Liquid fund - nandy financial advisory private limited

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Nandy
Financial
NANDY FINANCIAL ADVISORY (P)
LTD.
Nandy Financial Advisory Private Limited was incorporated in
the year 2004 and started its operations as an Investment and
Financial Advisors in Eastern India. Today, after years of
existence we have grown to become one of the most trusted
investment and financial consultants with annual mobilization of
several crores and serving thousands of investors. Everything is
conducted by a team of experienced professionals and sound
financial managers.
Nandy
Financial
Dear Sir,
Greetings from Nandy Financial Advisory Private Limited!!
We are pleased to share with you the excerpts from an article on
Liquid Funds which was published in Economic Times on 7th
November, 2011.
Although we at Nandy Financial are convinced that Liquid mutual fund
schemes historically have been & will continue to remain a better short
term investment option for individual & corporate investors, but we
thought of sharing this article for the simple reason that the same has
been written by a neutral agency without supporting any particular
mutual fund company.
I hope you find it meaningful & informative. To make things more
informative, we have also attached the in house presentation of
Nandy Financial on liquid/ultra short terms funds.
Idle cash better off in liquid funds despite savings rate
Article in Economic Times written by Dhirendra Kumar on Nov 7, 2011
deregulation
LAST WEEK, I WROTE ABOUT THE RBI'S DECISION TO FREE SAVINGS BANK INTEREST RATES. FROM THE BANK CUSTOMERS' PERSPECTIVE, THIS
NEWS IS IRRELEVANT. NO MATTER HOW MUCH OR HOW LITTLE MONEY YOU KEEP IN A BANK SAVINGS ACCOUNT, THE ADDITIONAL INCOME
GENERATED WILL BE TOO SMALL TO BE RELEVANT.
IN FACT, IF YOU FEEL YOU HAPPEN TO NEED A SAFE SOURCE OF REASONABLE RETURNS FROM A SAVINGS MEDIUM THAT IS NOT LOCKED-IN FOR A
FIXED PERIOD, THEN YOU SHOULDN'T BE LOOKING AT A SAVINGS BANK ACCOUNT AT ALL. IF YOU FIND YOURSELF GETTING EXCITED BY THE 6%
SAVINGS RETURNS THAT SOME BANKS HAVE STARTED OFFERING, THEN YOU'RE DOING SOMETHING WRONG. WHAT YOU ACTUALLY NEED ARE
LIQUID FUNDS.
LIQUID FUNDS ARE WIDELY USED BY COMPANIES AND THE MORE AFFLUENT INVESTORS, BUT ARE UNDER UTILIZED BY RETAIL INVESTORS.
THERE'S NO REASON FOR THIS. LIQUID FUNDS FIT IN VERY NEATLY BETWEEN FIXED DEPOSITS AND SAVINGS DEPOSITS. CURRENTLY, LIQUID FUND
RETURNS ARE IN THE RANGE OF 9.0% TO 9.5% PER ANNUM. THIS IS SUBSTANTIALLY HIGHER THAN SAVINGS ACCOUNTS BUT LOWER THAN LONG
TENURE FDS. COMPARED TO SAVINGS ACCOUNTS, WHICH OFFER INSTANT LIQUIDITY, LIQUID FUNDS OFFER ONE-DAY LIQUIDITY. AGAIN, THIS IS
HUGELY BETTER THAN FDS, BUT SOMEWHAT LONGER THAN SAVINGS ACCOUNTS.
FROM AMONG THE OPTIONS FOR HIGH-SAFETY SAVINGS INSTRUMENTS, THE WAY I THINK OF LIQUID FUNDS IS THIS: SAVINGS ACCOUNTS OFFER
THE BEST LIQUIDITY. FDSOFFER THE BEST RETURNS. LIQUID FUNDS OFFER THE BEST COMPROMISE. IN MOST CASES, THAT TURNS OUT TO BE THE
BEST CHOICE.
LET'S TAKE A CLOSER LOOK AT THE SAFETY AND LIQUIDITY ASPECTS. UNDER SEBI RULES, LIQUID FUNDS CAN INVEST ONLY IN FIXED
INCOME INSTRUMENTS THAT ARE LESS THAN 91 DAYS FROM MATURITY. THIS PRACTICALLY ELIMINATES RISK. AS FAR AS THE ACTUAL
TYPES OF INSTRUMENTS GO, THE VAST BULK OF LIQUID FUND PORTFOLIOS ARE MADE UP OF BANK CDS (CERTIFICATES OF DEPOSIT) AND
COMMERCIAL PAPER ISSUED BY LARGE RATED CORPORATES.
