After turning up heat on fixed maturity plans, big investors like banks and treasuries of companies are training their guns on liquid
funds. These funds,
which are like current accounts for these bulge-bracket investors, have been facing increasing redemptions in the past few days.
Although most fund managers attribute this to the tightening of the liquidity in the system, investors say apprehensions over the quality of the portfolios has also played a major part.
Liquid funds form the biggest component of the total assets with the mutual funds industry with more than a third of the total assets parked with these funds. This testifies to their popularity among big investors like corporates and high net worth individuals for parking their investible surpluses.
But after the recent turmoil in global financial markets, these sophisticated investors have been gripped with fears about the safety of their invested capital. Besides, funds leaving the system on account of the advance tax payments and quarter ending transactions have made money even dearer.
“While there have been no defaults in the system as such, there is concern on the credit quality of assets (on the debt funds side) in certain investor quarters,” said Akhilesh Singh, business head, wealth management & distribution, Emkay Global, a domestic broking house that sells mutual funds. “It’s not about the return on money, but the return of the money.”
Many other distributors said the crisis in the credit derivatives market globally has made investors fearful of pass through certificates (PTC) that form an important part of these liquid funds. As per industry estimates, PTCs form some 15-20% of the total assets in liquid funds. PTCs are created by banks, by breaking into pieces loans they have given to companies or individuals and then sold them to investors.
These PTCs envisage that cash flow from the underlying asset classes would be passed through to the holders of the securities.
But in case the company or individuals are unable to repay their loans, then the securities become worthless. Investors are especially wary because in recent times, MFs have been heavily investing in paper made from loans given to real estate companies to spruce up their returns.
But fund officials like Suresh Soni, who heads Deutsche AMC, said the concern over PTCs is not justified at all. Mr Soni added that loans given to single companies — single loan PTCs — carry the same risk as a debenture issued by a company.
As for those PTCs which are created from loans given to individuals — pool PTCs — he said several loan takers would have to default for the portfolio to take a hit.
As for redemptions from liquid funds, Mr Soni said liquid funds are meant to be products that can handle huge occasional outflows from funds. “Quality of portfolios of Indian funds is also adequate,” he added, dismissing any suggestions of weakness in certain MF portfolios.
funds. These funds,
which are like current accounts for these bulge-bracket investors, have been facing increasing redemptions in the past few days.
Although most fund managers attribute this to the tightening of the liquidity in the system, investors say apprehensions over the quality of the portfolios has also played a major part.
Liquid funds form the biggest component of the total assets with the mutual funds industry with more than a third of the total assets parked with these funds. This testifies to their popularity among big investors like corporates and high net worth individuals for parking their investible surpluses.
But after the recent turmoil in global financial markets, these sophisticated investors have been gripped with fears about the safety of their invested capital. Besides, funds leaving the system on account of the advance tax payments and quarter ending transactions have made money even dearer.
“While there have been no defaults in the system as such, there is concern on the credit quality of assets (on the debt funds side) in certain investor quarters,” said Akhilesh Singh, business head, wealth management & distribution, Emkay Global, a domestic broking house that sells mutual funds. “It’s not about the return on money, but the return of the money.”
Many other distributors said the crisis in the credit derivatives market globally has made investors fearful of pass through certificates (PTC) that form an important part of these liquid funds. As per industry estimates, PTCs form some 15-20% of the total assets in liquid funds. PTCs are created by banks, by breaking into pieces loans they have given to companies or individuals and then sold them to investors.
These PTCs envisage that cash flow from the underlying asset classes would be passed through to the holders of the securities.
But in case the company or individuals are unable to repay their loans, then the securities become worthless. Investors are especially wary because in recent times, MFs have been heavily investing in paper made from loans given to real estate companies to spruce up their returns.
But fund officials like Suresh Soni, who heads Deutsche AMC, said the concern over PTCs is not justified at all. Mr Soni added that loans given to single companies — single loan PTCs — carry the same risk as a debenture issued by a company.
As for those PTCs which are created from loans given to individuals — pool PTCs — he said several loan takers would have to default for the portfolio to take a hit.
As for redemptions from liquid funds, Mr Soni said liquid funds are meant to be products that can handle huge occasional outflows from funds. “Quality of portfolios of Indian funds is also adequate,” he added, dismissing any suggestions of weakness in certain MF portfolios.
Source: http://economictimes.indiatimes.com/articleshow/msid-3575343,prtpage-1.cms
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