Post the series of rate cuts by the RBI in the last one year, the returns of Liquid funds have measurably reduced.
Also, there were a couple of regulatory changes that have reduced the attractiveness of liquid funds as an option to park funds vs. overnight funds.
- Starting April 2020, all bonds must be compulsorily marked to market.
- SEBI recently introduced a graded exit load of 7 days for Liquid funds and the AMCs will implement this soon.
Definitions
- Liquid fund: Investment in Debt and money market securities with maturity of upto 91 days only
- Overnight fund: Investment in overnight securities having maturity of 1 day
Here’s how Liquid funds stack up against Liquid ETF/Overnight funds
Liquid ETFs are similar to Overnight Funds and predominantly lend overnight.
Returns profile of Liquid MF and Liquid ETF/Overnight fund on the basis of Point to Point and Rolling Returns.
For Liquid MF category, CRISIL Liquid Fund Index has been used as a proxy and for the Liquid ETF Overnight category, Nifty 1D Rate Index has been used as a proxy.
Point to Point Returns –
Data till 31st August 2019 | ||||||
---|---|---|---|---|---|---|
Index Name | 1 Day | 7 Day | 1 Month | 3 Months | 6 Months | 1 Year |
CRISIL Liquid Fund Index (a) | 5.80 | 5.80 | 6.24 | 6.73 | 7.16 | 7.50 |
Nifty 1D Rate Index(b) | 5.19 | 5.22 | 5.36 | 5.58 | 5.88 | 6.20 |
* Less than 1 year Simple Annualized returns, Greater than or Equal to 1 year Compound Annualized returns |
For Overnight Fund - Nifty 1D Rate Index.
Rolling returns for 5 day and 10 day rolling period, with rolling frequency daily. Time Frame considered is 1st January 2019 to 30th August 2019 -
Rolling Period 5 days, rolling frequency daily
CRISIL Liquid Fund Index | Nifty 1D Rate Index | |
---|---|---|
Minimum | 4.71 | 5.19 |
Maximum | 11.64 | 6.58 |
Average | 7.1 | 5.94 |
Std.Deviation | 1.01 | 0.36 |
Rolling Period 10 days, rolling frequency daily
CRISIL Liquid Fund Index | Nifty 1D Rate Index | |
---|---|---|
Minimum | 5.63 | 5.21 |
Maximum | 9.37 | 6.48 |
Average | 7.12 | 5.95 |
Inference: - Clearly the returns for Liquid MF category would be higher. On the other hand, looking at the standard deviation of returns above, on the return risk adjusted basis, we could say that Nifty 1D Rate Index (used for Overnight Fund) looks better than CRISIL Liquid fund Index.