especially for those in higher tax brackets.

 

Arbitrage funds use a market-neutral strategy that exploits price differences between the cash and futures markets. When a stock is priced differently in these two segments, the fund simultaneously buys in the cash market and sells in the futures market, locking in a small but relatively assured gain. Although the strategy is technically classified as equity for tax purposes, the risk level is closer to that of a debt product because the positions are hedged. 

 

These instruments offer:

 

• Higher potential returns than savings accounts
• Lower tax impact than FDs (especially for those in higher tax brackets)
• Same-day or next-day liquidity
• Minimal volatility

 

Why it works:

HNIs value access without sacrificing yield. Liquid and arbitrage funds deliver both — something bank deposits rarely do. 

6–12 Months: Equity Savings Funds

 

The HNI choice for: Low volatility, stability, and tax efficiency

 

Equity savings funds combine:

 

• Arbitrage
• Equity exposure
• Debt instruments

 

This tri-mix ensures:

 

• Lower fluctuations than pure equity
• Equity taxation benefits
• Better potential returns than short-term debt
• For HNIs in the highest tax slabs, this category offers significantly better post-tax outcomes than traditional products.

 

12–24 Months: Balanced Advantage / Hybrid Funds

 

The HNI choice for: Tactical asset allocation with controlled risk

 

These dynamic funds shift between equity and debt depending on:

 

• Market valuations
• Volatility
• Interest rate cycles

 

HNIs use them as a bridge product — a safe yet growth-oriented space to keep money for 1–2 years without taking concentrated risk.

 

Why they love it:

The asset allocation changes automatically, providing downside protection while still capturing upside when markets improve.

 

3+ Years: Large Cap or Flexi Cap Funds

 

The HNI choice for: Long-term compounding and favourable taxation

 

For goals beyond three years, the wealthy transition completely to growth assets:

 

Large-cap funds for stability

 

Flexi-cap funds for diversification across market caps

 

Both categories offer:

 

• Long-term wealth creation
• Equity taxation (which is significantly lighter than FD interest)
• Better compounding potential vs traditional instruments

 

Here, HNIs are not seeking short-term liquidity — they are seeking growth with discipline.

 

Why the Wealthy Don’t Park Money in FDs or Savings Accounts

 

Contrary to popular belief, fixed deposits often deliver poor post-tax returns for high-income investors. For someone in the 30% tax bracket, an FD yielding 7% may translate to just 4.5% post tax.

 

Meanwhile, debt and hybrid funds benefit from:

 

• Deferral of taxation
• Lower tax incidence
• Potentially higher market-linked gains

 

HNIs understand that idle cash becomes a drag on wealth — so even short-term allocations are optimised.

 

What Retail Investors Can Learn

 

Most investors keep their surplus in:

 

• Bank accounts
• FDs
• Low-yield instruments
• Emergency funds that never get optimised

 

But as Maheshwari’s breakdown shows, HNIs ensure that no money sits idle.

 

Key takeaways for regular investors:

 

• Match instruments to time horizon just like HNIs do
• Create a layered liquidity strategy
• Use tax-efficient products rather than defaulting to FDs
• Let your emergency fund earn better returns without losing liquidity
• Understand that safety doesn’t always require sacrificing growth