Mutual Funds
Mutual funds launch new schemes to tap high interest rates of bank CDs

Mutual funds are launching liquid schemes and fixed maturity plans that bring together corporates with surplus money and banks willing to pay high rates on CDs in a tight money situation

The mutual fund industry, which is struggling to retain size, has found a new opportunity in certificates of deposit (CDs). Fund houses are now using an existing scheme (liquid plus) or creating fixed maturity plans (FMP) which will invest only in CDs.

Banks use CDs to borrow money from each other. It is transferable and has a secondary market. Ticket sizes for this instrument are very large and the tenure can be as short as 15 days or up to a couple of years. This enables them to give an 'indicative' yield (For, how the hell will SEBI find out when it is verbal?), without which a corporate investor will not park money. Of course, there are savvy corporates with large treasury operations, who invest in CDs directly with banks. But not all are savvy enough. Besides, going through a distributor is generally more rewarding at personal levels.
There are short-term CDs (of three months or so) which can earn 6-7% and one-year CDs which can give 9-10% per annum. Doesn't this sound juicy? Especially when bank deposits today earn barely 8% a year?

However, CDs are issued in lots of Rs25 crore and more. Corporates use such schemes to park their liquid surplus and opt for the 'dividend' option. This means that corporates get their full returns after payment of dividend distribution tax by the mutual fund. So everyone is happy. The fund house gets funds that boost its total corpus. The banker gets money to lend. The corporate investor gets good returns that are tax effective. The distributor gets his commission (anything from five paise for a liquid plus scheme to 35-40 paise for a FMP) and some of it may find its way back to the corporate entity or its employees through various routes.

'Indicative' yields range from 8.5% per annum for as short a period as a month, to over 9% per annum for 15 months. There are exit loads also, but if the corporate is savvy enough, it could negotiate with the distributor to ensure that the indicative yield is met.

While officially there are no guarantees, in the case of a difference between the indicative and actual yields, it is generally made good to key clients. This would be routed in different ways, but will ultimately come from the coffers of the asset management company (AMC), and only in rare cases from corporates or institutional distributors.

For the mutual fund industry, the season of CDs has come early this year. Typically, every year there is a spike in bank CDS around March. But this year, on account of the tight liquidity conditions in the financial system, banks have already started raising money from each other through CDs.
There will likely be opportunities for retail investors too, as some fund houses also accept amounts as small as Rs5 lakh. All in all, not a bad option at all.




6 years ago

The FMP's are normally invested by HNI's who need tax adjusted returns. FMP of short tenure range from 1 to 6 months. As the CD & CP rates of 1 year duration is between 9.70% to 9.90% the short term bonds too offer around 8.50 to 9% and 1 year gives around 9.3% +. These CD & CP returns are in the public domain and there is no need for the MF to go around giving indicative returns too. These are products which give excellent tax adjusted return to the investor but are not a revenue getter for the distributor. But still most of the distributor recommend these products.



In Reply to MK 6 years ago

MFs r not revenue getters for distributors now. But in order to earn livelihood and by thinking that something is better than nothing, he is forced to sell whatever the investor likes.

Personal finance Wednesday

Sundaram MF unveils Fixed Term Plan–AH; EzRemit ties up with Axis Bank for remittance service; Rel Life got max policy sales among private insurers in Apr-Nov; Sundaram MF floats Fixed Term Plan–AJ

Sundaram MF unveils Fixed Term Plan–AH

Sundaram Mutual Fund has launched Sundaram Fixed Term Plan–AH, a close-ended income scheme.

The investment objective is to generate income with minimum volatility by investing in debt and money market securities, which mature on or before the maturity of the scheme.

The minimum amount is Rs5,000. The new issue closes on 31 December.

EzRemit ties up with Axis Bank for remittance service

EzRemit, part of money transfer services provider BFC Group Holdings, has signed a strategic agreement with private lender Axis Bank to facilitate an instant money transfer facility to receivers in India from across the globe.

The service will be available to Axis Bank account holders and also to receivers who are not Axis Bank account holders in India, a senior BFC Group Holdings official said.

BFC Group Holdings MD and CEO Ebrahim Nonoo said, “The tie up with Axis Bank is a vital part of our vision to expand our presence across India, one of the largest remittance markets in the world.”

