Fixed income MFs
Economic Times: Fixed income MFs witnessing major turmoil
. . . fixed income funds have come to account for more than two-thirds of the industry’s assets, aggregating close to Rs 5.5-lakh crore.
. . . the NAV of the liquid-plus scheme of Franklin Templeton fell by 26% on Wednesday. Broking officials said this could have been due to redemptions, prompting the fund house to sell its investments at a discount in the market. But Templeton denied this claim. “The NAV of a liquid fund is dependent on the movement in bond market yields. The recent sharp tightness in systemic liquidity has pushed short-term yields up sharply,”
In the race to spruce up their returns, fund houses have increasingly taken recourse to investing in illiquid papers and securities of longer duration (something that liquid funds are not supposed to invest in.) When redemptions set in, exiting either of these will become an issue and they will have to sell assets at a discount, thus starting a vicious cycle.
Our very own liquidity crisis.
Related Posts:
