February 21, 2017

Reliance Money Manager Fund – Is it an alternative to bank savings account?

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.

ET Money App

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.

Reliance Money Manager Fund Features

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.

Reliance Money Manager Fund Riskometer

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.

Reliance Money Manager Portfolio

Below is the Modified Duration and Average Maturity of the Reliance Liquidity Fund

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.

55 Comments

  1. Hi Basu,

    I have major goal in 2 yrs to arrange funds for my sisters marriage – so need to save for that

    A)I have 4 lacs lump sum money which i plan to invest in debt funds distributed across 4 different funds

    UTI Dynamic Bond Fund – 1 lac
    HDFC Short term opp Fund – 1 lac
    UTI Banking PSU Fund – 1 lac
    BSL FRF Long term plan – 1 lac

    B)Then I want to invest 30K PM in SIP mode, where I want to put ~7K PM SIP against each fund mentioned above.

    Please suggest if its the best way to get surplus of 12 lacs+ after two years from now.

    Reply
  2. I have been using this fund and its ATM card for a long time. thogh i never used it for money, but it feels good to have an option if the need arises

    Reply
    • Investor-If you know the risk involved and still invested, then it is purely your decision. But you invested BLINDLY, then NONE can save you also.

      Reply
  3. Hi Basavaraj

    Please suggest me a mutual fund to invest 1 lac in single time to get a handsome return like 1 crore in 20 years.

    I am thinking to invest in
    1. Birla Sun Life mid and small cap direct fund (Growth)
    or
    2. Kotak Select Focus fund
    or
    3. Reliance Small Cap
    or
    4. HDFC top 200 fund

    I am ready to take risk for this money

    Thank you
    Karan Giri

    Reply
    • Karan-I expect around 10% to 12% from equity and if we allocate around debt and equity in the ratio of 30:70 for your goal, I expect portfolio return of around 10.5%. I don’t know about your expectation. You need some basics before jumping into so-called fancy funds investment. Refer my post “Top 10 Best SIP Mutual Funds to invest in India in 2017“.

      Reply
  4. How is etmoney app for investment in mutual funds, is it safe and does it provide direct option? Please let us know.

    Reply
      • Thank you sir.

        Reply
  5. A very helpful article to clear my doubts about Money Manager funds. Thank you 🙂

    Reply
  6. Hi Basavraj!

    I am a financial advisor, and I have been advising my clients to invest in the Reliance MMF scheme. I have also invested in the scheme. The way I am advising them is that this is a scheme where you can earn little more than FD rates, so I suggest that instead of investing in FDs they should invest in this scheme. So the scheme is NOT for parking liquid cash, but a better alternative to FDs. Is my analysis wrong?

    Also, when I see my capital gains statement from the scheme (I am on dividend reinvestment option), it shows my tax liability is zero. I have made withdrawals from the scheme over the year, but I have not taken out the dividend so far. Based on that, is the tax liability shown correct? As per AY-16-17, gains from money market funds are taxable at 28.325%!

    For example, if I invested Rs. 1 lakh in it at the beginning of the year, which earned Rs. 7000 in dividends which were reinvested. If I withdraw Rs. 1 lakh at the end of the year, is my tax liability zero?

    Love the article, and the work that you do. Keep going!

    Reply
    • Anees-Your analysis MAY not be wrong. But definitely, such funds are not alternative to liquid funds. In case of debt funds, dividend received by an investor in his hand. However, the dividend you receive is post tax payable by AMCs itself. Hence, it is wrong to say that dividend payout options are actually tax-free options.

      Reply
      • Hi Basavraj,

        Thanks for the prompt reply, that was very considerate 🙂
        I see what you mean reg MAY or MAY not be wrong. After all, money markets (and financial engineering in general) were a major part of the 2008 Financial Crisis, so its important to view decisions with that backdrop in mind.

        Have a great day!

