When you invest, your sole intent is to see\nthe growth of your principal amount without any loss of capital. Hence, you\nchoose funds that could have lower risk with moderate returns, such as debt\nfunds.<\/p>\n\n\n\n

[Read: <\/strong>Is Your Investment In Debt Mutual Fund At Risk?<\/a>]<\/p>\n\n\n\n

But the debacle of ILFS, followed by\nsimilar defaults in repayment by other top corporates, has led to a gargantuan credit\ncrisis in debt mutual funds and an erosion of investors\u2019 principal. Simply\nbecause many fund houses had taken exposure to debt papers issued by these\ndefaulters. <\/p>\n\n\n\n

From these instances, investors learned\nvaluable lessons:<\/p>\n\n\n\n

1. What is considered to be safe,\nis not necessarily safe (Debt investments)<\/li>
2. One has to prudently choose a\nworthy fund from a well-established fund house that follows robust investments\nprocess and systems <\/li><\/ol>\n\n\n\n

   [Read<\/strong>: Can You Ignore Default And Liquidity Risk While Investing In Debt Mutual Funds?<\/a>]<\/p>\n\n\n\n

   Since then, investors have become extremely cautious, investing only in mutual fund schemes that are from reputed and established industry players. Investors perceive these large fund houses to be safer and highly adept at managing their investments; hence they have invested heavily in debt funds offered from these fund houses, in order to preserve their capital. Specifically, in liquid and overnight funds, for these funds invest in debt instruments having a short maturity period. <\/a><\/p>\n\n\n\n

   A liquid fund invests in debt & money\nmarket instruments with a maturity of up to 91 days only. They invest in money\nmarket instruments such as Certificate of Deposits (CDs), Commercial Papers,\nTerm Deposits, Call Money, Treasury Bills, and government securities, among\nothers.<\/p>\n\n\n\n

   [Read:\u00a0<\/strong>A 3-Step Guide to Building A Liquid And Secure Emergency Fund<\/a>]<\/p>\n\n\n\n

   And overnight funds, one of the lesser-known\ncategories of debt mutual funds, offers high liquidity by investing in\novernight securities having a maturity of 1 business day. They invest in short-term\nsecurity instruments including Tri-Party Repos (TREPS), Reverse Repos, and debt\ninstruments with overnight maturity. <\/p>\n\n\n\n

   However, though liquid fund entails low\nrisk, they are not absolutely safe. The performance of the liquid funds depends\non the quality of debt papers and money market instruments they hold in the\nportfolio. <\/p>\n\n\n\n

   Particularly, the proportion of Commercial\nPapers (an unsecured negotiable money market instrument issued by corporates,\nprimary dealers and all India Financial Institutions as an alternative source\nof short-term borrowings). <\/p>\n\n\n\n

   Whereas for an overnight fund, there is a\nreinvestment risk, i.e. overnight funds may not be able to reinvest their\nproceeds at the same rate of return, and that doesn’t cause any capital\nerosion. <\/p>\n\n\n\n

   Among the two, investment risk involved for\nan overnight fund is least or almost zero and are more liquid. <\/p>\n\n\n\n

   [Read<\/strong>: Liquid Funds v\/s Overnight Funds: Where To Park Your Short-Term Money?<\/a>]<\/p>\n\n\n\n

   Hence, the investors decided to play safe\nand invest mostly in these two funds for a short term of say up to a year. The\nAMFI monthly data that was released validate this, which observed that there\nwas a steady rise in number of folios, especially in Liquid funds and overnight\nfunds. <\/p>\n\n\n\n

   Table1<\/strong>: Rise in number of folios of various categories of Debt funds<\/em><\/strong><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n

