Reliance Money Manager Fund nowadays sold by many as an alternative to your savings account, which gives you around 8% returns on your idle cash, access cash within 30 minutes in all 365X24/7 days and also no lock-in period. Whether this fund really a GOD gift to invest as an alternative to our savings account?
Recently I came across few such advertisement and found it strange that how badly they are selling this fund. Take an example of ET Money App which I saw recently in Times of India. The advertisement is eye catching and force you to download and start investing immediately. See the below images.
Who will not take the decision of investing with such an eye-catching 8% return on your idle savings account? Also, look at below image again.
Here, I am not questioning the features like Paperless, withdraw money instantly, 365X24/7 with just a click and other stuffs mentioned. But the biggest question I am asking is how the Ultra Short Term Fund be an alternative to savings account??
Reliance Money Manager Fund – Is it an alternative to bank savings account?
In fact, the Reliance Mutual Fund itself launched one App in the same manner and you may find the details of this app in below video. This App is called as “Reliance Simply Save APP”.
Also, see the so-called biggies or experts view regarding this Reliance Simply Save App in below video.
Features explained regarding this Reliance Simply Save App are as below.
# One click instant saving
You can invest using your phone using this app. I completely agree with this feature.
# Redeem money in 30 min. max, 365 days, 24X7
Yes, you can redeem money within 30 minutes in all days of year (including the holidays). Because Reliance Mutual Fund will transfer the money using IMPS (Immediate Payment Service) feature of fund transfer.
Hence, you no need to worry about liquidity.
Why Reliance Money Manager fund will not be alternative to your savings account?
I never think such an ultra Short Term Debt Funds be an alternative to Savings Account. I will try to explain each point separately which I felt necessary for better understanding.
Reliance Money Manager Fund is not Liquid Fund but an Ultra Short Term Debt Fund
We always recommend liquid fund as an alternative to the savings account. However, here the misleading point is that an Ultra Short Term Mutual Fund whose average maturity period is around 12 months is considered as an alternative to the savings account.
Check the two major risk factors of this fund. They are Average Maturity and Modified Duration of Fund. See what Reliance Mutual Fund itself categorized this fund as Open Ended Income Fund where the average maturity is around 12 months.
See the riskometer of the fund. It is mentioned as Moderately Low but not as LOW (which is mentioned for liquid funds).
Now let us see the average maturity and modified duration of the fund (as per valueresearch data) with the same Reliance Mutual Fund’s Liquid Fund. Before that let us understand the definitions of modified duration and average maturity.
What do you mean by Modified Duration?
It is a measurement of a bond’s sensitivity to movements in interest rates. It is usually measured in years. For example, if debt mutual fund with the modified duration of 3.1% means if there is a 1% interest rate movement then the fund will undergo the movement of 3.1%.
Hence, higher the modified duration means higher the interest rate risk.
What do you mean by Average Maturity?
A debt fund portfolio usually consists of a number of bonds where each could have a different maturity date. Maturity is the time period remaining before which a bond comes up for repayment by the issuer. Average maturity is simply the weighted average time left up to the maturity of the various bonds in a portfolio.
Higher the average maturity greater the interest rate risk of debt fund.
We now compare both Reliance Money Manager Fund risk with Reliance Liquidity Fund.
Below is the Modified Duration and Average Maturity of the Reliance Money Manager Fund.
Below is the Modified Duration and Average Maturity of the Reliance Liquidity Fund
For Reliance Money Manager Fund, the modified duration is 0.88 while for Reliance Liquidity Fund, it is 0.09. Therefore, for any 1% interest rate change, the Reliance Money Manager Fund will undergo the movement of 0.88% while Reliance Liquidity Fund it is 0.09%.
Now decide which fund is safe to consider yourself as equally safe to the savings account.
For Reliance Money Manager Fund, the average maturity is 1 yr while for Reliance Liquidity Fund it is 0.10 Yrs. Therefore, definitely, Reliance Liquidity Fund will bear the least interest rate risk than Reliance Money Manager Fund.
Considering these two factors, now decide yourself whether Reliance Money Manager Fund or Reliance Liquidity Fund suites your SAFETY equalling your bank savings account.