SEBI’S RECENTLY CHANGED LAWS PERTAINING TO LIQUID FUNDS, WHICH HAVE BEEN APPLICABLE FOR NEARLY 1.5 YEARS, SAY THAT
LIQUID FUNDS CANNOT INVEST IN PAPERS WITH A MATURITY OF MORE THAN 91 DAYS. NO MUTUAL FUND CAN GIVE YOU A GUARANTEE OF
RETURNS OR THE SAFETY OF YOUR PRINCIPAL, BUT TILL NOW, SINCE THE FIRST LIQUID FUND WAS LAUNCHED IN 1997, THERE HASN’T
BEEN A FALL IN THE VALUE OF LIQUID FUNDS FOR EVEN ONE DAY. THE EXPERIENCE HAS BEEN THAT THERE HASN’T BEEN EVEN A ONE
PAISA DROP IN THE VALUE OF LIQUID FUNDS, EVEN ON AN OVERNIGHT BASIS. THIS MAKES LIQUID FUNDS REASONABLY SAFE. BUT, THEY
ARE NOT DEPOSITS AND DON’T GUARANTEE RETURNS. HOWEVER, UNDER THE CHANGED REGULATORY FRAMEWORK, WHICH IS MORE
STRINGENT, LIQUID FUNDS HAVE BECOME SAFER THAN THEY WERE THREE YEARS BACK.
IN THEORY, LIKE ALL MUTUAL FUNDS, LIQUID FUNDS ARE SUBJECT TO MARKET RISK. BUT THE TYPE OF MARKET AND THE TYPE OF INSTRUMENTS
THEY ARE LIMITED TO MAKE THE RISK ZERO FOR ALL PRACTICAL PURPOSES. DESPITE BEING MARKET-LINKED, LIQUID FUNDS HAVE NEVER
HAD A NEGATIVE DAY. PRACTICALLY SPEAKING, THIS IS AS SAFE AS A BANK. LARGE INVESTORS LIKE CORPORATES UNDERSTAND THIS
WELL. THE TOTAL AMOUNT INVESTED IN LIQUID FUNDS IS 1.76 LAKH CRORE.
ONE-DAY LIQUIDITY ALSO WORKS IN A VERY SIMPLE WAY. LIQUID FUND INVESTMENTS HAVE A DAILY CUT-OFF TIME OF 2 PM. IF YOU
INVEST IN A LIQUID FUND BEFORE THAT POINT, YOUR MONEY WILL BE INVESTED ON THE PREVIOUS DAY'S NAV, AND YOUR RETURNS
START FROM THE VERY SAME DAY. WHEN IT'S TIME TO REDEEM YOUR MONEY, YOU NEED TO PUT IN THE REDEMPTION REQUEST BEFORE 3
PM. THE REDEMPTION VALUE WILL BE CALCULATED AS PER THAT DAY'S NAV AND THE MONEY WILL BE CREDITED TO YOUR BANK
ACCOUNT THE NEXT DAY.
WHAT MAKES THE WHOLE THING SIMPLE IS THAT WITH MOST BANKS AND MOST MUTUAL FUNDS, THE WHOLE PROCESS CAN BE COMPLETED
THOUGH SELF-SERVICE AND ONLINE. ONCE YOU REGISTER WITH A FUND FOR ON-LINE TRANSACTIONS (AND ASSUMING THAT YOU HAVE A NETBANKING ACCOUNT), THERE'S NO NEED TO FILL UP A FORM OR INTERACT WITH ANYONE PERSONALLY. YOU CAN MOVE MONEY FROM YOUR
SAVINGS ACCOUNT TO A LIQUID FUND WHEN YOU CAN SPARE THE MONEY AND MOVE IT BACK WHEN YOU NEED TO WITHDRAW IT.
ANOTHER GREAT CONVENIENCE OF INVESTING IN A LIQUID FUND IS THAT CHOOSING ONE IS A VASTLY SIMPLER EXERCISE THAN CHOOSING OTHER
Nandy
Liquid Mutual Fund’s Advantage….
