Mutual Funds

Solid returns from liquid funds

Maulik Madhu | Updated on January 16, 2018 Published on December 18, 2016


They have delivered 6-8 per cent return over the last year

Liquid funds can fetch you better returns, albeit at a slightly higher risk, compared to your savings bank account. Over the last one year, they have delivered 6-8 per cent return. These funds invest in debt instruments, such as commercial papers (CPs), certificates of deposit (CDs), treasury bills (TBs) and bank fixed deposits (FDs), with residual maturity of less than or equal to 91 days.

Among the past year’s top performers are Escorts Liquid Plan that delivered 8.1 per cent return, followed by JM High Liquidity Fund, Birla Sun Life Cash Plus and DHFL Pramerica Insta Cash Plus Fund, each of which generated 7.8 per cent.

At the bottom were Franklin India Cash Management Account, HDFC Cash Management Fund - Call Plan and L&T Cash Fund. Their returns varied from 6.4 to 6.6 per cent.

But these are small-sized with asset base of a few hundred crores. Among larger funds, HSBC Cash Fund Regular (6.7 per cent), Baroda Pioneer Liquid Fund Regular (6.9 per cent) and Reliance Liquid Fund Cash Plan (6.9 per cent) were the so-called laggards.

The lead performer, Escorts Liquid Plan, has been investing a massive proportion of its corpus in the high-return but relatively riskier CPs. Currently, three-month CPs offer a yield of 6.6 per cent, down from 7.9 per cent a year ago. The share of CPs in the fund’s corpus went up to as much as 90 per cent many a time in the past year.

The fund’s asset base of only a few hundred crores, though, makes it susceptible to redemption pressures.

The other leading funds have been investing a chunk of their funds in CPs as well as in the relatively safer CDs. As of end November 2016, JM High Liquidity Fund had 45 per cent of its corpus in CDs and 21 per cent in CPs. Birla Sun Life Cash Plus, on the other hand, had 55 per cent of its money in CPs and only 12 per cent in CDs.

The respective shares for DHFL Pramerica Insta Cash Plus Fund were 58 per cent and 22 per cent.

At the bottom

The smaller funds invested a chunk of their money in safer avenues, such as cash and cash equivalents (includes call money market and Collateralised Borrowing and Lending Obligation) and treasury bills at different points during the past year. While HDFC Cash Management Fund - Call Plan kept all its corpus in cash and cash equivalents all through, Franklin India Cash Management Account parked a large part in cash and cash equivalents and/or treasury bills every now and then.

The big ones, though, invested substantially in CPs and CDs all through the year. Take, for instance, Reliance Liquid Fund - Cash Plan.

The fund’s investment in CPs varied between 50 and 90 per cent of its corpus through the year but this was confined to highly rated papers only.

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Published on December 18, 2016
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