A money market fund is a category of debt scheme, emerged after the SEBI reclassification, that will invest in Money Market instruments (up to 100 %) having a maturity of up to 1 year. A money market fund generally invests in high quality (credit rating) debt instruments like treasury bills, repurchase agreements, commercial papers or cash equivalents and tax exempting debentures.
They appear attractive, as they are highly liquid, has less risk because they invest in high credit quality instruments, have no exit load and provide better returns than a bank savings account.
Graph: Indicative Risk Return Matrix of Debt funds
(Source: PersonalFN Research)
On the risk-return spectrum, money market funds are placed between low duration funds and floater funds. Since they usually hold instruments up to one year, may get affected by fluctuations in interest rate. And hence carries a moderately low amount of investment risk.
Hence, they are suitable for investors who are saving for an investment goal of up to one year (house renovation, planning a vacation, etc.), want to build a contingency fund or want to save if unsure about where to invest for a year.
Table 1: Details of Axis Money Market Fund
|Type||An open-ended debt scheme investing in money market securities||Category||Money Market Fund|
To generate regular income through investment in a portfolio comprising of money market instruments. |
However, there can be no assurance that the investment objective of the Scheme will be achieved.
|Min. Investment||Rs 5,000 and in multiples of Re 1 thereafter||Face Value||Rs 1,000 per unit|
* Default option
|Entry Load||Not Applicable||Exit Load||Nil|
|Fund Manager||Mr Devang Shah and Mr Aditya Pagaria||Benchmark Index||NIFTY Money Market Index|
|Issue Opens :||July 26, 2019||Issue Closes :||August 01, 2019|
(Source: Scheme Information Document)
How will the Axis Money Market Fund allocate its assets?
Under normal circumstances, the scheme’s asset allocation pattern will be as under:
Table 2: AMMF’s Asset Allocation
|Instruments||Indicative allocation (% of net Assets)||Risk Profile|
|Minimum||Maximum||High/ Medium/ Low)|
Money Market instruments
Scheme will not have any exposure to debt derivatives, securitized debt, REITs
and INViTs and foreign securities.
The AMC shall ensure that the total exposure of the Scheme in a particular sector (excluding investments in Bank CDs, Triparty Repo, G-Secs, T-Bills short term deposits of scheduled commercial banks and AAA-rated securities issued by Public Financial Institutions and Public Sector Banks) does not exceed 25% of the net assets of the Scheme. Also, an additional exposure to financial services sector (over and above the existing 25%) not exceeding 15% of the net assets of the Scheme will be allowed by way of increase in exposure to HFCs only, subject to the condition that such securities issued by HFCs are rated AA and above and these HFCs are registered with National Housing Bank (NHB). However, the total investment in HFCs cannot exceed 25% of the net assets of the Scheme.
(Source: Scheme Information Document)
What will be the Investment Strategy?
The net assets of the Axis Money Market Fund will be invested in money market instruments. The Scheme will seek to optimize the risk-return proposition for the benefit of investors.
The investment process will focus on macro-economic research, credit risk and liquidity management. The Scheme will maintain a judicious mix of short term and medium-term instruments based on the mandates of the Scheme.
As part of credit risk assessment, the Scheme will also apply its credit evaluation process besides taking guidance from ratings of rating agencies. In order to maintain liquidity, the Scheme will maintain a reasonable proportion of the Scheme’s investments in relatively liquid investments.
Who will manage the Axis Money Market Fund?
The Axis Money Market Fund will be managed by Mr Devang Shah and Mr Aditya Pagaria.
Mr Devang Shah is currently the Fund Manager at Axis Asset Management Company Ltd. He holds a bachelor’s degree in Commerce from the University of Mumbai, is a Chartered Accountant (ACA) and is well experienced in Fixed Income research.
Before joining, Axis AMC on October 2012, he was a Fund Manager at ICICI Prudential Asset Management Company Limited for 4.5 years. Prior to that, he worked as an Analyst at Deutsche Asset Management (India) Pvt. Ltd for two years and as an Assistant Manager at Pricewaterhouse Coopers for two years.
Some of the other schemes he manages are Axis Strategic Bond, Axis Short Term Fund, Axis Gilt Fund, Axis Dynamic Bond Fund, Axis Liquid Fund, Axis Arbitrage Fund, Axis Gold Fund, Axis Gold ETF, Axis Treasury Advantage Fund, Axis Regular Saver Fund, Axis Credit Risk Fund, Axis Hybrid Fund – Series, Axis Fixed Term Plans and Axis Corporate Debt Fund.
Mr Aditya Pagaria has done his Bachelor’s in Management Studies and holds a Post Graduate Diploma in Business Management with experience in Fixed income research.
Before joining Axis AMC in August 2016 as a Fund Manager, he was associated with ICICI Prudential Asset Management Company Ltd. as well.
Currently, at the Axis AMC, some of the other schemes that Mr Aditya Pagaria manages include Axis Treasury Advantage Fund, Axis Liquid Fund, Axis Banking & PSU Debt Fund, Axis Equity Advantage Fund – Series 1, Axis Equity Advantage Fund Series 2, Axis Ultra Short Term Fund and Axis Overnight Fund.
The outlook for Axis Money Market Fund:
The money markets in India essentially consist of the call money market (i.e. market for overnight and term money between banks and institutions), repo transactions (temporary sale with an agreement to buy back the securities at a future date at a specified price), commercial papers (CPs, short term unsecured promissory notes, generally issued by corporates), certificate of deposits (CDs, issued by banks) and Treasury Bills (issued by RBI).
In a predominantly institutional market, the key money market players are banks, financial institutions, insurance companies, mutual funds, primary dealers and corporates. In the money market, activity levels of the Government and nongovernment debt vary from time to time. Instruments that comprise a major portion of money market activity including but not limited to:
- Overnight Call
- Collateralised Borrowing & Lending Obligations (CBLO)
- Repo/Reverse Repo Agreement
- Treasury Bills
- Government securities with a residual maturity of < 1 year
- Commercial Paper
- Certificate of Deposit
Apart from these, there are some other options available for short tenure investments that include MIBOR linked debentures with periodic exit options and other such instruments. Though not strictly classified as Money Market Instruments, PSU / DFI / Corporate paper with a residual maturity of < 1 year, are actively traded and offer a viable investment option.
As interest rates keep changing consequent to changes in macro-economic conditions and RBI policy. The price and yield on various debt instruments fluctuate from time to time depending upon the macroeconomic situation, inflation rate, overall liquidity position, foreign exchange scenario etc. Also, the price and yield vary according to maturity profile, credit risk etc.
Hence, the fortune of the Axis Money Market Fund relies on the short-term money market instruments and change in the interest rate or monetary policy. This leads to fluctuations in the rate of debt funds and affects overall yield.
Even though the RBI has taken an accommodative stance. Although debt funds (especially those holding medium to longer-maturity debt papers) have seen a brief round of rally this year on account of successive rate cuts, they may still encounter higher volatility in the foreseeable future. Plus, some of them already have exposure to downgraded and toxic debt papers which heightens the investment risk. Thus, avoid investing aggressively at the longer end of the yield curve.