Cash Management
Where Every Angle Matters
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
|