        Reply
  7. Very informative article.
    Im a regular reader of our blog articles.
    I think you should mention in the end of the every column if or not you are invested in/related to/profited by any of the companies mentioned in the blog, the same way I have seen some US personal finance blogs do it.
    Not just you , the other personal finance blogs in India should start doing the same.
    That should erase all of our doubts about YOUR credibility.

    Reply
  8. I was misguided by fundsindia ad about super saving account as it never mentioned that investment in super saving account means investment in Reliance Money Manager MF. I came to know about it when i registered for super saving scheme and just before transferring funds on line for super saving scheme I realized that the amount was going to Reliance Money Manager Fund. I had just read your article and stopped there it self . your article saved me from the pitfall.

    Reply
  9. Dear Mr advisor, your hypothesis is filled with flaws. First and foremost please check your basics on duration. It is a number with out any unit ( like % or years). Any basic financials management book will explain it to you.

    Secondly you are only taking of past performance with no emphasis on the changing interest rate scenario in the economy. With operating rate below 6% and very low probability of rate cuts what makes to so confident of 8% return in future.

    Reply
    • Anju-I never said that it is year or %, but for better understanding, while giving an example I explained how the modified duration will work out. Hope you not read the line which started with ” 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%.”
      Great to know that you KNOW the interest rate scenario in the economy IN ADVANCE ?
      Also, who TOLD that this fund will generate 8% with CONFIDENT?? I never said so….
      Above that, the so-called “financials management book” filled with complication which the common man like me unable to understand. Hence, I use as simple language as possible to make it understand to all.
      Here, my intention is not to write for the so-called FINANCIAL MANAGEMENT GURUS…but for common investors like ME.

      Reply
      • Of course financial markets are complex and that’s why people look for help from advisors and professionals fund managers.

        My only submissions is advisor should have more knowledgable and should not use wrong examples

        E.g. If there is no rate change and the convexity of the curve is high. Than it make no sense to hold long duration.

        Any ways I want to leave it here and let you and clients to decide.

        Reply
        • Anju-Who on this earth know that next time central Bank will HOLD, INCREASE or DECREASE the interest rate? If fund managers are so expert or the so-called professionals, then why Dynamic Bond Funds lagging than pure duration based funds?

          Reply
          • I wanted to end this but you very rightly pointed out the fund performance of dynamic funds

            As per value research data. The category average for dynamic income fund 1, 3 and 5yr return is 11.70, 10.63 and 9.11% respectively

            Vs

            11.12, 10.26 and 8.79% for income category

            Secondly, It’s not Govt but RBI change the rate and they usually guide the market. It one have ability to understand them

            Reply
            • Anju-Is 5 years returns big indicator of past performance? What about 10 Yrs and above that? Refer Mr.Pattu’s post on the same. You will notice their underperformance with PROOF.
              I said central Bank but not central Govt. I have that much of basics being a common man.

              Reply
  10. Nice article Basavaraj.

    Since few days, I had been trying to understand options available to park my emergency funds for the next 1 year or so. I was attracted to “Reliance Money Manager fund” for the any-time cash card option they provide. But then, I was confused to see it tagged as Ultra short term, and then realized it was not a “Liquid fund”.

    After reading your article, my doubts got clarified.

    I do have a question: “Out of the 5 liquid funds you suggested, do you recommend the fund with lowest Modified duration & Average maturity?”

    Thanks again bro!

    Reply
  11. Hi Basu,

    So I am assuming that surplus money would be better manage by FDs (Surplus Amount) which gives around 7% return for 1 year and liquid funds.

    So If I wants to grow my money What should you prefer?
    1) Bank FDs
    2) Liquid Fund

    I am planning to buy home within 90 days and I have some amount in Bank as ideal.
    Please suggest your view.

    Reply
    • Chirag-Why you keep surplus money? To meet your immediate money requirement or for emergencies right? In that case your concern should be on safety and liquidity than expecting higher returns than FD is not.

