Home / Money / Calculators /  Redeem your mutual fund investment via a debit card

You can now link your investments in mutual funds to a debit card, which can be used to either withdraw money from an ATM or to make purchases at a point of sales (PoS) counter.

To be fair, this is not a new facility. Reliance Asset Management Co. Ltd has had the option of a debit card linked to its ultra-short term fund, Reliance Money Manager, for over 10 years now. To use this option, investors need to approach the fund house, invest in the fund and apply for the card. And after a few days you would be able to use it.

Now, this facility is also being offered by two robo-advisory platforms—FundsIndia and Scripbox—via an HDFC Bank-issued Visa debit card.

If you are an investor on either of these platforms, you can avail this facility and park your excess funds in Reliance Money Manager Fund through them. After that, if you want, the investment can be linked to the debit card. If you don’t break the investment, the money accumulates returns.

There are limits on daily withdrawal, depending on your investment.

Also, currently these limits are aligned with the RBI’s stipulations, which include the Rs10,000 limit per day on cash withdrawals from ATMs.

Linking ultra short funds with cards

First let’s try to understand what is an ultra-short term fund. This is a type of fixed income fund that invests in short-maturity debt instruments and gets you a suitable return through yield or interest earned by holding these securities—often till maturity.

For the Reliance Money Manager Fund, the current average maturity is around 1 year. This means, on average, the securities held will mature within 12 months and capital will get repaid to the fund.

The fund’s average maturity has remained in this range of 6 months to a year. You can apply for the fund directly through Reliance Asset Management Co. Ltd, or via Scripbox.com and FundsIndia.com and simultaneously apply to receive the linked card.

There are no charges linked to this card: no annual fee, maintenance or withdrawal charges. The idea is to familiarize you with the functioning of a mutual fund and to understand that idle cash can be left in a fund with complete access to you at any time.

According to Ashok Kumar, chief executive officer, Scripbox, “Through primary research, we found that many people felt mutual funds are a lock-in product and it is difficult to explain otherwise. In such a product, they see it as a utility. It works especially well for the younger generation and first-time investors to get a flavour for mutual funds."

C.R. Chandrashekhar, founder and director, Fundsindia.com, agrees. “New investors have many apprehensions about mutual funds and most don’t know about such short-term funds. This will help to initialize them. Once they see how it functions, the trust builds."

Fundsindia.com is benchmarking this product against simple savings account-linked debit cards and calls it a Super Savings Account because of the potentially higher returns.

What’s good...

The biggest factor that you benefit from is convenience (after the investment is made) and at the same time receiving better returns (than a savings bank account) by virtue of being invested in a fund.

This is a simple way to get exposure to mutual funds, if you are a first-time investor and the absence of fees and charges on the card makes it more attractive.

...what’s not

Funds kept in an ultra-short term fund may get over utilized through such a facility and not earn the optimal return. Also, don’t confuse this with an investment in a fund, as this is more for: funds kept for contingencies, spending, and interim parking before a big spend is to come up.

Unlike in a bank account, where interest is credited after tax deducted at source, you will have to track the tax incidence as withdrawals will be treated as redemption from the fund.

There could be a gap of 2-4 weeks before you receive the card, although—for a know-your-customer (KYC) compliant investor—the investment can start within a day or two of applying. For first timers, the wait may be longer.

Overall there is no reason why you shouldn’t use this facility.

Money in your bank account can earn better returns before you spend, which makes money management more efficient.

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