Speaking to the Financial Express, vice-chairman Kotak Mahindra Finance, Uday S Kotak said that this was the right time to launch this scheme as safety of capital was paramount on any investor's mind today. ``The time is appropriate for this product. Investors are risk-averse these days and the gilt fund should be the answer to their safety as well as return needs,'' he added. ``The KGilt fund which would be investing in the sovereign would be a very safe option and would allow the investor to earn returns on very short-term surplus money as well,'' said Uday Kotak.

Uday Kotak said that as KM AMC had entered into the business of mutual funds now, they would be a long term player and would slowly and steadily build this business over time. The KGilt scheme would invest primarily in government securities, while the K30plan would invest in equities. Ninety per cent of the funds of K30 would be invested in 30 equities at any point of time. K30 would invest only in 30 equities at any point of time, but the investments can be in any company.

The KGilt plan of Kotak Mahindra AMC would invest predominantly in short-term securities and would essentially try and tap transient short-term funds and would endeavour to generate relatively high risk free returns, said S S Tarapore, former deputy governor RBI and chairman of the committee on capital account convertibility.

Tarapore said that the advantage of such a mutual fund would be that the inter-temporal liquidity needs of investors would be well spread out and, therefore, the mutual fund would be able to have some leeway to maximise its yield and in the contingency of an asset-liability maturity mismatch there would be a back up liquidity support from the RBI up to 20 per cent of the outstanding value of the investments in government securities.

``The scheme recognises thatthere is a price risk emanating from interest rate fluctuations and also from the liquidity support scheme provided by the RBI,'' said Tarapore. He said that it is necessary for the success of the scheme that the RBI should nurture the dedicated gilts scheme by only small discreet changes in the liquidity support facility and sudden jolts be avoided.

``It is important that the RBI does not use the liquidity adjustment facility as a major instrument in overall liquidity control. Overall liquidity control should be via open market operations and other monetary instruments,'' said Tarapore.