Nod to use Benchmark units as security in derivatives trades

The units of the Benchmark Mutual Fund's Liquid BeES Fund can be used as the fungible security for margins and security in the derivatives market.

The Benchmark Liquid BeES is one of the world's first liquid mutual fund scheme listed on a stock exchange. The units are listed on the capital market segment of the National Stock Exchange (NSE).

A Benchmark AMC official said the new norm will be beneficial to investors as earlier they were required to provide bank guarantees or fixed deposit to brokers who in turn used to provide the security and margins to the stock exchange.

Interest accrued on the deposit was pocketed by the broker. In case of Liquid BeES, even after depositing it as security/margins, the dividend returns will remain with the investors, thus translating into dual benefit.

Rajan Mehta, executive director, Benchmark AMC, said, "The NSE's move to allow Liquid BeES as a cash equivalent for the derivatives segment will be of help to investors and intermediaries in the derivatives segment as the Liquid BeEs currently offers post-tax returns as a one-year fixed deposit but with liquidity. Compared to longer tenure fixed deposits, Liquid BeES also makes sense now as the interest rates are expected to rise. The other unique thing about Liquid BeES is that it can be purchased either from the NSE cash market where the fund itself makes the market with fine quotes or directly with the fund if amounts are larger than Rs 25 lakh."

Benchmark Mutual Fund employs the indexing and "quantitative techniques" of investing.

Fund officials said such an investment philosophy is increasingly followed by sophisticated investors such as pension funds and insurance companies worldwide.

Also, this kind of philosophy endeavours to provide transparency and risk control and avoids human biases which can increase risk in an uncontrollable manner.