Risk & Return in Franklin India Mutual Fund Schemes

The family photo of Rate of Return for Franklin IndiaTempleton Mutual Fund Schemes as on 03 August 2019 is as follows:

top on the list is Bond funds of different risk shades  are followed by Equity schemes and the lowest Rate of return, implying highest risk at this point in time reflected in small cap fund

On 1 April 2019, the BSE Sensex climbed the peak of 39,000 points for the first time. The 30-share Sensex, India’s oldest stock market index, also completed 40 years on the same day. The Sensex was launched in 1986 but 1 April 1979 is the base year when the index was set at 100.

The Sensex gave a compounded annual growth rate (CAGR) of 16.1% in the period from 1979 to 2019. If you take the total return index, then this is well over 17%. In the same period, gold gave a rupee return of 10%.If you had invested ₹10,000 in a basket of stocks representing the Sensex and the same was rebalanced every time the Sensex underwent a change, then your corpus today would be over ₹45 lakh. The same amount of money invested in gold over the same period would be worth ₹4 lakh today and in bank fixed deposit would have grown to a little over ₹2.5 lakh, without factoring in the tax

The current meltdown in equity need not be taken as standard. These fluctuations in the long run enables good rate of return

Risk & Return in ICICI Prudential Mutual Fund schemes

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing", is the standard disclaimer.

The debt mutual fund schemes have more potential to give higher returns, liquidity and better tax-adjusted returns against traditional deposits.

 

From the above graph, it can be noted that Gold ETF is scoring maximum rate of return, followed by Bond Funds and progressively falling down to Equity with small cap. In the current market conditions, with falling equity market the diagram help one to figure out the relative risk in asset classes. When you want to select a fund from this fund house, you can easily relate your risk profile and then make the selection.



The current market situation has emerged out of several factors and just one being snowballing default in the NBFC space started with IL&FS.




The total exposure of the entire mutual fund industry to papers of troubled IL&FS, Essel Group, DHFLNSE -1.32 % and ADAG Group is Rs 18,000 crore, which is 1.3% of the total fixed income assets of Rs 13.38 lakh crore managed by fund houses as of May 31. The top two AMCs — HDFC Mutual Funds and ICICI Prudential Mutual Fund — have only 0.57% and 0.4% exposure, respectively, to the Essel Group of their total debt AUM.


The Securities and Exchange Board of India (Sebi)'s proposed definition says a single day's delay of even a rupee of interest or principal should be regarded as a default. Under the new norms laid down by industry body Association of Mutual Funds in India (Amfi), an instrument downgraded to 'default or D' grade has to be marked down at 75 per cent.


Therefore, hastily exiting from schemes, does not help investors and needs to wait till the company and fund manager come to a reasonable settlement. The bond market works on the assessment of single day default. The grace is only for the debenture trustee to ascertain what is known as the event of default. So we have to treat it as a default and if they repay in the course of time you can write back the amount


But how do one know in advance what is in store? Rating agency CARE downgraded ratings for DHFL’s debentures, bonds and fixed deposit on February 3, 2019 from AAA to AA+. Last week, when bonds of DHFL still enjoyed the highest rating of ‘AAA’, they were quoting at a yield-to-maturity (YTM) of 11-12 per cent for a 5-7 year residual maturity. This implies a steep premium to other AAA-rated bonds in the market. According to FIMMDA, AAA-rated bonds of 5-year tenure trade at a YTM of 8.4-odd per cent, while AA-rated bonds trade at 8.9 per cent.

YTM is the internal rate of return earned by an investor who buys the bond today at the market price, assuming the bond will be held until maturity and that all coupon and principal payments are made on schedule.

Units of MFs could be used to create one's Financial Planning as wealth lies in the market fluctuations.

Risk & Return in Aditya Birla Mutual Fund Schemes

The risk & return profile of Aditya Birla Mutual Fund schemes can be had from the following graph. As on 01-08-2019, we find that gold ETF is leading followed by debt schemes and least rate of return is given by the small cap spectrum

it is easier to understand risk from above graph as ones with least return has maximum risk at this point in time. However, other risks are associated with the schemes

When companies default, it is reflected in the portfolio of schemes that hold such assets. In January 2019, a consortium of lenders to the Essel Group, including mutual funds, agreed to wait till 30 September, giving it time to raise money for repayment of loans. The lenders agreed not to enforce their collaterals against Essel Group debt; for several mutual funds, these collaterals are shares of the promoter in Essel Group companies, including Zee Entertainment Enterprises Ltd. Mutual Funds have an exposure of about ₹7,000 crore to the Essel Group debt, as of end of February 2019, as per data from Value Research. Some AMCs, including Reliance Nippon Life Asset Management Co., have exited since. But the Essel promoters haven’t managed to raise sufficient money to repay lenders in seven months, and with just about two months left to go, the lenders find themselves on the edge by July 2019

The company can claim it is just a delay and that they have seven days to pay up. However, as per existing regulations and credit rating agencies rating profile, the company will be treated as D and fund houses have to mark down the investments by 75% for secured securities and 100% for unsecured securities
Invest knowing the risks and manage the risks

Risk & Return in HDFC Mutual Fund schemes

The recent meltdown in the capital markets arising out of default / downgrading of papers of major companies like IL&FS, DHFL are impacting mutual fund investors. A new series is started with 1 year return analysis and impact on schemes to get an idea about risk and return spectrum of the schemes of each fund house at a glance for investors to understand the shade of risk in each risk class the scheme represents
Six debt schemes of HDFC Mutual Fund — HDFC Short term debt fund, FMP1146D, credit-risk fund, hybrid debt, dynamic debt and banking and PSU debt fund — cumulatively own HREL papers worth ₹232.5 crore in April 2019.

The mutual fund investors may now gravitate more towards large asset managers, who are able to absorb losses in times of crisis, accentuating concentration of market share in the industry. There is a risk that distributors may recommend schemes on the basis that the sponsor or AMC will step in, in case of a default

The combination of the fund managers' overconfidence in their abilities, ignorance about the credit evaluation, and the over reliance of credit ratings assigned by the independent credit rating agencies make portfolio selection process to be influenced by bias of the fund manager. Mutual Fund investors accept this risk when they enter into any scheme. 

Falling market is the best time to know the strength of the scheme to withstand  risks. The small cap offers the least returns means that is the class that is having highest risk at this point. But when markets re-capture the heights, they will bounce back faster normally because today's small caps are the future blue chips and later large caps.

One should have some idea about one's risk profile before buying units of Mutual Fund.