Financial
(Make your surplus money work best for you)
‫ ﲤ‬In the current interest rate scenario most Liquid fund scheme’s of mutual fund are giving
daily annualized return in the range of 9.00% to 9.50%
Please consider the below given calculation…
•
Rs 1 Crore kept in a current account for 1 month - ROI is ZERO.
•
Rs 1 Crore kept in a savings account for 1 month – ROI is Rs 32877 /- (assuming
4.00% annualized return) & ROI is Rs 49315 /- (assuming 6.00% annualized return).
•
Rs 1 Crore invested in a Liquid fund scheme for 1 month – ROI is Rs 73973 /(assuming 9.00% annualized return).
Nandy
Weekend Parking – Investor’s Paradise….
Financial
● Number of weeks in a calendar year – 52
● No of bank holidays in a year – 26
● Effective non banking days on which liquid deployment can be considered during
each calendar year - 182 days
 Therefore investment period - 182 days (assuming the investment to be made latest by
Friday, before 2.00 pm / 3 days return available on every weekend) and also some extended
weekends.
 This means a effective investment period of nearly ½ year.
Now, assuming that liquid funds on an average give an annualized return of 8.00% during
the year, the idle funds earn: 8.00%*182/365 = 4.00% on absolute basis.
 So if we take a base figure of 1 Crore invested every weekend & take only
8.00% as the average annual return, the idle funds i.e 1 Crore invested every
weekend will earn 4.00 lac during the year through week end parking in liquid
funds.
Nandy
Financial
LIQUID/ULTRA SHORT TERM
FUNDS
AN IDEAL CASH MANAGEMENT TOOL
May 2012
Liquid Funds
Nandy
Financial
• Liquid Funds are schemes which invests predominately in Money
Market Instruments like commercial papers (CPs), Treasury Bills,
certificates of deposits (CDs), call or notice money etc
• Money market instruments generally have a maturity period of less
than one year and are considered very liquid in nature
• These funds are an attractive alternative to corporate and
individual investors as a means to park their idle funds for short
periods
• Liquid funds endeavours to provide investors with moderate
income commensurate with low risk along with relatively
higher liquidity
• These Mutual Fund Schemes are regulated by SEBI and follow the
strict guidelines as outlined by SEBI
Liquid Funds – Key Benefits
Nandy
Financial
No Lock in Period: Generally there is no Entry and Exit Load in
Liquid Funds, so in addition to week days, this funds can also be used as
overnight/weekend funds parking destination.
Same Day Returns : Liquid Funds enables investors to earn same
day returns since purchase takes place on pervious day’s NAV
 Weekend Parking: Liquid Funds declare NAV on Sunday so
returns can be earned over the weekend by parking the working capital
instead of keeping funds idle.
 Redemptions from Liquid Funds generally happens on a T+1 basis
 Most liquid funds are highly rated, signifying minimum loss from
credit defaults
 Dividend : Tax free in the hands of the investors
Nandy
Financial
Ultra Short Term Funds - UST
 Ultra-short Term funds are Mutual Fund Schemes that generally invest in
fixed income securities with extremely short maturities, or time periods in
which they become due for payment
They invest in a range of money market and debt instruments with
maturities ranging from 3 to 18 months
Key Benefits :
• The ultra short term category funds provide treasury management and
short term (up to 6 months) investment solutions to investors
• Aims to deliver better yield in short term periods in a tax efficient
manner
• Higher accrual rate due to relatively longer maturities than liquid
funds
Nandy
Financial
Nandy
Financial
Nandy
Financial
Nandy
Financial
Disclaimers
The views expressed herein constitute only the opinions and do not constitute any guidelines
or recommendation on any course of acction to be followed by the reader. This information is
meant for general reading purposes only and is not meant to serve as a professional guide for
the readers. Certain factual and statistical (both historical and projected) industry and market
data and other information was obtained by Nandy Financial Advisory Pvt. Ltd.(Nandy
Financial)from independent third-independent, third party sources that it deems to be reliable,
some of which have been cited above. However, Nandy Financial has not independently
verified any of such data or other information, or the reasonableness of the assumptions upon
which such data and other information was based, and there can be no assurance as to the
accuracy of such data and other information. Further, many of the statements and assertions
contained in these materials reflect the belief of Nandy Financial, which belief may be based
in whole or in part on such data and other information.
Further, the information contained herein should not be construed as forecast or promise.
Mutual Fund investments are subject to market risks, read all scheme related documents
carefully.
Thank You

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