The Hindu Business Line : `Liquid plus' funds claim greater share of spoils

Kolkata April 23 In the midst of an obvious predominance of short-term debt products, the one class of funds that is now doggedly claiming a greater share of the spoils is what investment circles brand `liquid plus.'

With more than one player recently repositioning an existing product to win over investors who intend to gear up for a situation where liquidity remains tight and short-term rates stay on the higher side, these funds are being increasingly exhibited before the so-called smart money that needs temporary parking places.

Liquid plus funds - typically these are said to take advantage of increase in overnight rates and change the portfolio yield courtesy high duration bonds - have a certain added attraction insofar as large investors are concerned, it is pointed out.

Investments in funds like these may also be seen in the context of RBI's recent measures, especially the central bank's credit policy. As MF circles put it, it has to be seen what sort of changes stem from the April 24th announcements. The debt market, they add, has already gone through marked volatility in recent months. The last year-end was particularly newsy, it is pointed out. In fact, three-month CP/CD rates were quite high, ruling higher in March.

On the debt investment side, new opportunities are likely to spurt and investors with higher cash levels and investments in liquid funds are likely to be benefited the most, a review by Religare has noted.

Quite a few funds in this category exist today, each aiming to fill a certain gap in an investor's asset allocation strategy. Given unstable market conditions, a typical liquid plus product is said to score on account of a modest exposure to short and medium bonds (paper that is yielding optimal returns) and significant exposure to money market instruments that are expected to gain from hike in overnight rates.

Some funds change tack

Among the funds that have revised strategies in recent weeks are UTI Bond Advantage Fund and ABN AMRO Long Term Floating Rate Fund. These have been re-jigged into UTI Liquid Plus and ABN AMRO Money Plus.

The latter, observed distributor SKP Sec, was earlier chiefly focused on longer term floating rate instruments. Illiquidity and shortage of fresh issues, however, led to certain problems. Investors can exit it without paying exit load before May 15.

UTI Liquid Plus (the earlier avatar has been recast already) aims at investors with retail and institutional plans, with minimum investments of Rs 1 lakh and Rs 1 crore respectively. For institutional clients, there will be multiple options in terms of daily, weekly and monthly dividends.

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