New Delhi: There's a brand new product for high net-worth clients of banks. Invest Rs 1.5 crore in an equity fund application, and the bank puts in Rs 3.5 crore on the investor's behalf.
Since the bank also distributes mutual fund products, it gets a 4 per cent commission upfront from the fund. Besides, it charges the investor 12 per cent interest a year.
Even so, investors benefit. Even though the investor puts down 30 per cent of the investment, he earns returns on the full amount applied for.
If he withdraws the investment within a month the financer makes 5 per cent, that's 4 per cent commission and 1 per cent interest. The investor redeems units at a higher price in this bullish market.
Mutual funds are not complaining either but the practice is expected to push churning, or frequent buying and selling of units, which is bound to hurt interests of a fund's long-term investors.
Interestingly, no bank, NBFC or mutual fund is willing to discuss the product or even admit it exists. The party will last as long as the bull run does. But a downturn could backfire on an investor in such a product.
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