Take Birla Cash Plus for example, the country’s first liquid product. I still remember, we struggled to collect Rs. 5 crore in July 1997 when we launched it – today, liquid funds is a multi-crore industry. Or Birla Dividend Yield fund – the country’s first dividend yield fund – which sparked off interest in equity funds amongst retail investor’s way back in 2003.

During my stint at ING Investment Management, we launched the country’s first packaged daily investment product and also CPPI as a mutual fund option – it was a heady feeling.

Speaking of a heady feeling, there cannot be a better one than what I am currently experiencing. At Bharti AXA IM, we’ve just won the World CMO Council’s “most innovative product of the year – financial services” award for our “Liquity” product!

So what is Liquity? I believe it is a significant game changer for Bharti AXA and the MF industry – much like the other products I mentioned above.

It works on a simple premise. Today, Liquid and Treasury funds have an option of ‘Daily Dividend Re-investment’ i.e. the tax-free dividends accruing on your investment in liquid funds are automatically re-invested with the principal.

Liquity takes the same dividend and instead of re-investing, transfers it to an equity fund! Think about it, your principal remains safe while your dividends earn better returns for you!!

In a volatile market, and one which is witnessing a pressure on returns, investors seek a level of security for their investments – trying at the same time to maintain a certain threshold of returns. It is at times like these that the MF industry comes up with innovations customized to tap into these very obvious needs. Liquity is one such product.

Liquity ensures that the scheme invests in money market securities and is managed within strict and transparent investment guidelines to maintain principal value as well as competitive returns and high levels of liquidity. The objective of the fund is to maximize current income while preserving capital and liquidity.

The concept of Liquity is based on the analyses of why a person would prefer to purchase a liquid fund. An investor comes to a liquid fund to park money, get better returns than in savings and current account and more importantly, for capital preservation. There is no other avenue in fixed income space other than liquid funds that gives capital preservation and higher returns than bank accounts.

A liquid fund is a safer option for investing money in the short term. These funds are a good mix of safety and liquidity. SEBI has mandated that the average maturity of liquid funds should not increase beyond a time. For liquid funds, it is three months and for Liquid plus, it is six months. Previously, the underlying maturities were much longer than the maturity of the fund itself.

A large part of the Indian mutual fund assets is comprised of liquid/money market funds. Large institutions and corporate houses park their surplus short term funds in liquid schemes as it provides tax efficient returns and higher performance at low risk. 70% of the mutual fund industry money is invested in fixed income. Out of this, 50% is in Liquid and Liquid plus funds. So this is a big opportunity. It is a very simple and smart product.

The potential for growth for the mutual fund industry is enormous. There has been a shift in investment habits and patterns in the past few years. Investors are now seeking more exciting and innovative products. And fund houses are sharpening their appetite by offering attractive schemes. I believe people will come to you if they like you and if you are different. Liquity has been a game changer for us.

Disclaimer: All views expressed in this blog are my personal and in no way express or implied, of that of the company I work with, or have worked with in the past.