Liquid funds gained interest from retail investors in FY17. Here's why
Instant redemption facility offered by mutual funds in liquid schemes is attracting retail investors
Himadri Buch
May 30, 2017 / 14:29 IST
Cash plans, popularly known as liquid funds, which are largely used by corporates and high networth individuals to park surplus cash, are gaining interest from retail participants, too.
According to the data on Association of Mutual Funds in India (AMFI), as on March 2017, the retail AUM of liquid funds stood at Rs 5,600 crore as against Rs 4,100 crore a year in March 2016, a rise of Rs 1700 crore or 43 percent.
Liquid schemes as the name suggests are those which have a portfolio of very short-term debt instruments, mainly below 91 days. Such a portfolio focuses on maintaining liquidity and safety of the investments.
It is considered as the least risk category in mutual funds, as it does not invest in long-term bonds, and thus does not get affected much by interest rate movements. Hence, it is used for cash management for a very short time-frame.
"At the retail level, liquid mutual funds were not very popular. They get compared with bank deposits like savings bank account and fixed deposits, which are fixed interest instruments, but because of investor education liquid funds are gaining traction from retail investors," said Mahendra Jajoo, Head, Fixed Income, Mirae Asset Mutual Fund.
Compared to zero interest payable on current account, corporate entities make some gains in these funds.
Fund managers also said that the instant redemption facility offered by mutual funds in liquid schemes is attracting retail investors.
"Investors want hassle-free redemption which now liquid funds are offering. It is called instant redemption facility," said Rajesh Krishnamoorthy, Managing Director, iFast Financial India, a platform provider for independent advisers and MF distributors.
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AMFI data reveals that retail folios have also growth on a year-on-year basis. Retail folios in liquid funds stood at 6.6 lakh in March 2017 compared to 2.76 lakh in March 2016. Retail investors constitute 85 percent of liquid fund folios; however, the assets held by them account for merely 2 percent of total liquid AUM of Rs 3.14 lakh crore.
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