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| November 25, 2016 |
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Impact 
Gone are the days when you had to bear a 20-minute hold to book a cab. Now through app-based taxi operators, you can book a cab almost instantly. Even in the mutual fund industry, processes that took hours or days, today takes just few minutes. Thanks to technology, you now have e-KYC, paperless transactions, consolidated account e-statements… and you can even transact using WhatsApp.
As you get used to the 2-minute lifestyle, you may soon need to wait less than an hour for your redemptions from liquid funds. On November 17, the Securities and Exchange Board of India (SEBI) asked mutual funds to explore the facility of instant withdrawals from liquid funds. At the meeting of the Mutual Fund Advisory Committee, SEBI proposed that investors should be able to redeem up to Rs 2 lakh instantly. If this implemented by all fund houses, across liquid and liquid plus schemes, it will be a good move for retail investors.
Under the existing regulations, it takes about 1-3 working days to process redemption requests for liquid funds. Even though liquid schemes earn a higher return (on an average) compared to a savings bank account, many tend to skip committing a large amount of savings to liquid schemes due to this time gap in liquidity. If you were setting money aside for an emergency, instant liquidity is a necessity! Naturally, you will prefer to keep the money lying in a savings account. But now, with liquid funds offering instant liquidity or insta-cash, it will put them at par with savings bank accounts.
At present, only a couple of fund houses are offering instant withdrawals under their liquid schemes. Reliance Mutual Fund offers this facility in Reliance Money Manager Fund. With this facility, it takes under 30 minutes to transfer the redemption amount to your bank account. In 2011, the fund house even introduced the Reliance Any Time Money (ATM) Card. You can use the Visa enabled ATM card for withdrawals and purchases, just like any other debit card. Albeit, with certain limits. There are no additional service charges. Recently, DSP BlackRock Mutual Fund introduced an instant redemption service under its scheme DSP BlackRock Money Manager Fund.
Instant Redemption
- Uses the Immediate Payment Service (IMPS) provided by various banks
- You will receive the funds in your bank account in less than 30 minutes
- You can withdraw a maximum of Rs 2 lakh or the redeemable balance
- This facility is available 365 days, 24x7
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Will other mutual fund houses follow suit?
We have seen fund houses innovate and come out with unique investment strategies and facilities to lure investors amidst competition. If one fund house announces an innovative product, other fund houses bring in something similar. So in all likelihood, some may follow suit making it convenient for unitholders to address liquidity needs.
On the other hand, some fund houses may not be willing to provide this facility keeping costs in mind. Liquid schemes come with an extremely low expense ratio, and offering additional services, may mean levying an extra cost, which some may not be ready for. At present, ‘regular plans’ of most liquid schemes charge an expense ratio (annual fee) of 0.1%-0.7%. About one-fifth of the schemes charge fees in excess of 1%. Among such schemes are: DSP BlackRock Money Manager and Reliance Liquid – Cash Plan.
It is also important to note that bulk of the investments in liquid and debt funds is from corporates. As per the latest industry report, institutional investors account for 92% of the assets in liquid schemes and 64% of the assets in debt-oriented schemes. The instant redemption feature is not available for institutional investors. Therefore, as fund houses vie for assets from large corporates based on performance, they would strive to keep costs at the minimum.
However, with strong inflows expected – thanks to demonetisation – many fund houses could consider the proposition of instant liquidity. According to news reports, the fund industry is expecting a huge inflow of nearly Rs 1.5 lakh crore from retail and HNI investors over the next few months. With the flush of inflows, fund houses would gain with better economies of scale. This will help them provide better services to investors.
Should you take advantage of schemes offering instant liquidity?
At present, your choice is limited. Other fund houses, with SEBI’s push, may offer this facility. However, unless SEBI mandates it, it may not become an industry norm. Until that, you should not pick schemes only based on the convenience offered.
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Impact
Those with a heap of black money got a rude shock on November 8, 2016. The decision of the Government to scrap old Rs 500 and Rs 1,000 notes, created anxiety among hoarders of currency.
What happened after that requires no mention, as we all have been a witnesses to the aftermath of this historic move.
But stories of trades mushrooming in the backyard are unknown to many. People with loads of cash were in search of some “honest friends and relatives” with no dark history with the tax department. The trade was simple, “Please lease me your account to stash my unaccounted cash.”
If you’ve permitted your friends, relatives, or even a stranger to use account to do this, beware! There is more than a reason why you should say no to all such people approaching you.
Here’s why…
Following the demonetisation move, the income tax department has become extremely vigilant and active. It is keeping surveillance on businessmen to ensure that the scrapped currency is not being misused. The large and suspicious cash deposits of cancelled notes are also under the scanner of the income tax department. The department is examining the sources of such deposits.