   Open-ended Debt Schemes<\/strong>\n<\/td>\n	Apr-19<\/strong>\n<\/td>\n	May-19<\/strong>\n<\/td>\n	Jun-19<\/strong>\n<\/td>\n	Jul-19<\/strong>\n<\/td>\n<\/tr>\n
   Overnight Fund<\/a>\n<\/td>\n	21,363\n<\/td>\n	22,149\n<\/td>\n	23,588\n<\/td>\n	25,332\n<\/td>\n<\/tr>\n
   Liquid Fund<\/a>\n<\/td>\n	1,451,293\n<\/td>\n	1,493,220\n<\/td>\n	1,573,737\n<\/td>\n	1,608,355\n<\/td>\n<\/tr>\n
   Ultra-Short Duration Fund<\/a>\n<\/td>\n	591,392\n<\/td>\n	606,796\n<\/td>\n	616,149\n<\/td>\n	625,353\n<\/td>\n<\/tr>\n
   Low Duration Fund<\/a>\n<\/td>\n	922,455\n<\/td>\n	924,739\n<\/td>\n	920,401\n<\/td>\n	911,841\n<\/td>\n<\/tr>\n
   Money Market Fund<\/a>\n<\/td>\n	284,325\n<\/td>\n	288,865\n<\/td>\n	294,011\n<\/td>\n	300,940\n<\/td>\n<\/tr>\n
   Short Duration Fund<\/a>\n<\/td>\n	263,140\n<\/td>\n	267,690\n<\/td>\n	270,692\n<\/td>\n	275,579\n<\/td>\n<\/tr>\n
   Medium Duration Fund<\/a>\n<\/td>\n	243,389\n<\/td>\n	236,775\n<\/td>\n	231,738\n<\/td>\n	227,819\n<\/td>\n<\/tr>\n
   Medium to Long Duration Fund<\/a>\n<\/td>\n	103,875\n<\/td>\n	103,695\n<\/td>\n	104,257\n<\/td>\n	105,536\n<\/td>\n<\/tr>\n
   Long Duration Fund<\/a>\n<\/td>\n	18,687\n<\/td>\n	18,851\n<\/td>\n	19,721\n<\/td>\n	22,181\n<\/td>\n<\/tr>\n
   Dynamic Bond Fund<\/a>\n<\/td>\n	212,622\n<\/td>\n	210,439\n<\/td>\n	209,773\n<\/td>\n	210,881\n<\/td>\n<\/tr>\n
   Corporate Bond Fund<\/a>\n<\/td>\n	193,906\n<\/td>\n	200,609\n<\/td>\n	209,731\n<\/td>\n	225,630\n<\/td>\n<\/tr>\n
   Credit Risk Fund<\/a>\n<\/td>\n	576,015\n<\/td>\n	564,179\n<\/td>\n	554,021\n<\/td>\n	541,549\n<\/td>\n<\/tr>\n
   Banking and PSU Fund<\/a>\n<\/td>\n	84,669\n<\/td>\n	87,682\n<\/td>\n	91,470\n<\/td>\n	98,344\n<\/td>\n<\/tr>\n
   Gilt Fund<\/a>\n<\/td>\n	64,848\n<\/td>\n	68,296\n<\/td>\n	74,039\n<\/td>\n	83,926\n<\/td>\n<\/tr>\n
   Gilt Fund with 10 yr constant duration<\/a>\n<\/td>\n	10,400\n<\/td>\n	11,937\n<\/td>\n	14,543\n<\/td>\n	19,014\n<\/td>\n<\/tr>\n
   Floater Fund<\/a>\n<\/td>\n	133,693\n<\/td>\n	133,980\n<\/td>\n	134,141\n<\/td>\n	135,243\n<\/td>\n<\/tr>\n<\/tbody><\/table>\n\n\n\n Data as of July 31, 2019 (Source:\u00a0www.amfiindia.com<\/a>)<\/p>\n\n\n\n Due to this, the average asset under\nmanagement (AAUM) of liquid funds and overnight funds witnessed a surge of 8%\nand 40% respectively from April 2019 to\nJuly 2019. <\/p>\n\n\n\n Graph 1: Quarterly AAUM of top 10 industry players (Rs in Lakhs)<\/em><\/strong><\/p>\n\n\n\n <\/figure><\/div>\n\n\n\n Data as of June 30, 2019 (Source:\u00a0www.amfiindia.com<\/a>)<\/p>\n\n\n\n Except for Reliance Mutual Fund<\/a>, UTI Mutual Fund<\/a>, and ICICI Prudential Mutual Fund,<\/a>remaining top industry players have witnessed a good steady growth on a quarterly basis and within a year it rose by double-digit. <\/p>\n\n\n\n Table 2: Year\nover year growth in AAUM of top ten industry players<\/em><\/strong><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n Fund House<\/strong>\n<\/td>\n April – June 2018- Q1 AAUM (Rs in Lakhs)<\/strong>\n<\/td>\n April – June 2019- Q1 AAUM (Rs in Lakhs)<\/strong>\n<\/td>\n yoy-growth (%)<\/strong>\n<\/td>\n<\/tr>\n HDFC Mutual Fund<\/a>\n<\/td>\n 30684072\n<\/td>\n 36253843\n<\/td>\n 18%\n<\/td>\n<\/tr>\n ICICI Prudential Mutual Fund<\/a>\n<\/td>\n 31016625\n<\/td>\n 33728675\n<\/td>\n 9%\n<\/td>\n<\/tr>\n SBI