Higher returns in the short term

As a result of the current global situation, peculiarities in the Indian domestic financial scenario, tightness in the liquidity, call rates (rates at which banks borrow between each other) closed substantially higher at 14.0-14.5 per cent, against the previous close of 11.5-12.5 per cent. The rates touched an intra-day high of 15-15.5 per cent signalling tight liquidity in the market.

As a result of the same, one should try and put short term money in liquid mutual funds as against fixed deposits as the returns are higher even after considering the taxes that one should pay. This squeeze in liquidity is expected to be prevalent for some time to come and hence my advice is to park your excess short term money in Liquid mutual funds and ride the wave of higher returns.

Lotus India Overnight Fund

Lotus AMC has launched a new fund called Lotus India Overnight Fund which is an open ended, liquid scheme.

Investment Objective: The fund aims to provide investors with higher level of liquidity and safety. The corpus of the fund would be predominantly deployed in overnight instruments with some allocation to short term securities having maturity upto 91 days. The average portfolio duration will normally be upto 15 days.

Asset Allocation: The fund may invest upto 70% in reverse repo, debt instruments, including floating rate instruments, with overnight maturity/ daily put/call option and upto 30% in debt & money market instruments with residual maturity of upto 91 days.

NFO Opens: September 12, 2007
NFO Closes: September 13, 2007
Face Value: Rs 10

Investment Options: Growth and Dividend Reinvestment

Minimum Investment Amount: Rs 5000

Load: The fund would neither charge an entry load nor an exit load

Benchmark Index: Crisil Liquid Fund Index