What is the top criterion while choosing a place to park your emergency funds? For most of us, instant access to funds is one of the most important factors. And this is where balance in savings bank account and fixed deposit score well over other avenues such as liquid or Ultra Short Term debt funds. You can access funds whenever you want.
With liquid funds, you get the funds for redeemed units the next business day. Your problem only compounds if you need the funds over a weekend or a holiday. Well, you don’t know when you will face an emergency.
If I were to tell you that you have a few schemes now where the redemption amount is credited to your bank account instantly, will your planning change? Perhaps, yes.
In the past few months, Reliance AMC and DSP BlackRock have started Instant Redemption Facility for redemption in Reliance Money Manager Fund and DSPBR Money Manager Fund respectively.
Let’s find out more about these schemes.
Reliance Money Manager Fund
- Ultra Short Term Debt Fund
- Redeemable Balance for Instant Redemption is 95% of current value of investments, if Any Time Money card is not issued.
- 50% of the current value of investments otherwise
- There is an additional cap of Rs 2 lacs i.e. you cannot withdraw more than Rs 2 lacs. As I understand, this cap of Rs 2 lacs per day.
- Minimum redemption amount is Rs 500.
- Instant Redemption Facility not available to Non-residents
- The facility is available throughout the year, 24X7. So, you don’t have to worry about weekends and other market holidays.
As per Reliance AMC website, instant redemption facility is not available for units under lien or held in demat mode.
Reliance AMC claims that the amount will be in your bank within 30 minutes and this facility is available 24X7.
Do note instant redemption facility is over and above other modes of redemption under the scheme.
How instant is the redemption?
I tried to redeem a dummy amount from Reliance Money Manager Fund from Reliance Mutual Fund website. The money was in my bank account in less than 2 minutes. Quite impressive, isn’t it?
Do note I did the transaction from AMC website itself.
As I understand, the facility is available only for redemptions through Reliance AMC website. Perhaps, this facility will be extended to other transaction portals/digital platforms later.
Their app didn’t work on my phone. Hence, I can’t tell if the instant redemption facility is available over Reliance MF app too.
DSP BlackRock Money Manager Fund
- Ultra Short Term Debt Fund
- Redeemable balance for Instant Redemption is lower of Rs 2 lacs or 95% of the clear balance
- Minimum redemption amount is Rs 100.
- Instant redemption facility is not available to NRIs (Non-residents)
- No instant redemption facility for units held in demat mode.
- Instant redemption facility is available only for transactions through the website of DSP BlackRock.
- The facility is available 24X7.
The money is transferred instantly through IMPS (Immediate Payment Service).
How can Instant Redemption Feature help?
Many of us keep a significant amount in savings bank account or fixed deposits so that we can access the amount any time we want.
With liquid funds, you get the funds the next business day. This can be a slightly bigger problem if you need the money over the weekend. You can’t.
With this instant redemption facility, at least the fund availability aspect is in line with savings bank account or fixed deposit.
You can expect far better returns in Ultra Short Term debt funds as compared to savings bank account. Reliance Money Manager Fund has given 8.82% returns in the last one year (as on December 2, 2016). DSPBR Money Manager Fund has given 7.68% in the last year. Much better than 4% in savings bank account (though a few banks offer higher returns).
Do note the returns are not guaranteed and may vary.
As with any debt fund, the tax liability is triggered only at the time of redemption. If you redeem before 3 years, capital gains are taxed at marginal income tax rate. If you redeem after 3 years, the capital gains are taxed at 20% after indexation.
This can be significant advantage over fixed deposits. With fixed deposits, the interest income is taxed on accrual basis (without you even receiving it). In case of emergency, if you have to break a FD, there might be penalty involved too.
Hence, if you are not sure if you need to draw from a corpus in the next 3 years (which is usually the case with emergency and medical emergency corpus), debt funds, including the two funds under discussion, could be good option.
What are the risks involved?
Do note returns in debt mutual funds are not guaranteed and are market linked.
Reliance Money Manager has duration of 0.86 while DSPBR has duration of 0.34 (as on December 2, 2016). Hence, such funds are susceptible to interest rate movements (although the impact may not be as high due to low duration).
There is exposure to credit risk too i.e. there might be a default on underlying security. Both the fund schemes invest in high credit quality securities though.
Do appreciate you can even suffer a loss in such schemes. However, these are pure debt schemes (with high credit quality investments and low duration) and chances of a loss are relatively low.
Such liquid or Ultra Short Term Debt schemes as Reliance Money Manager and DSP BlackRock Money Manager Funds can be extremely handy.
By the way, you can expect other AMCs to follow suit very soon.
In my opinion, in bigger cities, where credit cards are easily accepted, the need for such instant redemption may not be very high. You can always swipe your credit card to make the payment and can subsequently redeem your investment through any channel. And don’t forget about the cap on Instant redemption amount.
However, at places where acceptance of credit cards is in doubt, investment in such schemes can be useful.
By the way, there might be some delays in depositing funds to your account due to technical or any other issues. And this is not a figment of my imagination. This is mentioned in information documents for such schemes. So, be prepared for such issues.
Therefore, in my opinion, even though such funds can be quite useful, these cannot be replacement for money that you keep in the savings account. You must keep some amount (will vary) in savings bank account/fixed deposits. And you can park a certain portion of emergency funds in such schemes.
I like Ultra Short Term and Short Term Debt funds more than long term debt funds (even for purposes other than emergency). So, I like the entire proposition of instant redemption (even though I may not need it). Well, I can’t complain if I get instant redemption too.
Such funds with instant redemption facility can be a good place to park funds for emergency needs.
Disclosure: I am invested in Reliance Money Manager Scheme. However, it is not for emergency corpus.
Additional Terms and Conditions
- Reliance Money Manager Fund, Detailed Terms and Conditions
- DSP BlackRock Money Manager Fund, Additional Document
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