Mutual Fund<\/a>\n<\/td>\n 23311400\n<\/td>\n 30753386\n<\/td>\n 32%\n<\/td>\n<\/tr>\n Aditya Birla Sun Life Mutual Fund<\/a>\n<\/td>\n 24926992\n<\/td>\n 25396526\n<\/td>\n 2%\n<\/td>\n<\/tr>\n Reliance Mutual Fund<\/a>\n<\/td>\n 24044537\n<\/td>\n 22257573\n<\/td>\n -7%\n<\/td>\n<\/tr>\n Kotak Mahindra Mutual Fund<\/a>\n<\/td>\n 12763523\n<\/td>\n 16120906\n<\/td>\n 26%\n<\/td>\n<\/tr>\n UTI Mutual Fund<\/a>\n<\/td>\n 15318313\n<\/td>\n 15786586\n<\/td>\n 3%\n<\/td>\n<\/tr>\n Franklin Templeton Mutual Fund<\/a>\n<\/td>\n 10441597\n<\/td>\n 12496738\n<\/td>\n 20%\n<\/td>\n<\/tr>\n Axis Mutual Fund<\/a>\n<\/td>\n 7920123\n<\/td>\n 10222115\n<\/td>\n 29%\n<\/td>\n<\/tr>\n IDFC Mutual Fund<\/a>\n<\/td>\n 6959051\n<\/td>\n 8227912\n<\/td>\n 18%\n<\/td>\n<\/tr>\n<\/tbody><\/table>\n\n\n\n Data as of June 30, 2019 (Source:\u00a0www.amfiindia.com<\/a>)<\/p>\n\n\n\n This\nindicates that established players of the industry with robust investment\nsystems in place have seen substantial growth in the form of an increase in\ninvestments due to the trust of investors, despite exposure to the credit\ncrisis, debt markets facing liquidity crisis and slowdown in economy due to\nseveral macro and micro economic factors. What\u2019s augmented inflows is the market\nregulatory body\u2019s stringent actions to protect investors\u2019 interest, which are\nas follows:<\/p>\n\n\n\n Ban on upfront commission and new commission disclosure norms<\/a><\/li> Uniform fact sheets<\/li> Made mutual fund houses apply product labels with colour codes and\u00a0risk-o-meter<\/a><\/li> Revised the expense ratio<\/a>, bringing down the cost of investing<\/li> Introduction of\u00a0Direct Plan<\/a>\u00a0for a mutual fund scheme<\/li> Categorization and Rationalization of Mutual Fund Schemes<\/a><\/li> Prudential norms governing liquid funds and other debt & money market instruments<\/a><\/li> Graded exit load for liquid funds<\/a><\/li> Changed\u00a0valuation norms for below-investment grade securities<\/a><\/li> Open market operations<\/li> Asked\u00a0mutual fund houses to shift all their investment to listed or to-be-listed equity and debt securities<\/a>\u00a0in a phased manner and reduce their exposure to unrated debt instruments from 25% to just 5%<\/li> And even\u00a0pulled up credit rating agencies<\/a>\u00a0for their high laxity and\u00a0enhanced their disclosure norms<\/a>\u00a0<\/li><\/ul>\n\n\n\n [Read:<\/strong>\u00a0Should The Rating Agencies Be Blamed For This Credit Crisis?<\/a>]<\/p>\n\n\n\n Due to\nthis, investors were encouraged to invest in debt funds, as it would enable\ntransparency when effective implementation is complete and may even help\neliminate systemic risk. <\/p>\n\n\n\n Since then,\nseveral fund houses are seizing this opportunity by launching overnight funds\nand liquid funds extensively to gather more AAUM. These funds primarily invest\nin a judicious mix of debt and money market instruments having a short duration\nof less than a year. <\/p>\n\n\n\n [Read:\u00a0<\/strong>Why Your Money In Liquid Funds Is At Risk?