Posted On Tuesday, Sep 11, 2018
The recent credit downgrade of Infrastructure Leasing & Financial Services (IL&FS) and its subsidiaries has once again highlighted the conflict between the investment objective and the portfolio positioning of various debt mutual fund schemes especially those of Liquid Funds.
Liquid funds are short term saving instruments designed to meet short term cash and contingency needs and are positioned as a substitute to savings bank accounts. The objective of a Liquid Fund is to keep the money safe, liquid and earn slightly higher returns than those offered by Savings bank Accounts. Thus, liquid funds' portfolios should have very high liquidity, minimum volatility and near zero chances of capital loss (credit risk - risk of default of interest and principal).
This IL&FS incident should be seen along with many such instances in last few years where in the credit rating downgrades or defaults in companies like Amtek Auto, Jindal Steel & Power (JSPL), Ballarpur Industries Ltd etc. impacted debt mutual funds. What is more worrying is the repeated instances of Liquid Funds being impacted with these kind of defaults. These events contradict the very nature and purpose of a Liquid Fund.
At Quantum, we always stress on the primary objective of the liquid funds and advice investors to prioritize safety and liquidity over returns while investing in liquid funds.
In our debt schemes, Quantum Liquid Fund (QLF) and Quantum Dynamic Bond Fund (QDBF), we do not take any exposure in private sector corporations and invest only in government securities, treasury bills and highest quality instruments issued by public sector undertakings (PSU) which are shortlisted under our proprietary credit research and review process.
Thus debt instruments of companies like IL&FS will never make it to the portfolios of QLF and QDBF, contrary to an article published in a leading daily, which has erroneously shown Quantum to have exposure to the IL&FS group.
We disclose our portfolios of Quantum Liquid Fund and Quantum Dynamic Bond Fund on a weekly basis enhancing transparency. Investors are encouraged to visit the page and peruse the portfolios.
It should be no surprise to investors, current and potential, that the Quantum Liquid Fund returns tend to be lower than other liquid funds as we do not compromise on safety and liquidity to compete on returns with other funds.
|Name of the Scheme & Primary Benchmark
|This product is suitable for investors who are seeking*
|Risk-o-meter of Scheme
|Quantum Dynamic Bond Fund
An Open Ended Dynamic Debt Scheme Investing Across Duration
|• Regular income over short to medium term and capital appreciation
• Investment in Debt / Money Market Instruments / Government Securities.
Investors understand that their principal will be at Moderate Risk
|Quantum Liquid Fund
An Open Ended Liquid Scheme
|• Income over the short term
• Investments in debt / money market instruments.
Investors understand that their principal will be at Low Risk
Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.
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