ValuePickr Forum

Managing Cash Position

I am seeking your inputs on how to manage cash positions. I am hoping to find a better way of managing cash than through FDs. I was managing cash through debt schemes of NPS Tier 2. But, the recent correction in bond markets suggest this is not exactly a risk-free instrument. My expectations from an ideal cash management instrument are:

  1. Better post tax returns than FDs

  2. Less liquid than FDs. With proliferation of internet banking FDs can be liquidated within mins. Any instrument that provides better returns than FD should have some trade off and I expect my ideal cash management instrument .to be less liquid than FD (perhaps 3-4 days required to liquidate it).

  3. Associated risk at par or slightly less than FDs.

Google search throws few solutions. But, I am sure solutions of valuepickr members will be much better than those generic answers. I hope my post adds value to this esteemed forum and initiates a healthy discussion on cash management aspect of capital allocation.

6 Likes

I too was looking for the solution on how to hold cash to be used in extreme bear markets. Ultimately I have done the following.

  1. Invested 15% of portfolio into stable stocks HDFC BANK and ITC which have limited downsides. Up 15% from last january. Though underperforming compared to rest of stocks.

  2. Invested 10% in gold and continue with monthly SIP of 5000. It is down 2.5% In my opinion maybe it’s a wrong decision as it is not a earning asset but want to see during a bear market how it will react.

  3. My immediate expenses required within 3 months I place in liquid fund. Hope to get 7.5% interest . Planning to limit this amount within 3L/ 6 months expenses.

  4. In my savings account maintain less than 1L for daily expenses and immediate emergency e.g hospiatlization.

Sorry for the ignorance but what is a liquid fund? Can you name some good ones? I too feel I will invest in one for bear market purchase.

Liquid fund is like a mutual fund investing only in short term bonds. So not linked to equity but the returns are more than savings account. Also no entry and exit loads so you can transfer just like savings account. I use JM Financial but nearly all liquid funds have same returns. I invest through icicidirect and can redeem the funds within 1 working day.

2 Likes

Thanks for the information.

Hi Alphin,

I also have the same dilemma.
if in case of bear markets its fine, 1 day liquidation works but what if there is a black swan event
like Demo or Brexit , mkts fell and recovered to some extent same day , immediate cash is needed.
what would you recommend in such cases ?

1 Like

Hdfc bank and ITC don’t react as much as other stocks also loss can be used to setoff short term gain tax.

Also in gold I meant hdfc gold etf it’s like holding a stock u can liquidate immediately.

Instead of money lying in a savings bank a/c where you’d get 4-6% pre tax, you can leave the money in the liquid fund where yearly returns are at 7-8% pre tax. No lock-ins, fully flexible i.e you can remove partial/full amount or add more at any time. The interest on your corpus is accrued on a daily basis. If you want more information/help, let me know

If you have SBI maxgain loan account for loan,better put all the liquid money there,virtually you gain 8.8 intrest :))

2 Likes

Hi, thanks for the idea. I too was looking for something where I can park some cash, with safety and liquidity. But, I am not sure about how Liquid Fund and ultra short term debt fund are different.
I think I should go for liquid fund only for this matter. and yes, most of them has similar returns.

Can you tell me, how long will take to redeem some money from liquid fund to your savings a/c?

The next day (T+1).

There are a few liquid funds that offer Instant redemption (DSP Money Manager, Reliance Money Manager, SBI Savings Fund). See: http://economictimes.indiatimes.com/wealth/invest/mutual-funds-with-instant-redemption-as-bank-fds/articleshow/55769804.cms

2 Likes

24 hours i.e 1 working day. Some have started instant redemption also

hI
CAN YOU PLEASE SHARE MORE INFORMATION ON THIS. i AM REALLY INTERESTED. Stuck is SB account for 4%

Sometime back there was an issue with castex tech bonds help by J P Morgan liquid fund, due to which JPM placed daily redemption limit… so isn’t risky compared to FD?

Further how safe is it to hold large amount in SB acc? pls let me know.

LIQUIDBEES is a good option, and as the name suggests is very “liquid”. I have started using it, and these look good and useful. To know more, check - https://www.paulasset.com/articles/liquidbees/

Thanks @Mridul, the link you shared is very useful. However, I am not quite sure if its worth buying LIQUIDBEES for less than a period of 1 month when you factor in the trading charges. In the below table I used 0.2% to reflect trading and other charges (ZERODHA) though there isn’t any STT applicable. Costlier trading platforms would charge you much more (ICICIdirect etc) and diminish the returns for shorter periods.

3 Likes

What are the instant redemption ones? I think those would help during knee jerk reactions in market

Reliance money manager & DSP have instant ones but market jerky-ness has nothing to do with liquid. They are debt funds not equity.

i think he tried to say, those cash can be used to buy stocks in market kknee jerk reaction…

i read about reliance money manager, it is not exactly a liquid fund, it is a ultra short term debt fund, whose ideal time frame should be 1 year. Am I right? please enlighten…

Its like a Liquid plus fund. Just that the maturities of the papers held by the fund are slightly higher but otherwise not different from a regular liquid fund. The money manager fund is virtually as good as a liquid fund in that sense.