{"id":437,"date":"2019-06-17T05:47:46","date_gmt":"2019-06-17T05:47:46","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=437"},"modified":"2019-06-18T05:16:15","modified_gmt":"2019-06-18T05:16:15","slug":"baroda-money-market-fund-should-you-park-your-short-term-needs-in-it","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/06\/17\/baroda-money-market-fund-should-you-park-your-short-term-needs-in-it\/","title":{"rendered":"Baroda Money Market Fund: Should You Park Your Short-Term Needs In It?"},"content":{"rendered":"\n

Recently, since the debacle of IL&FS<\/a> and DHFL<\/a> defaulting made news headlines, the investors became distraught. And it shattered their delusion of debt investment is safe. Wary investors are cautious with their hard-earned money and losing interest in investing in debt funds. <\/p>\n\n\n\n

To prevent\nthis from happening, several fund houses started offering debt schemes that\nhave low risk and will invest in instruments having shorter maturity periods (up\nto one year).<\/p>\n\n\n\n

Even  Baroda Pioneer Mutual Fund<\/a> launched Baroda Money Market Fund, an open-ended debt scheme<\/a> that will invest in money market instruments predominantly.<\/p>\n\n\n\n

A money\nmarket fund is a category of debt scheme, emerged after the SEBI reclassification,\nthat will invest in Money Market instruments (up to 100 %) having a maturity of\nup to 1 year. A money market fund generally invests in high quality (credit\nrating) debt instruments like treasury bills, repurchase agreements, commercial\npapers or cash equivalents and tax exempting debentures.<\/p>\n\n\n\n

They appear attractive, as they are highly liquid, has less risk because they invest in high credit quality<\/a> instruments, have no exit load and provide better returns than a bank savings account.<\/p>\n\n\n\n

Graph:\nIndicative Risk Return Matrix -Debt Categories<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

(Source: PersonalFN Research)<\/p>\n\n\n\n

On the risk-return spectrum, money market funds are placed between low\nduration funds and floater funds. Since they usually hold instruments up to one\nyear, may get affected by fluctuations in interest rate.  And hence carries a moderately low amount of\ninvestment risk.<\/p>\n\n\n\n

Hence,\nthey are suitable for investors who are saving for an investment goal of up to\none year (house renovation, planning a vacation, etc.), want to build a contingency\nfund or want to save if unsure about where to invest for a year.<\/p>\n\n\n\n

                                                                                  \nTable 1: NFO Details<\/em><\/strong><\/p>\n\n\n\n
\n Type<\/strong>\n <\/td>\n  \n An open-ended debt scheme investing in\n money market instruments. \n <\/td>\n Category<\/strong>\n <\/td>\n Money Market Fund\n <\/td><\/tr>
\n Investment Objective<\/strong>\n <\/td>\n To provide reasonable returns,\n commensurate with low risk while providing a high level of liquidity, through\n investments made in money market instruments.
\n There can be no assurance that the\n investment objective of the scheme will be realized\n <\/td><\/tr>
\n Min. Investment<\/strong>\n <\/td>\n Rs 5,000 and in multiples of Re 1\n thereafter\n <\/td>\n Face Value<\/strong>\n <\/td>\n Rs 1,000 per unit\n <\/td><\/tr>
\n Plans <\/strong>\n <\/td>\n \u2022 Direct*

\n \u2022 Regular

\n *\n Default option<\/em>\n <\/td>		\n Options<\/strong>\n <\/td>\n \u2022 Growth*

\n \u2022 Dividend
\n
    \n
  • Re-investment*<\/li>\n
  • Pay-out <\/li><\/ul>\n \n *\n Default option<\/em>\n <\/td><\/tr>
\n Entry Load<\/strong>\n <\/td>\n Not Applicable\n <\/td>\n Exit Load<\/strong>\n <\/td>\n Nil\n <\/td><\/tr>
\n Fund Manager<\/strong>\n <\/td>\n Mr Alok Sahoo and Mr Karn Kumar\n <\/td>\n Benchmark Index<\/strong>\n <\/td>\n CRISIL Money Market index\n <\/td><\/tr>
\n Issue Opens<\/strong>\n <\/td>\n June 13, 2019\n <\/td>\n Issue Closes:<\/strong>\n <\/td>\n June 18, 2019\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

(Source: Scheme\nInformation Document<\/a>)<\/p>\n\n\n\n

How will <\/strong>Baroda Money Market Fund<\/strong> allocate\nits assets?<\/strong><\/p>\n\n\n\n

