What could be reason for falling daily nav of liquid fund

General
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first time i m observing fall daily NAV of liquid fund

Screenshot from 2023-03-29 09-12-57
Screenshot from 2023-03-29 09-12-571296×711 56.5 KB

what could be reason ?

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Kshitiz Jain on Twitter: “@deepakshenoy I think this is not crazy, its the norm Every year money market rates crossing March end are higher. 9-10% for year crossing (31Mar/03Apr) would be the norm. I remember few years back I have even traded 15% rate for year crossing. The rates come down only when RBI steps in https://t.co/qhvJQUzWAR” / Twitter

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i remember just after covid lockdown it started fell for 2-3 days i exited immediatly ( as i was not sure about its portfolio of corporate bonds survive covid induced fear ) ) & transfered all my money back into bank deposit

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Can someone ELI5 this ?

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Apparently, it’s not a matter of concern but something which happens quite regularly at this time of the year.

Yields on money market instruments are rising, so it means that there is more selling than buying. When I used to manage the corporate treasury, most of our banking partners would ask us for year-end CASA. Maybe, it could be something to do with that. Or it could be something to do with raising cash levels to pay out year-end bonuses. There could be many reasons.

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thanks suyash for giving deep insight into debt mkt

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And with the interest rates expected to peak out this year, a secondary reason could be that people are dumping the short dated bonds, and locking in the longer dated bonds before 31st March to avail the Indexation benefit.
Probably would have happened gradually anyway during the mid or latter part of the year, but happening all of a sudden now…

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The fall in NAV is attributed to the rise in interest rates. Similarly the navs will go up when the interest rate falls.

If you need additional details on why its happening - pls ask

PS: money market funds are better instruments to cope up with the interest rate rising regime than pure liquid funds.

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They are same for the most part as they hold same paper, except in liquid funds the paper will have a tenure of 91 days and MM will have longer duration paper, even UST funds are also the same. The credit rating is also the same.

Liquid funds in general are used to park money, the other 2 are used for investment purposes.

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People are selling liquid and overnight or short duration funds and buying Long duration other high yielding Debt funds as 31st is the last day to lock in Indexation. Even RBI today rejected T bill auction (1st rejection after 7-8 years) suggesting that its just the small blip everyone was biding for higher yield . Also , as others pointed out End of the year activity. So , i think no need to worry here

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