Here, I compared Reliance Money Manager Fund with their own Liquid Fund. There is no special logic in selecting Reliance Liquidity Fund.
Reliance Money Manager Fund is not so liquid as it is claimed
It is claimed that we will get the money within 30 minutes from the time of withdrawal request. However, there are certain limits to it.
Maximum amount applicable for Instant Redemption Facility will be up to Rs.2 lakhs, or 95% for folios without Any Time Money card (50% for folios with Any Time Money Card) of the Clear Current Value of Investments.
Therefore, you may assume that the maximum limit for redemption is Rs.2 lakh. Hence, in what sense this can match the savings account liquidity?
Reliance Simply Save, ET Money and FundsIndia’s Super Savings Account are linked to Reliance Money Manager Fund
I noticed that Reliance Simply Save App, ET Money App and also FundsIndia’s Super Savings Accounts are linked to Reliance Money Manager Fund and showcasing that we can earn more than savings account with high liquidity with less risk.
Sadly it is ultra short term debt fund which is riskier than the liquid fund. But all these middlemen and few mutual fund advisers selling this fund as an alternative to the savings account.
Why we keep money in Savings Account?
Why we keep money into the savings account? There are two reasons to it. One is instant accessibility to our money. The second reason is to make sure that money available at all time to meet our day to day expenses or emergency expenses.
In such a situation, expecting the HIGHER return from savings account MUST NOT BE our motto.
Taxation is completely ignored
Under Sec.80TTA of IT Act, you can claim the deduction of up to Rs.10,000 to an individual or an HUF for interest earned on the savings bank account held with a Bank, Post Office or a Society. You will have to pay tax on the remaining amount over and above Rs. 10,000.
There is no such tax benefits in case of liquid funds or Reliance Money Manager Fund.
Second thing, any amount over and above Rs.10,000 earning from the savings account is taxed as per your tax slab. However, in case of this fund, the whole capital gain is taxed as per your tax slab (if it is Short Term Capital Gain means you buy and sell the units within 3 years). Refer my latest post for the same “Mutual Fund Taxation FY 2017-18 and Capital Gain Tax Rates“.
However, when claiming or selling this fund many advisers may ignore this taxation part to lure you.
Debt Funds are SAFE is a BIG MYTH
Many advisers or so-called expert claim that debt funds are SAFE. However, except liquid funds, there are certain ups and downs based on the average maturity and modified duration of the fund.
For example, before 8th February, the ICICI Pru Long Term Gilt Fund had risen 21% in one year. But it was also the biggest loser after the policy, falling 3.7% in a span of two days.
There was a sudden fall on 8th February, when RBI announced it’s policy and not changed the interest rate (whereas many such fund managers or experts believed that there will be one more rate cut, which not happened and this resulted into heavy selling).
Therefore, never ever be in a belief that all debt funds are safe.
Reliance Money Manager is sold as ZERO Charges investment
It is sold by these apps and few advisers that there are no charges and this investment through APP or online account is at FREE of cost.
However, the Reliance Money Manager Fund’s expense ratio is 0.55% for Regular Funds and 0.23% for Direct Funds (As per February, 2017 Factsheet). Hence, where is the question of FREE of cost investment?
(Note-For Reliance Liquidity Fund expense ratio is 0.18% for Regular Funds and 0.10% for Direct Funds)
There are expenses related to this investment also. Claiming investment at free of cost and earning 8% above is just misguiding.
SEBI’s Concern related to Instant Redemption facility
SEBI raised the concern over such instant redemption facility provided mutual fund companies. The reason they put is “Fund houses can’t use their own money to meet redemption requirements. Money should come from the investments they have made. Sebi is very clear that this facility should meet the requirement of an investment product”.
It is completely true and if such facility provided without prior approval from the regulator, then it is a concern. Along with Reliance Money Manager Fund, two more funds offer such instant redemption facility and they are DSP BlackRock Money Manager and SBI Savings Fund. Stay away from such offers.
Considering all these reasons, what I suggest is invest in Debt Funds after analyzing the risk involved. Never rely on any fancy advertisements or luring numbers.