Being one of the leading private banks in India, Axis bank with its vast network has the capability to deliver EzRemits’ reliable and convenient services to our growing customer base across India.

Rel Life got max policy sales among private insurers in Apr-Nov

Anil Dhirubhai Ambani Group company Reliance Life Insurance has emerged as the leading private sector insurer in the country in terms of the number of policies it sold in the first eight months of the current financial year.

Reliance Life Insurance sold 13,12,389 policies between April and November, 2010, as against 12,61,668 in the corresponding period last year, according to Insurance Regulatory and Development Authority (IRDA) data.

"Our wide-ranging products, catering to every section of the society, and pan-India presence with quality service helped us notch up this business milestone," Reliance Life Insurance executive director and president Malay Ghosh said.

Reliance Life was followed by Bajaj Allianz and ICICI Prudential, which sold 9,49,183 and 8,26,904 policies, respectively, between April and November this year.

Sundaram MF floats Fixed Term Plan–AJ

Sundaram Mutual Fund has launched Sundaram Fixed Term Plan–AJ, a close-ended income scheme.

The investment objective is to generate income with minimum volatility by investing in debt and money market securities, which mature on or before the maturity of the scheme.

The minimum amount is Rs5,000. The new issue closes on 7th January.


Rs 400 cr fraud at Citibank’s Gurgaon branch; 20 HNIs swindled

New Delhi: A banking fraud which could run into a whopping Rs400 crore has been unearthed at leading multinational lender Citibank's Gurgaon branch in north Indian state of Haryana, reports PTI.

Gurgaon Police Commissioner SS Deswal said on Tuesday that an First Information Report (FIR) under sections of cheating and forgery against a bank employee and three others has been lodged and 18 accounts having close to Rs4 crore frozen.

Sources said funds amounting to Rs400 crore ($88 million) of 20 high networth individual (HNI) customers has been siphoned off.

The fraud is said to be a handiwork of Shivraj Puri, the employee who is alleged to have sold investment products to high networth clients claiming that they would generate unusually high returns.

It is also alleged that Mr Puri, who is named in the FIR, showed a forged notification of market regulator Securities and Exchange Board of India (SEBI) for obtaining funds from customers.

He is also accused of claiming that these products were authorised by the bank’s investment product committee.

The bank in a statement said, “We immediately reported the matter to all the relevant regulatory and law enforcement authorities. Identified suspicious transactions have been isolated and we are providing full assistance to the authorities in their investigations.”

Sources said Mr Puri allegedly sought deposits from high networth customers in lucrative schemes but transferred the funds to some fictitious accounts.

Funds amounting to Rs400 crore belonging to about 20 customers were transferred to such accounts, they said.

“We recently initiated an investigation into a certain set of suspicious transactions based on documents forged by an employee involving a few accounts in our Gurgaon branch,” the bank statement said.

The bank said the issue did not impact other accounts or transactions or customers of the bank.

The fraud comes to light a month after the Central Bureau of Investigation (CBI) uncovered the bribes-for-loan racket leading to arrest of many senior officials of the banks and financial institutions.

The bank officials had allegedly colluded with the firm to sanction large scale corporate loans, overriding mandatory conditions for such approvals along with other irregularities.

CBI has arrested CEO of Life Insurance Corporation of India (LIC) Housing Finance and seven others senior bankers including Naresh K Chopra, Secretary (Investment), LIC, RN Tayal, General Manager of Bank of India and Maninder Singh Johar, Director (Chartered Accountant) of Central Bank of India.



Rajan Manchanda

6 years ago

I have had a similar experience with Kotak Mahindra Bank Ltd wealth Management. They fraudulently collected a cheque for Rs.2.27 crores for a private Equity Fund "India Growth Fund" from me and paid Rs.1.25 crores to the seller of the fund. Duping me by Rs.1.02 crores.This is only a part of what transpired . The loss runs into crores of Rupees. When Bank itself is involved why be shocked by employee frauds at banks.

Shankar Ram

6 years ago

Well Well.... doesnt it sound like the popular fiction "If God was a Banker". Everyone knows that the fictional New York International Bank in that book was Citibank. Isnt it a curious case of Real Life imitating Ream (of paper)

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