Pramod Saraf, one of the largest IFAs in central India, is an avid believer in debt funds for retail clients. He has seen significant business momentum even through stock market volatility, thanks to his focus on the retail debt segment. Pramod shares with us the strategy he adopts for positioning three retail debt categories he firmly believes in for retail investors - liquid funds, short term plans and MIPs. Read on to understand how and why Pramod has made liquid funds his opening batsman, when dealing with new clients.

Liquid funds are very relevant for retail investors - not just for HNIs

In my view Liquid funds are relevant not just for HNIs but are equally relevant for retail investors too. Here is why I say this :

1. It helps to generate better tax adjusted return on contingency funds which retail investor carries in routine in his savings account to service regular EMI, house hold expenses, short term maturity liability due or expenditure plan like Holiday plan, margin money for vehicle or house purchase loan, school fee of children, insurance premium instalment, etc.

2. Young Indian retail investor is spending by using Credit card and almost full monthly income is available in his saving bank account till the due date of Credit card billing cycle. Liquid fund will help to generate little extra discount on wherever the money was spent by them.

3. Even the new trend of Zero cost EMI for short period over purchases using credit card payment option also can be used to promote Liquid fund philosophy by maximising earnings on the liquidity that you keep for these payments.

I propose a new marketing plan to all AMC's : come out with a mechanism to directly debit liquid fund account for EMI and credit card due date payments as I have seen lot many investors doing withdrawals from liquid funds for it. This will be an added convenience and will help us promote liquid funds even more.

Use liquid funds as your opening batsman

I have been actively marketing the ATM card facility to invest in liquid funds. To promote it I have first requested to get it issued to myself and have shown it along with ATM charge slips to almost hundreds of persons during client meetings as well as during investors awareness programs majorly in corporate camps.

Before pitching it, to better understand and safety test it, I called the customer care desk requesting the intimation of lost card with immediate block instruction. Whatever teething troubles I faced, I brought to the attention of the senior management and action was taken immediately. Satisfied with this personal testing of the operational aspects, I then started promoting the concept aggressively.

I use liquid funds very actively as my opening batsman when speaking to new investors, and the strike rate of my opening batsman is very good. It helps break the myth immediately that mutual funds = equity = volatility, which most investors in the country still have. My strike rate in getting new investors and building good relationships has improved as it has helped me understand a lot more about him and his finances :

When discussing how liquid funds can help generate higher income on idle savings balances, I am able to get many more answers on monthly income and expenditure profile and therefore investible surpluses.

I can take this conversation forward to test the risk grade where one fits and also to guide and explain to him little more appropriately on risk and reward mechanism.

It helps to find out the age of ideal funds available to further plan the investments and explain the fact about yield spread on accrual based debt products and also to find out the scope of SIP from it.

Having said that, there are some irritants too. One is the AIR information for Rs. 2 lacs and above investments. Other is the lengthy capital gain calculation in the situation of routing use of ATM card.

Use accrual based short term plans as effective cash management solutions

I suggest these funds as useful parking zones for a variety of clients :

Clients with seasonal businesses, where inflows are seasonal and outflows are more evenly spread through the year

Professionals who have statutory payments on defined due dates on a quarterly basis

Clients who have substantial rental income which needs to be accumulated before further investment.

Wherever you find a mismatch between inflows and outflows that lasts a few months, there is a good opportunity for us to offer tighter cash management solutions using short term plans.

MIPs are great retirement savings products

I actively recommend MIPs as part of any retirement savings solution. The proportion of MIPs in the retirement corpus varies with number of years left for retirement - I keep increasing MIP component as the retirement age approaches.

For retirement income - ie, post retirement, clients hesitate to consider MIPs - mainly because of the volatility in returns that this category has witnessed in recent years. Security of income becomes very crucial for them. This is a challenge for us and we will need to work more on educating clients about the need to have some inflation protection through a limited exposure to equity, even after retirement.

Share this article