Liquid funds may turn out to be a better choice than fixed deposits. Fixed deposits incur taxation on an annual basis while liquid funds are taxable only when they are sold. Lets study an example. If you save 5L every year and invest them in fixed deposit and liquid funds both yielding 7% annually, at an inflation rate of 5% over the next 10 years your results would look like the table below. The actual numbers might be different from this illustration.
On Fixed deposits, since you pay tax @30% every year (assuming highest bracket, >10L income), you end up getting an effective rate of 4.9% after tax. Hence 5L would be 5.24L at the end of first year. Liquid funds on the other hand will show a mark to market of 5.35L at the end of first year. Which means you compound a larger capital in liquid funds as effectively you are deferring taxes. Liquid funds are taxed only when you sell and @20% after indexation benefit for the inflation adjusted amount. If you sell them before 3 years their tax treatment will be exactly like fixed deposits. The only case where you lose - if liquid fund rates are much lower than fixed deposits which is generally not the case in financial markets.
In the below example you are around 6L or 10% richer after 10 years. A little hack of financial wisdom might be useful for many investors.