Under normal circumstances, the scheme\u2019s asset allocation<\/a> pattern will be as under:<\/p>\n\n\n\n

Table\n2: BMMF\u2019s Asset Allocation<\/em><\/strong><\/p>\n\n\n\n\n\t\n\t\t\n\t\t \n\t\t\t\n\t\t\t
Instruments<\/td>\n\t\t Indicative Allocation (% of Total Assets)<\/td>\n\t\t Risk Profile<\/td>\n\t\t<\/tr>\n\t\t
Maximum<\/td>\n\t\t\tMinimum<\/td>\n\t\t<\/tr>\n\t\t
Money Market instruments<\/td>\n\t\t Up to 100%<\/td>\n\t\t\tLow to Medium<\/td>\n\t\t<\/tr>\n\t<\/tbody>\n<\/table>\n\n\n\n

The\nScheme will not have any exposure to debt derivatives, securitized debt, REITs\nand INViTs and foreign securities.<\/p>\n\n\n\n

The\nAMC shall ensure that the total exposure of the Scheme in a particular sector\n(excluding investments in Bank CDs, Triparty Repo, G-Secs, T-Bills short term\ndeposits of scheduled commercial banks and AAA rated securities issued by\nPublic Financial Institutions and Public Sector Banks) does not exceed 25% of\nthe net assets of the Scheme. Also, an additional exposure to financial\nservices sector (over and above the existing 25%) not exceeding 15% of the net\nassets of the Scheme will be allowed by way of increase in exposure to HFCs\nonly, subject to the condition that such securities issued by HFCs are rated AA\nand above and these HFCs are registered with National Housing Bank (NHB).\nHowever, the total investment in HFCs cannot exceed 25% of the net assets of\nthe Scheme.<\/p>\n\n\n\n

(Source: Scheme Information Document<\/a>)<\/p>\n\n\n\n

What will be the Investment Strategy?<\/strong><\/p>\n\n\n\n

The Scheme is an open-ended debt scheme\nthat seeks to generate regular income by investing in a portfolio consisting of\nmoney market instruments.<\/p>\n\n\n\n

The key factors of the investment strategy\nof the Scheme are:<\/p>\n\n\n\n

  1. Identifying attractive\nopportunities based on government policies, economic development, monetary\npolicy, research report and overall economic conditions and development.<\/li>
  2. The issuer\/companies\u2019 selection\nfor investment exposure would be based on financial parameters such as\nfundamentals of business, quality of management, turnover, financial strength\nof the company and the key earnings drivers, net worth, Interest coverage\nratio, profitability track record and the liquidity of the securities\n\/instruments.<\/li>
  3. Issuer\/Companies, which meet\nthe initial selection norms, are then evaluated on the financial norms for\nconsideration in the investments.<\/li>
  4. The Scheme will emphasize on\nwell managed, with above average growth prospects whose securities can be\npurchased at a good yield and whose debt securities will be mainly in\nsecurities listed as investments grade by a recognised authority like CRISIL,\nICRA, CARE etc.<\/li>
  5. Investment in sovereign papers\nwould be based on the interest rate expectations arising out of the macroeconomic\nanalysis. This includes analysis of inflation data, & trends in macro\nvariables such as credit growth, liquidity, money supply, fiscal numbers &\nglobal interest.<\/li><\/ol>\n\n\n\n

    Who\nwill manage the Baroda Money Market Fund?<\/strong><\/p>\n\n\n\n

    The Baroda Money Market Fund will be\nmanaged by Mr Alok Sahoo and Mr Karn Kumar.<\/p>\n\n\n\n

    Mr Alok Sahoo is the Head of Fixed Income\nat Baroda Pioneer Asset Management Company Limited. He is a management graduate\nin Finance from XIM, Bhubaneswar, with a BE degree from NIT, Rourkela. He has\nbeen working in the investment area in asset management for over 18 years.\nPrior to joining the fund house, he was a fixed income fund manager at UTI\nMutual Fund and at HSBC Mutual Fund. He was also the Fund Manager for the\nEmployee Provident Fund at HSBC Asset Management. He has experience in the\ncredit research of companies as well.<\/p>\n\n\n\n

    Currently, Mr Sahoo manages  Baroda Pioneer Treasury Advantage Fund<\/a>, Baroda Pioneer<\/a> <\/a>Short Term Bond Fund<\/a>, Baroda Gilt Fund<\/a>, Baroda Pioneer Dynamic Bond Fund<\/a>, Baroda Pioneer Liquid Fund<\/a>, Baroda Pioneer Credit Risk Fund<\/a>, Baroda Ultra Short Duration Fund<\/a> and Baroda Overnight Fund<\/a><\/p>\n\n\n\n

