Every year teaches investors something before it makes way for another year. The year 2019 was no different. In fact, it had a number of lessons for mutual fund investors. Here are a few big ones for your quick reference. The biggest lesson was about risk. The ongoing series of downgrades and defaults taught debt mutual fund investors an important lesson. The risks we learn about in mutual funds offer documents that need to be taken seriously. They always do not stay on paper, they can spring nasty surprises. Many debt mutual fund investors, especially those in credit risk funds, learnt this lesson in the hard way. Even ultra conservative investors in fixed maturity plans were in for a rude shock to learn that locking up investments do not ensure safety. In short, all the theories have become a reality for debt mutual fund investors. No wonder, many investors do not even trust the relative safety of liquid funds anymore. They were enquiring about overnight funds lately. Is there a … [Read more...] about What 2019 taught mutual fund investors
The net asset value (NAV) of HDFC Credit Risk Debt Fund has fallen by 0.3% after the recent downgrade of NCDs of Simplex Infrastructure by rating agency CARE. The scheme has an exposure worth Rs 62.5 crore to the downgraded NCDs. On December 11, CARE Ratings further downgraded the ratings of NCDs issued by Simplex Infrastructure to D from BB+. Earlier, the AMC had informed that as on November 25, HDFC Credit Risk Debt Fund had an exposure of Rs 124.11 crore to secured non-convertible debentures of Simplex Infrastructure. CARE ratings had downgraded the NCDs of Simplex Infrastructure from BBB to BB+ in November 25. CARE Ratings has put the NCDs on a negative rating outlook after two downgrades. However, mutual fund advisors believe that there is no need to act in haste. “Such risks are a part of credit risk investing. If you look at the yields of this particular fund, it stands at around 9.5% in comparison to a 7% given by an HDFC Short Term Debt Fund. With extra return, extra … [Read more...] about HDFC Credit Risk Debt Fund’s NAV falls after Simplex downgrade. Should you exit?
Subir Jha, Founder, BuckSpeak, a Hyderabad-based wealth management firm. Questions asked by his clients: 1. FMPs are giving little more than the principal amount and are facing issues due to defaults. What to do? 2. Will debt mutual fund investors not get the money back if there is a default or downgrade? 3. What should be the ideal time horizon if one wants to invest in debt funds and FMPs? His response to the investors:A year ago, investors used to believe that debt mutual funds will give great returns with no risk involved. This myth is no more there, as investors have started witnessing defaults and downgrades in the debt mutual fund space during the last year. To begin with, investors need to understand that they can’t expect higher returns from products that offer higher safety. Many such investors land up in FMPs. FMPs have small portfolios and hence they are not diversified like the other open-ended schemes. Because of this small portfolio, the concentration risk in … [Read more...] about What is the ideal horizon to invest in debt mutual funds and FMPs?
Most mutual fund investors were always aware about the risks in equity funds. It’s only recently they have become acquainted with the risks in debt funds—after mutual funds started ‘side pocketing’ downgraded debt papers. Side pocketing entails removing defaulted or downgraded papers from the main portfolio. The NAV of the main scheme is marked down to that extent and the scheme continues as an open-ended one. The side pocketed scheme, created with defaulted or downgraded papers, remains close-ended. The money is returned to investors if some recovery is made. Investor interest in arbitrage funds, a low risk product, had been high in recent weeks because of their worry over debt funds. However, some fund houses have started side pocketing in arbitrage funds as well. Does it mean arbitrage funds have turned riskier? Not really. Investors should not panic because what fund houses are doing now is ‘enabling provisions’, or preparing for the future. … [Read more...] about Though risk is low, arbitrage mutual funds don’t suit all investors
In an interview with ET Now, William Foster, VP-Sovereign Risk Group. Moody's Investors Service, says Moody’s was looking forward to this budget to get more clarity on the roadmap for fiscal consolidation vis-à-vis FRBM Committee recommendations on debt to GDP target, which the Indian government did. Edited excerpts: FM has hiked the fiscal target for FY18 to 3.5% versus 3.2% earlier and FY19 stands at 3.2%. What is your view on this number? Is it on the expected lines and what is your view at large for this kind of a number?Our expectations were for a slight slippage from target which was obviously 3.2% this year. We had expected 3.5% and that was largely driven by the fact that the GST collections had been slow, the implementation has been somewhat challenging, compliance has been somewhat of an issue and obviously the GST Council is working to try to ease that burden on SMEs and exporters. They are making some progress but that was the reason why we expected some sort … [Read more...] about Budget 2018: We had expected slippage in fiscal deficit target to 3.5%: William Foster, Moody’s Investors Service