Cash Management
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Liquid Funds- Tool for Managing Idle Funds
A Class of debt mutual funds that allow anytime withdrawal. Liquid funds invest in money market instruments. Money market is a market for short term borrowing and lending. This market deals with debt instruments such as certificate of deposits, commercial paper and treasury bills.
These are open ended mutual fund schemes which help manage short term cash surpluses of investors and endeavor to provide optimal returns which low levels of risk and high liquidity
These funds are an attractive alternative to corporate and individual investors as a means to park their idle funds for short periods
It is Useful when there is surplus money lying idle and needs to be deployed for a short period of time. These funds would be invested in very short term debt & money market instruments (upto 91 days), which are highly rated, providing easy liquidity and returns in line with that prevailing at the market conditions at the shorter end of the yield curve
Features of Liquid Funds
• Day Parking Concept & Holiday Parking Concept
• Weekend parking Concept can be followed and NAV of Sunday is also allotted. (Friday to Monday Parking)
• Same Day Returns: Liquid funds enables investors to earn same day returns since purchase takes place on previous day’s NAV.
• Since the money is invested in predominantly risk free securities, the risk is next to negligible.
• Redemptions from Liquid Funds generally happens on a T+1 Basis.
Cost of Money Lying Idle…
For Example
Money is Savings Accounts + 10,00,000
Interest Earned in 1 Year ( @ 4% Per Annum) + 40,000
Total   10,40,000
Tax on Interest (@33.99%) - 13,596
Impact of Inflation ( @ 5% per annum ) - 50,000
Value at the End of 1st Year   9,76,404
Cost of Money lying Idle (Loss) 23596
Weekend Parking
For Example
Weekend Parking Illustration Rs 1,00,00,000
Funds are Parked on Friday Before 2 Pm Rs 1,00,00,000
Redemption happens on Friday Before 3 P.m. All Units
Payout will happen on Monday Morning (3 Days Return Assumed Return of 7% P.A. Approx) Rs 5753
Earning Per Year (52 Weeks) Rs 276164
Earning Per Month (Assuming 4 Weekends in Month) Rs 23013
Day Parking
For Example
Day Parking Illustration Rs 1,00,00,000
Funds are Parked on any Day Before 2 Pm Rs 1,00,00,000
Redemption happens on same day Before 3 P.m. All Units
Payout will happen on T+1 Working Day (Return Assumed as 7% P.A. ) 1917
Daily Opportunity (365 Days – 52 Weekends ) 209 Days
Earnings Per Year Rs 400653
Earning Per Month Rs 33387
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Mutual fund investments are subject to market risks. Read all scheme related documents carefully
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