Uday S Kotak, vice-chairman, Kotak Mahindra Finance, said that this was the right time to launch the schemes as safety of the capital was important. ``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 said.

``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 SS Tarapore, former deputy governor of 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 mutualfund 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 that there is a price risk emanating from interest rate fluctuations and also from the liquidity support scheme provided by the RBI,'' Tarapore said, adding that it is necessary for the success of the scheme that the RBI should nurture 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,'' Tarapore said.