<\/a>]<\/p>\n\n\n\n Yes Mutual Fund<\/a> (a new player) and PGIM India Mutual Fund have launched an overnight fund-YES Overnight Fund and PGIM India Overnight Fund. <\/p>\n\n\n\n The overnight fund is a category of debt scheme emerged after the SEBI\u2019s recategorization norms. As per the asset allocation<\/a> also, both, YES Overnight Fund and PGIM India Overnight Fund can invest up to 100% of the portfolio into Debt Securities and Money Market Instruments with maturity on or before the next business day. <\/p>\n\n\n\n On the risk-return spectrum, overnight funds are placed lower because these\ncarry the least amount of investment risk due to its investment into\ninstruments of shortest investment duration of one day. <\/p>\n\n\n\n So, the overnight fund is a\nplausible choice as it provides better returns than bank FDs, are more liquid,\nand, at least, that doesn’t cause any capital erosion.<\/p>\n\n\n\n But at the same time, the overnight funds\ngenerate returns, almost in line with\ngeneral levels of interest rates and debt\/money market conditions prevailing\nfrom time to time, i.e. in line with the repo rates and inter-bank lending\nrates in the overnight market, under normal conditions.<\/p>\n\n\n\n [Read<\/strong>: Are Mutual Fund Houses Right In Launching Overnight Funds Now?<\/a>]<\/p>\n\n\n\n So, it is\nimportant, that one should be extremely careful while choosing a fund for\ninvestment. Investing in new funds makes less sense because it does not have a\ntrack record; especially when there are many funds available that have\nperformed well within the category. <\/p>\n\n\n\n At the same time, one should select a worthy fund based on the evaluation of qualitative and quantitative parameters, that include the portfolio characteristics and quality of the debt instruments\u00a0 held by the scheme. These criteria accurately portray the fund’s performance across market cycles, risk involved and highlight the credibility of the fund house with processes and system in place. <\/p>\n\n\n\n Besides, don\u2019t forget your own investment time horizon and appetite for risk<\/a>. If you have a time horizon of less than a month and want to keep your money safe, it’s better to go with overnight funds. On the other hand, if you are willing to take a slightly higher credit risk for a better yield and can stay invested for at least three months, consider liquid fund. <\/p>\n\n\n\n [Read<\/strong>: The Best Liquid Funds For 2019<\/a>]<\/p>\n","protected":false},"excerpt":{"rendered":" When you invest, your sole intent is to see the growth of your principal amount without any loss of capital. Hence, you choose funds that could have lower risk with moderate returns, such as debt funds. [Read: Is Your Investment In Debt Mutual Fund At Risk?] But the debacle of ILFS, followed by similar defaults in…<\/p>\n","protected":false},"author":4,"featured_media":948,"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\/947"}],"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=947"}],"version-history":[{"count":4,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/947\/revisions"}],"predecessor-version":[{"id":954,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/947\/revisions\/954"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/948"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=947"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=947"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=947"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}