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.
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.
1 comment:
Nice information.
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