Reliance Capital Asset Management issued a notice to its investors changing the minimum limit in its scheme – Reliance Liquid Fund (Treasury Plan) – from Rs 5,000 to Rs 100. Also, the limit of any additional application has been reduced from Rs 1,000 to Rs 100.
Said Sundeep Sikka, CEO, Reliance Mutual Fund: 'We want to target the retail investors in smaller towns for all our schemes. Our strategy is like an FMCG company’s sachet strategy whereby they want to break the barrier in the user’s mind with low-expense products.'
The reduction in limit for liquid funds, the minimum ever according to industry players and distributors, has surprised many industry players. Liquid schemes are typically targeted towards high networth individuals (HNIs) and corporate clients. The minimum limits of these schemes, consequently, are on the higher side.
Liquid Funds are short-term funds that invest in instruments with maturities of three to six months. Their investments are mostly in money market instruments, short-term corporate deposits and treasury. The average maturity of these schemes ranges between four and 91 days.
Said a fund manager of an asset management company, 'Reliance MF is clearly looking at retail investor who don’t invest so much in such funds because of their short-term nature.' However, some players doubted the viability of such small deposits. 'Anyway fund houses earn only 10 to 20 basis points for managing these schemes. So, for really small amounts such as Rs 100, one wonders whether it will be a viable option for the mutual fund house,' said a debt fund manager. In numbers, it means that for managing Rs 500 crore for an entire year, a fund house earns barely Rs 50 lakh to Rs one crore.
The assets under liquid funds fell by 45,300 crore or 21 per cent to 1.29 lakh crore in July. 'The category witnessed large-scale redemption following the recent liquidity-tightening measures by the RBI to strengthen the rupee. The category (represented by CRISIL – AMFI Liquid Fund Performance Index), gave 0.37 per cent returns in the month,' said a CRISIL report. After the Reserve Bank of India announced tightening of liquidity, returns from liquid funds turned negative for a couple of days in July.
In the past, Reliance MF introduced micro systematic investment plan in equity funds where investors could put in Rs 100 per month. Even ICICI Prudential Mutual Fund had started a micro plan for Rs 50 per month. These schemes were targeted towards weaker sections or smaller town. But they have not done too well for the fund houses due to market conditions.