    Mr Karn Kumar has more than 13 years of work\nexperience in Fixed Income, credit research and corporate finance. Prior to\njoining the AMC, he has worked with CRISIL Ltd. and ICICI Bank in areas of\ncredit research and structured finance. He has also worked with Sterlite\nIndustries Limited in the Corporate Finance team.<\/p>\n\n\n\n

    At the fund house, Mr Kumar manages only\none scheme, i.e. Baroda\nCredit Risk Fund<\/a>.<\/p>\n\n\n\n

    The\noutlook for Baroda Money Market Fund:<\/strong><\/p>\n\n\n\n

    Money markets in India essentially consist\nof the call money market (i.e. market for overnight and term money between\nbanks and institutions), reverse repo transactions (temporary purchase with an\nagreement to sell the securities at a future date at a specified price),\nCommercial Papers, Certificate of Deposits (CDs issued by the Banks) and\nTreasury Bills (issued by RBI). <\/p>\n\n\n\n

    In the money market, activity levels of\ngovernment and non-government debt vary from time to time. Instruments that\ncomprise a major portion of money market activity include but are not limited\nto: <\/p>\n\n\n\n

    \u2022 Overnight Rates; <\/p>\n\n\n\n

    \u2022 Triparty Repo; <\/p>\n\n\n\n

    \u2022 Reverse Repo Agreement; <\/p>\n\n\n\n

    \u2022 Treasury Bills; <\/p>\n\n\n\n

    \u2022 Government Securities with a residual\nmaturity of <1 year; <\/p>\n\n\n\n

    \u2022 Commercial Paper; <\/p>\n\n\n\n

    \u2022 Certificate of Deposits. <\/p>\n\n\n\n

    Apart from these, there are some other\noptions available for short-term investments like MIBOR linked debentures with\nperiodic exit options and other such instruments.<\/p>\n\n\n\n

    So predominant risks in investing in money\nmarket mutual fund include interest rate risk and inflation risk.  Any change in the interest rate or monetary\npolicy leads to fluctuations in the rate of debt funds and affect overall yield.\n<\/p>\n\n\n\n

    Currently, the 10-yr G-Sec yield eased by\ngood 38 bps in May 2019 and since the 1st<\/sup> bi-monthly monetary policy\nfor 2019-20, by 32 bps. So far in 2019, the benchmark yield is down by 34 bps. As\nregards the liquidity conditions in the system, after remaining in deficit\nduring April and most of May due to restrained government spending, it turned\ninto an average daily surplus of Rs 660 billion in early June, the RBI observed.<\/p>\n\n\n\n

    The weighted average call money rate (WACR)\nremained broadly aligned with the policy repo rate: it traded above the policy\nrepo rate (on an average) by 6 bps in April, but below the policy repo rate by\n6 bps in May, the RBI observed.<\/p>\n\n\n\n

    In the 2nd<\/sup> bi-monthly\nmonetary policy statement for 2019-20 (held in June 2019), the RBI predictably\nreduced policy rate by another 25 bps, placing the repo rate at 5.75% and\nconsequently the reverse repo rate at 5.50%.<\/p>\n\n\n\n

    This was the third consecutive reduction in\npolicy in 2019. Plus, the Monetary Policy Committee (MPC) decided to change the\nstance of monetary policy from neutral to accommodative and it reduces the\nscope of further reduction in policy rates by the RBI to accommodate growth\nconcerns.<\/p>\n\n\n\n

    Hence the fate of the fund relies on the short-term\nmoney market instruments of varying ratings including unrated debt securities held.\n Avoid investing aggressively at the\nlonger end of the yield curve, <\/p>\n\n\n\n

    [Read:<\/strong> Skip NFOs, Instead Consider Building A Strategic Mutual Fund Portfolio<\/a>]<\/strong> <\/p>\n\n\n\n


    This article first appeared on PersonalFN     here.<\/a>  <\/p>\n","protected":false},"excerpt":{"rendered":"

    Recently, since the debacle of IL&FS and DHFL defaulting made news headlines, the investors became distraught. And it shattered their delusion of debt investment is safe. Wary investors are cautious with their hard-earned money and losing interest in investing in debt funds. To prevent this from happening, several fund houses started offering debt schemes that…<\/p>\n","protected":false},"author":4,"featured_media":451,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/437"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=437"}],"version-history":[{"count":2,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/437\/revisions"}],"predecessor-version":[{"id":442,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/437\/revisions\/442"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/451"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=437"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=437"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=437"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}