Retail participation in liquid funds is going up.
Liquid funds, which is predominately a cash parking option for corporates and HNIs, are now been gaining traction among retail investors too, says AMFI’s latest data.
AMFI data shows that retail AUM of liquid funds increased from Rs.4,100 crore in March 2016 to Rs.5,800 crore in March 2017, a growth of 43% or an addition of Rs.1700 crore over a year.
Experts attribute this renewed interest of retail investors to unattractiveness of traditional investments like bank savings account and FDs. They say investors are investing in liquid funds as it provides easy liquidity and offer better returns.
“A lot of first time investors first invest in liquid funds and later invest in equity funds. They use the STP facility available in the liquid funds to enter equity markets at attractive valuations,” says Lakshmi Iyer, CIO (Debt) and Head Products at Kotak Mahindra Mutual Fund.
Lakshmi, however, feels that retail participation in liquid funds is still low and the industry has a long way to go.
Killol Pandya, Head of Fixed Income at Peerless Mutual Fund believes that the retail participation in liquid funds would grow at a faster pace in future. He says, “With the interest rate likely to remain low, industry is likely to see higher demand for liquid funds from retail participants.”
Another factor that is making liquid funds attractive for retail investors is instant redemption facility offered by some fund houses. “Easy liquidity through instant redemption and increasing awareness among investors due to various investor awareness initiatives helped increase the retail participation in liquid funds,” says Joydeep Sen, independent bond analyst.
AMFI data shows that retail folios in liquid funds grew to 6.6 lakh in March 2017 from 2.76 lakh in March 2016. Though retail investors constitute 85% of liquid fund folios, the assets held by them only account for 2% of the total liquid fund AUM of Rs. 3.14 lakh crore.
“The needs of the retail investors are different. They invest through mutual funds to create wealth. Retail investors do not need money on a regular basis and they generally invest in liquid funds for STP. They do not normally churn their portfolios on a regular basis like a corporate entity,” says Vidya Bala, Head of Mutual Fund Research at FundsIndia.
Lakshmi says that many financial advisers do not recommend liquid funds due to low incentives. Once these advisers start recommending liquid funds, retail AUM would shoot up drastically, she adds.
