Authored by Mr. Pankaj Pathak Fund Manager, Fixed Income
The business of mutual fund investments is completely based on Trust.
People trying to become investors trust mutual funds with their money.
Why do they trust mutual funds? Because loud advertisements and louder fund managers have told them, they can. They’ve said “Hey you want to grow your money, we have the right plans and smart brains to help you do so. Give us your money and we will grow it over time.” What happens is that, investors are blinded with high returns when times are good. Markets are doing well. Which is the easiest thing to do.
< You know that logic - it’s very easy to be with someone in their happier times, but true & few friends stick around during difficult times. It’s something like that. >
Similarly, when markets change their tide and testing time arrives, investors are left with shock and disappointed. This is the start to a dangerous pandemic!!!
Recently, debt fund investors suffered high losses. Their investments were at RISK. There was a threat to their capital. Do you think this is more grim then equity investors facing losses? We think so - for sure! Simply because debt investments are supposed to be the least risky of the lot. Probably, no risk at all to the capital… And BAM!.
In a quest to bring more AUM, investors are infused with a high sugar rush (sugar being a metaphor to high returns), high returns makes investor happy, that leads to more AUM in under wrong hands - so basically it becomes a vicious circle. This joy ride eventually stops. Which does happen, but it’s too late for investor now. The high returns are gone, investor’s investment objective is gone for a toss, and the money is down the drain. Hard earned money is down the drain.
The saddest part: this money was for a goal. Probably child’s school fees, kid’s marriage, funding for their dream start up. But it’s gone now.
What is the lesson learned for the investor here - if you want safety - look out for funds that prioritize safety. Funds that upfront enough to say that they won’t aim to chase returns but to ensure there is enough safety and liquidity in their portfolio. So when it’s time to pay that school fee - you have your money, when it’s time to get your kid married - you have that money.
Our solution to this pandemic is here, you don’t have to wait until June 2021 for that. Rather it was always here, since December, 2009. It’s the Quantum Liquid Fund!
Quantum Liquid Fund with an AUM of around Rs. 250 crores (which is definitely a smaller number compared to other liquid funds, but size doesn’t matter, especially in mutual funds!) has always chose to stand by its investment objective. No chasing returns or higher returns, just follow the investment objective. We, as part of the Quantum Fixed Income team knew our investors and the fact that they have invested their money for short term goals. They can ask for their money back anytime. If they needed higher returns for long term goals they could have invested in equity funds.
We have been trying to make our investors understand why they need to invest in Quantum Liquid Fund for their liquidity needs. How QLF invests pre-dominantly in Government Securities, Treasury Bills and money market instruments issued by Public Sector Undertakings. Over the years we have done our job well, by doing what a liquid fund must do. Crises have come and gone, we always assure our investors to not worry since we always aim for safety and liquidity.
Some of our past articles that prove we have always maintained our stance of prioritizing safety and liquidity over returns.
How Liquid Funds Work
Year 2018 - During the IL&FS crisis
Quantum Liquid Fund has NO Exposure to IL&FS Group
Safety First, Always!
Quantum Liquid Fund Follows Mark-To-Market valuation since 2012
Why Quantum Liquid Fund Investors Should Not Worry About Credit Risk
Don’t Worry, Quantum Liquid Fund always aims for Safety and Liquidity
Liquidity crisis Q&A with Fund Manager
Bond Market Update & its impact on Fixed Income Funds
Okay, so what should debt fund investors do now?
When choosing a fund rather than checking the size of their AUM, investors should look at the underlying capacity/assets. Why is this important? As an investor we need to understand that debt investing is very different from equity investment. There are mistakes we can afford and there are mistakes we cannot afford to make. In equity, there could be hopes to recover from the ups and downs of the markets over a period of time but there is no coming back from default or bankruptcy. Therefore a mutual fund buying lower rated paper promising higher returns might be a risk for your money. That is the real risk not the NAV movement, what is generally the notion of investors as a level of risk.
May be its time to re-evaluate the risk in your debt portfolio. May be its time to switch to a debt fund that considers your short term goals as important as they are for you, may be its time we end this Pandemic.