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 b
y 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.
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