This article is written by Mr. Pankaj Pathak, Fund Manager - Fixed Income Quantum AMC
Corporate debt markets have been under stress since the IL&FS default. With onset of Covid-19 and its economic uncertainty - the situation has further worsened. The conflict between the investment objective and the portfolio positioning of various debt mutual fund schemes especially those of Liquid Funds is in news for all the wrong reasons. However, investors of Quantum Liquid Fund (QLF) have no reason to worry about, here’s why .
Unfortunately, investors and many fund managers ignored the liquidity and credit risk associated with the high yielding lower quality private debt which now came to haunt the entire market. While it’s time for some AMCs to regain the trust of their investors, for us at Quantum it is an opportunity to re-iterate what we have always been telling you, choose your fund wisely! It also builds our confidence in doing what we are doing…following our processes, our values and our zest to stand by our investment styles, no matter what.
We follow the SLR investment philosophy (Safety, Liquidity and Returns) for managing the fixed income funds at Quantum. We realized that achieving all three - high safety, high liquidity and high returns is not easy. The investment objective of a liquid fund is to keep your investment safe and liquid and try and achieve slightly higher returns than bank savings deposits.
In order to enhance transparency we disclose our portfolios of Quantum Liquid Fund and Quantum Dynamic Bond Fund on not just monthly but also on a weekly basis on our website. Since liquid funds are meant for short term investing, we believe sharing our portfolio not just monthly but also on a weekly basis allows us to update our investors on the bond market sentiments and portfolio construction. In the recent past, we have been consistently highlighting the continued stress in the bond markets and that despite all the actions by the Reserve Bank of India, some segments of the bond market remains risky for investors and presents a systemic risk to the industry as well.
Over the years we have tightened our processes and stopped investing in any private corporate credit corporations completely. We do not take any private credit exposure and invest only in government securities, treasury bills and bonds issued by a select few AAA rated Public Sector Undertakings (PSU) which are shortlisted under our proprietary credit research and review process. The fund thus hopes to mitigate the issue of credit risks (risk of default) and liquidity risks (unable to liquidate/sell the assets to meet redemptions) by investing in safer and more liquid instruments.
To re-iterate (we feel that we need to keep re-iterating this, given the market scenario) the investment objective of a liquid fund is to keep your investment safe and liquid and try and achieve slightly higher returns than bank savings deposits. QLF aims to have very high liquidity, minimum volatility and near zero chances of capital loss (credit risk – risk of default of interest and principal).
The investment team grades investors based on its assessment of their holding period and matches short term investors with Cash and short term treasury bills investment.
There is no way Quantum would sacrifice any of the above factors to chase returns. Thus we request investors to stay calm, choose funds wisely. If you are looking for returns with risk, we have equity funds, if you are looking for risk adjusted returns with considerably less risk, we have a multi-asset fund, but if you are in search of an investment avenue with minimal risk then Quantum Liquid Fund is your answer.