Instant redemption helps lure retail investors to liquid funds

Enter the world of Liquid and Overnight funds, which have long been the playground of corporate treasuries for parking idle funds. Now, these debt mutual funds are catching the interest of individual investors, who are shifting the ready to use cash to these products. And this is thanks to a feature called Instant Redemption, which is steadily being seen as a game changer.

“The facility makes it easier to use mutual funds for everyday cash needs, while retaining the simplicity of an overnight fund,” said Vishal Jain, CEO of Zerodha Mutual Fund

With Instant Redemption, investors could log into a fund house app, request a withdrawal, and within minutes, the money hits their bank account.

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Double attraction These debt funds offer fast cash in addition to better returns

“An investor can use this feature for any emergency funding and yet make his idle money earn some return,” said A Balasubramanian, MD and CEO of Aditya Birla Sun Life Mutual Fund.

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The math is clearly in favour of a liquid fund with an instant redemption facility. These funds are currently yielding between 6.5% and 7%. Industry officials said the facility is gaining popularity among investors, especially the younger lot looking for superior speed of transaction. Consider a volatile trading day. Equities are down 2%, and an investor wants to buy the dip.

This feature will unlock some of her cash in a debt fund immediately. Typically, redemptions done through this facility hit the bank account in less than 30 minutes. In contrast, if an investor goes for a standard “switch” to an equity fund, the transaction might not process until the next day. “On sharp market down days, Instant Redemption allows investors to withdraw and invest in equity-oriented funds with same-day NAV,” said Santosh Pandey, head of Client Service and Operations at DSP Mutual Fund, sees this play out often.

Still, the adoption is limited. This is partly because the feature isn’t yet integrated into many third-party distributor websites. To use it, investors generally have to go directly to the fund house’s own website or app. Moreover, there is a cap on how much money can be instantly redeemed.

Most funds allow you to instantly only pull out 90% of your investment value, capped at `50,000 per day. Anything beyond that follows the standard one-day payout cycle. That may not appeal to the more affluent investors who insist on higher anytime liquidity limits.

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