Today liquid funds provide one of the quickest ways to get money back for investors and this takes a day so the investor can redeem their units and then expect the money to come into their account the next day.
There are now efforts being made to ensure that there is an instant credit to the bank account of the investor when they redeem their liquid fund units. This will be a big change when it comes to the manner in which the liquid fund units are handled and it will help the investor to make seamless transfers of their funds. This is possible in a limited way at the moment and it will change the manner in which an individual looks at liquid fund. Here are some ways in which the decision could be instrumental in changing the manner in which investor deal with their short term investments.
Today liquid funds provide one of the quickest ways to get money back for investors and this takes a day so the investor can redeem their units and then expect the money to come into their account the next day. This is pretty quick because in other funds the time period for the money to come into the account is around three days as there has to be completion of the required procedure. However this is still not comparable to what a savings bank account gives an investor which is instant access to the account and the money that is present there. The move that is now being contemplated would give an even quicker service for the investor.
There are a couple of mutual funds that have tied up with banks to provide a card for their liquid fund investors and they can use the card upto a certain limit of their investment. This becomes like an instant redemption for the investor as they get access to their funds when they want to. However this has not caught on in the manner that one would have desired or hoped for and hence normal investors are still not very familiar with the whole situation.
The new proposal is now to have an instant credit for the investor when they sell their units. This will require some work because it would have to mean that when the units are sold then the account of the individual which is the bank account has to see the money flowing in. This would have to be done through the route of electronic payments but it will require a change in the manner in which the liquid funds function because they should be able to execute this type of transactions in the manner that has been decided. This will require additional systems for the funds because they need to have the required amount in cash which can be transferred immediately to the bank account.
Ease of operation
Once this kind of facility becomes common the investor will then be able to replace their savings account by a liquid account. Today a lot of people still keep money lying around in savings accounts because they know that the amount is available when they want it. There is still some time spent in trying to access the amount in the liquid account. This is the reason why the instant access could change the manner in which investors actually look at the funds. Then it will also mean competition for the money of the investor between liquid funds and banks in their savings account and this could end up benefiting the investor in the form of higher returns from savings bank accounts. There are some restrictions on the manner in which the savings bank account should be used in terms of the number of transactions but for normal investor it allows immediate access to funds which is more important.