Yes, you can do better than letting your money sleep in a current account
Here is a quiz question. Rishi Karmakar, a 35-year old owner of a manufacturing unit in Pune, needs to spend on machinery upgradation related expenses worth Rs 10 lakh over the next one year. Where should he be keeping his money? Some of us would scoff at the “no-brainer” question and would point out to a bank current account. Sure, a bank current account is perhaps the most obvious and popular destination to park cash for small and medium enterprises (SMEs), but is it the smartest one? Let’s take a close look.
Unlike, large companies where specialised and experienced finance professionals anticipate and manage cash needs, SMEs don’t enjoy this luxury. The result: cash pile up in the bank current account. Now, cash is the lifeblood of every business but given their size, operations in SMEs are particularly vulnerable to any disruptions in cash flows. For banks, this is a bonanza since they typically pay no interest on current account, compared to 4 per cent for saving accounts. This money is then lent to borrowers at 9 per cent and above depending upon the type of loan. So, while a bank loan of Rs 10 lakh by the bank will earn for it Rs 90,000 in the first year, a person like poor Rishi Karmakar gets nothing. That doesn’t sound too great, does it?
Enter ultra-short term funds The good news is that SMEs have an earning option for their cash that typically vegetates in a current account. The alternative is present in the form of ultra-short term funds from mutual funds. They are an ideal cash management tool for SMEs to manage their cash since they neither have a lock-in period nor an exit load. Along with the advantage of high liquidity they typically provide higher returns of 8-9 per cent on an annualised basis. The good news is that SMEs have an earning option for their cash that typically vegetates in a current account. The alternative is present in the form of ultra-short term funds from mutual funds. They are an ideal cash management tool for SMEs to manage their cash since they neither have a lock-in period nor an exit load. Along with the advantage of high liquidity they typically provide higher returns of 8-9 per cent on an annualised basis.
How they work Ultra short term funds invest in money market securities. These are basically short-term debt securities like certificate of deposits, treasury bills and commercial papers which have very good credit profile and can easily be liquidated in the market. The investors can also redeem their investments in a day’s time
Where to invest Among ultra short term funds, Aditya Birla Sun Life Cash Manager combines stability liquidity with competitive returns among its peers. All this is topped up with ease of operation at low cost with no penalties or withdrawal charges. If this has got you interested, here is some more information in favour of the fund.
Aditya Birla Sun Life Cash Manager The fund has a performance track record of 18 years. Daily rolling returns analysis of the fund for the last 10 years, calculated on a monthly basis, shows that the fund has on an average, delivered 8 per cent return. In short, your company can earn on its working capital without locking it up. See calculator.
*(Past Performance may or may not be sustained in future. The Scheme does not guarantee any assured returns)
Click here for detailed performance of the scheme and other schemes managed by the fund manager
So, here is the quiz question once again. “Where should Karmakar park his Rs 10 lakh?” Of course, you get full marks if your answer is Aditya Birla Sun Life Cash Manager. Opting in favour of the fund and the prospect of earning Rs 80,000 a year compared to nothing in a current account, is not much of a contest, is it?
Note-: The comparison of Aditya Birla Sun Life Cash Manager Vs other traditional savings instruments has been given for the purpose of the general information only and the scheme does not guarantee any assured returns. Investment in schemes of mutual fund carry risk, does not guarantee any returns and any investment decision needs to be taken only after consulting the Tax Consultant or Financial Advisor. Birla Sun Life Mutual Fund / Birla Sun Life Asset Management Company Limited will not accept any liability/responsibility/loss incurred on any investment decision taken on the basis of this information. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax advisor.
Want to invest your idle cash?
We will call you
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.