Peak Alpha is one of Bangalore's fast growing advisory firms, with a sharp focus on the booming corporate salary segment. Their education led customer acquisition strategy ensures that their clients have a clear plan in place and a strategy behind every investment they make, rather than portfolios that are nothing more than a collection of opportunistically made investments. Wealth Forum asked Shyam to articulate which of the retail debt categories he finds useful for this clients and how he actually positions them in these well crafted plans. Here is how Shyam positions liquid funds, FMPs and MIPs in his client portfolios. Read on to understand how you can enhance your AuM from your existing clients by positioning retail debt funds the way Shyam and his team at Peak Alpha do.

Liquid Funds : a slam dunk for retail investors

Our experience has been that liquid funds are a slam dunk for retail investors. We have been recommending liquid funds as a place to build up money needed for short term needs, such as annual insurance premiums, for holiday funds, or for rainy day funds. We have also had good success in getting customers to move their idle money in bank accounts across to liquid funds for several percentage points of additional yield

Liquid funds have been an easy sell, especially with the ATM card. As customers get more comfortable with using the ATM card or switching funds online back into their bank account when they need the money, we find that their need to keep a lot of cash idle in the bank reduces significantly.

As a further step, we have got some customers to align their monthly bill payments and SIPs to the first week of the month, so that once all the disbursals are made, they can then sweep all free cash over to the liquid fund till the end of the month. If there is a significant build up of cash in the liquid fund, this is then moved to more actively managed funds as per their target asset allocation.

FMPs : what a pity that SEBI has banned indicative yields!

While we used to recommend a fair amount of FMPs when we had clarity on indicative yields and portfolios, ever since the regulator required funds not to disclose these, for reasons we fail to understand, we have not recommended these to our customers. We are not comfortable giving guidance to our customers when fund houses cannot express in writing what a customer's returns might be.

An FMP should be an easy winner compared to an FD, from the tax arbitrage perspective. If mutual funds are permitted to disclose indicative portfolios and yields, we would be very comfortable moving a lot of our customer's money from FDs into FMPs. However, if a customer compares an FD and an FMP today, the FD return is printed on the certificate and is guaranteed by the bank. An FMP gives the investor no idea (at least officially) how much return he can expect nor what his money will be invested in. Therefore there is currently no comparison, which is a pity.

MIPs : Great retirement income product

Among debt funds, MIPs are the category where we have been most involved historically. We use MIPs as a way to generate a steady monthly income for people who are retired or require a supplementary monthly income for other reasons, such as perhaps having recently become entrepreneurs. We also use MIPs, but in the growth mode, for those customers who need a product with a risk profile similar to retirees.

We don't necessarily compare MIPs against other products, we recommend them when we find the product meets the needs that are outlined above. One easy comparison would be an annuity, so we don't necessarily choose between them, we do put in place an annuity for a part of their cash flow needs that cannot be subjected to any uncertainty, and for the rest we invest in MIPs for the additional return, albeit with some volatility.

We don't see timing entering the picture for customers looking at MIPs. These are products that meet a specific need very well.

Our experience has been that clients are not really perturbed by the limited volatility that MIPs are subject to. We make sure customers understand why MIPs are included in their basket of recommendations and then they are comfortable with the volatility. As mentioned earlier, setting up a monthly cash flow for a retiree has to be a combination of annuities and MIPs, and if appropriate also a SWP.

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