DSP Credit Risk Fund marksdown Coffee Day Exposure by 50%

There’s more action in mutual funds. DSP Credit Risk Fund yesterday wrote off it’s exposure to NCDs of Coffee Day by 50%.

Why?
The NCDs were secured by Coffee Day equity shares

The exposure is secured by a pledge of listed shares of Coffee Day Enterprises Limited (CDEL) and
a land parcel.

What happened to the fund?
The fund fell by 1.27%. The fund hasn’t even managed to beat a Liquid Fund

What did the fund house say?

Now a days even liquid and ultra short term funds also giving sleepless nights :sob:

Stick to the BIGGEST funds and you’ll be relatively safe. In debt funds, bigger the fund the better and safer it is.

Explain me . How bigger ia safer ?

Here’s why

  1. Giant corporations and other businesses uses the funds with the most AUM for their treasury management.
  2. Since the fund is used by corporate houses, AMCs have no incentive to mis-manage a fund.
  3. Bigger funds are also more diversified. For example, HDFC Liquid Fund, which is the biggest liquid fund has 212 securities in it and ICICI Liquid which is 2nd biggest fund has 246 securities in it. Each security has a smaller weight in the overall portfolio and even if 2-3 bonds default at the same time, which is improbable, the hit on the NAV is very very small.
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can you please explain about franklin liquid fund i try to invest lumsum if its ok to invest

Why did you pick this fund?

the return in this fund is slightly high for this purpose

And this perfectly sums up what not to do when choosing a debt fund, or any other fund for that matter. Looking purely at the returns of the fund is harmful. In fact, most of the funds that were hit in the IL&FS default were category topping funds.

Look at the portfolio, the process the fund house follows, the pedigree of the fund manager/team, volatility in return of the fund and then take a decision.

What about these 4 liquid funds-
1-HDFC 2-ICICI 3-Aditya Birla 4-Axis

AUM is pretty good in all these funds except Axis which still has around 30K crores AUM.

Bigger AUM is just a rule of thumb. Do analyze a fund before investing. If not talk to your advisor.