The income tax officials briefed media saying, “The notices are being issued where the department feels the cash deposits made in the demonetised currency is suspect. This is part of the vigil that the taxman has deployed to check instances of tax evasion, money laundering and black money in the wake of the demonetisation of the two high denomination currencies on November 8.”
So, learn to turn down the earnest requests made even by your closest relatives to deposit his/her cash in your account. You never know, you might be inviting trouble if you just give in to their requests.
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Impact
As the cash-rich Indians have become cash-starved, the economy now runs a severe risk of a slowdown. The routine of crores of Indians changed soon after the radical announcement of demonetisation of old Rs 500 and Rs 1,000 notes came out. Nearly two weeks hence, urban life seems to be getting back to normalcy, albeit slowly, but 6 lakh villages in India are still struggling with the cash crunch.
The decision to scrap nearly 86% of India's currency has received a mixed response. Some treat this as a revolutionary step that would help fight with the devil of black money more efficiently, while others are sceptical about the success of this decision. Under such uncertain times, people tend to delay their buying decisions until they get clarity on everything—price trends, their future income and interest rates.
Empty pubs in Delhi-NCR, slack in some of the busiest consumers' markets across the country, less crowded restaurants and shopping malls narrate the whole story. Without any doubt, Indian economy is cooling off, how long this phase will last is a real question.
Before the demonetisation came in effect, India was perceived to be leading the global growth engine. International Monetary Fund (IMF) had recently revised India's estimated GDP growth for FY 2016-17 from 7.4% to 7.6%.
Justifying this revision, IMF had noted:
| "India's economy continued to recover strongly, benefiting from a large improvement in the terms of trade, effective policy actions, and stronger external buffers, which have helped boost sentiment." |
In the wake of demonetisation, India's domestic trade is bound to suffer shocks. Now it just remains to be seen by how many percentage points IMF cuts its forecast for Asia's third-largest economy. It expects China to grow at 6.6% this year.
Rough estimates of other market observers suggest that India's GDP growth is likely to slip below that of China. However, Government of India seems to be ruling out any such possibility, at least for now.
To read more about this story and Personal FN's views over it, please click here.
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Impact
Federal Reserve's (Fed) monetary policy affects capital markets across the globe to a vast extent. Rising interest rates in the U.S. are often linked to outflows from emerging markets. Until recently, it was believed that the Fed would gradually increase the target range for the federal fund's rate if the job market improves further and inflation inches closer to its 2% target. There has been a consensus among market experts, economists and bankers across the globe about Fed hiking interest rates in the Federal Open Market Committee meeting in December 2016.
As per the labour statistics published on November 4, 2016, the unemployment rate dropped to 4.9% in October as the world's largest economy added 1.61 lakh non-farm payroll jobs.
Further, the retail inflation in October came in at 1.6% while the core inflation (retail inflation excluding food and energy items) stood at 2.1% in October on a year-on-year basis. This suggests that if oil prices go up for any unforeseen reasons, the overall inflation may rise above current levels.
Fed's outlook on monetary policy stance in pre-election times...
"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal." |
Mr Donald Trump's unexpected victory seems to have now divided experts and economists in two teams. The Dollar Index recently climbed to a 13-year high displaying anxiety among investors.
The jury is still out on Donald Trump's policies…
One camp believes, Mr Donald Trump may actually go ahead with his plans, impose immigration and trade policies he promised during election campaigns. If it happens, growth will take a hit in the near term. Such policies would also change Fed's economic outlook, and in effect, it's monetary policy stance.
To read more about this story and Personal FN's views over it, please click here. |
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ATMs run dry very fast these days. Withdrawing money over the counter is a painful task. If you are tired of waiting in long queues at bank ATMs, you have a reason to smile. You can just swipe your debit card and get Rs 2,000 at a petrol pump that has a swiping machine installed by SBI. Close to 2,500
Within next few days, nearly 20,000 outlets of the Government-run oil companies with swiping machines of SBI, ICICI Bank, HDFC Bank, City Bank will provide you with this facility.
Hopefully, petrol pumps will efficiently manage this dual responsibility of running a fuel station and dispensing cash.
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Liquidity Crisis: A liquidity crisis is a negative financial situation characterized by a lack of cash flow. For a single business, a liquidity crisis occurs when the otherwise solvent business does not have the liquid assets (i.e., cash) necessary to meet its short-term obligations, such as repaying its loans, paying its bills and paying its employees. If the liquidity crisis is not solved, the company must declare bankruptcy. An insolvent business can also have a liquidity crisis, but in this case, restoring cash flow will not prevent the business's ultimate bankruptcy.
(Source: Investopedia)
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Quote: "If you took our top fifteen decisions out, we'd have a pretty average record. It wasn't hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigour."- Charlie Munger
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