27 Jun 2016

Using a Debt Fund as a Bank Account

I found out something interesting: if you invest in two particular Reliance funds, you can get a debit-cum-ATM card. These funds are a liquid fund (Reliance Liquid Fund) and an ultra short-term fund (Reliance Money Manager Fund Cash Plan). The card has a limit [1], but you can access your money instantly, as opposed to the bureaucratic approach of putting in a redemption request and then having to wait two days.

Since liquid funds and ultra short-term funds are often used to hold emergency funds, instant access is important.

You can also use one of these funds as a partial substitute for a bank account. But with an interest rate of around 8%, which is higher than any savings account. It’s the same return as an FD. And if you keep the money for three years, you get the benefit of indexation, as opposed to FDs, which are taxed at your marginal rate. Whichever way you look at it, you get better returns from these funds than a bank account, FD or sweep account.

So, instead of maintaining two accounts, you could maintain one bank account and one of these two Reliance funds.

This fund also has one fee — an annual expense ratio of 0.3% or so. Which means that every pear, you pay that percentage of the amount in your fund as a fee. As opposed to your bank, which has many different fees, which are designed to rip you off. A bank account also needs a visit to the branch to open, while you can invest in this Reliance fund online, using a portal like Unovest or MF Utility.

There’s no minimum balance requirement, so your money isn’t blocked. Nor will you get hit by a fee for not maintaining the minimum balance. You can also empty out the fund when you want to, rather than having to go through the bureaucracy of “closing” this fund, like you have to with a bank account.

In that regard, this fund is far less bureaucratic — easier to open, no minimum balance requirement, no need to close, and one simple, fair, transparent fee.

Now, if only you had a cheque book, and you could receive money from others (via ECS, IMPS, NEFT, RTGS, cheques and drafts), this fund will be an almost complete substitute for a bank account.

Still, this is a step forward, and an alternative to your bank.

[1] For point-of-sale transactions, the limit is 1 lac, and for ATM withdrawals, it’s 50K, per day. Or, in both cases, 50% of the value of your fund, whichever is lower.

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