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MFs woo badla financiers to park funds

BS Markets Bureau

Just a couple of months back, it was voluntary retirement scheme money that mutual funds were targeting at. But of late badla financiers are proving to be the hot favourites. With badla ceasing to exist on the bourses and no viable investment option left, mutual funds are seeing this segment as fair game what with a fund size of around Rs 15 billion.

Leading fund managers have unleashed advertisements in a bid to woo badla financiers. According to senior officials at Zurich Mutual Fund and Prudential-ICICI MF, which have released ads inviting vyaj badla funds, responses have already started coming in.

As soon as the Securities and Exchange Board of India announced a ban on badla effective from July 2, mutual funds confessed to receiving feelers from this segment as to alternative avenues for parking their money. "That was when we decided that this was a prospective segment for us to tap into," said a Zurich MF official.

Liquid schemes floated by mutual funds typically give returns between 8 and 10 per cent depending on the interest rate scenario. A large chunk of the money is invested in the call market and other highly liquid instruments, such as high-yield bonds.

Fund houses are stressing on the high liquidity which the schemes offer coupled with the relatively low risk as opposed to badla financing. "In the case of badla financing, the financiers would have to wait for the payment and settlement cycles to get back their money. But here, we are offering them instant liquidity", said an official at Pru-ICICI. The units being held in the name of the investor also offers safety to them, which is not always the case in vyaj badla financing.

While fixed deposits and commercial papers are alternative investment options, FDs of banks are not all that liquid while the tax deduction at source of above 30 per cent is a serious deterrent. CPs are attractive but then there is always the ominous shadow of defaults. Though mutual funds are subject to market vagaries and the net asset values can go up or down, the uniqueness of liquid schemes are that they have a secular trend upward.

However, fund houses are safeguarding themselves from their schemes being used as an extremely short-term investment avenue. Pru-ICICI has an exit load of 0.25 per cent if the money is withdrawn within five days. Other fund houses with liquid schemes are also waiting to see how the scenario unfolds before starting their own marketing campaigns.

According to an UTI official: "Now, investors are looking at a better investment alternative to park short-term funds and liquid funds are a smarter option in the current scenario as these funds provide a higher rate of return over bank deposits and are less riskier than investing in stocks."

Recently, UTI has started aggressively marketing its liquid plans, UTI G-Sec and UTI Money Market. UTI G-Sec has given a return of 13.03 per cent under growth option and 412.64 per cent under income scheme in the last 12 months. While the UTI Money Market Fund has given a return of 9.90 per cent in the last 12 months.

Zurich India Liquidity Fund has given a return of 9.66 per cent under saving option and 10.11 per cent under investment plan in the last 12 months, while Pru-ICICI's liquid plan has given a 9.02 per cent return in May alone (on an annualised basis).

However, a section of the market is cynical about the huge outflow as a number of brokers had not routed the vyaj badla funds through the exchange and had siphoned off the funds.

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