      Reply
      • Hello Basavaraj,

        Thanks for your reply. If I not came across to this blog I might have invested in savings Funds.

        Yes, I am planning to have home to my own. For that I planned to save my money, but by reading few of the online materials I came across to funds that give me little higher returns than FDs and liquidity. But looking to how safe that funds are I landed over here and to find that it is wise decision to invest on savings fund or not.
        Also I have some money for emergency, but I thought that surplus money that kept on savings account without giving return not more than 4%(Bank interest rate). so from past 2 months I am investing in Fds for better return.
        So I need your view how I can go from here. Should I go to liquid fund or ultra short term debt or Should I keep the FDs going.

        If you suggest to go with funds please suggest me good funds which can give me safety first.

        Thanks,

        Reply
          • Thanks Basavaraj!

            I could not able to reply yesterday as site was down.

            This will certainly great planning.

            Will hope for maximum growth in sort term.

            Reply
  12. I agree with a lot of what you have written in the article. However, I disagree with the conclusion. I particularly disagree with this:
    “Stay away from such offers.”

    By this point, you had sufficiently educated the investor for him to make an informed decision. Concluding this way shows a bias against online platforms. I would have preferred if the conclusion said something like:
    “Do not get lured by flashy adverts, make sure you understand the risks and rewards associated before investing in these products.”
    Sounds more balanced.

    Reply
    • Gourav-“such offers” indicate the words you mentioned ” flashy adverts”.

      Reply
      • That was not my point. My focus was on “Stay away” which is a very blanket statement asking people to avoid the product itself. Your disagreement is with the packaging, not the product. If the investor understands the product and thinks that it is suitable for them, then why should they stay away?

        Reply
        • Gourav-STAY AWAY is because there are many ways to take the RISK and invest. If the person already investing in equity, then he will look for debt just to cushion the risk. Same way if you want to park your liquid cash, then there are enough liquid funds (which are now turned to be risky also), in that way why the Ultra Short Term Fund for the liquid cash management? Hence, the stay away.

          Reply
  13. Very Informative and thanks for educating us..

    Reply
  14. Truly another educative and eye opener article as always.

    Scripbox also recommends Reliance Money Manager Fund(G) as a under ‘Any Time Cash’ category.

    I think Birla Sun Life Cash Manager is similar to what Reliance Money Manager Fund(G) is..Can you please compare this Fund with Reliance Money Manager and explain its pros and cons?

    Point to ponder is that why these MF companies not suggesting liquid funds as an alternative to Savings A/C?

    Reply
    • Puskar-Thanks for your inputs and suggestion. AMCs have to run their shows by garnering huge AUM. For that, they need attractive advertisement to show 8% return. Hence, they throw the risk in air and use such tactics.

      Reply
  15. Really an eye opener.thanks

    Reply
    • Siva-Pleasure and request you to share this with your all known.

      Reply
  16. Wonderful explanation!

    Reply
  17. Many myth broken after read this article sir…. Keep going on sir!!

    Reply
  18. Add an app called Finozen to that list. Earlier they had been using Reliance Treasury Liquid Fund. Now they have switched to Reliance Money Manager.

    Reply
    • Amar-Thanks for sharing this update. May I know who launched this App?

      Reply
  19. In Oct 2016 I have invested in BSL Dynamic bonds Fund. Its present value is less than invested value. Could you advise whether to exit or hold for some time. Thanks

    Reply
      • On recommendation from Business line news paper & to earn income over bank fd’s.

        Reply
        • Rajesh-Do you know the risk of such funds? Also whether the Business Line analyzed your risk appetite personally?

          Reply
          • Dear Basu, After reading your blog on debt mf, I realised my mistake. Shall I switch over to liquid fund or ultra short term fund. Frankly speaking I am volatility fearing investor. Pl suggest.

            Reply
              • Thanks, Have a nice day

                Reply
  20. Very nice, impressive & informative article. Keep up dear.
    Regards

    Reply

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