Why Franklin India Ultra Short Bond Fund fell more than 4% on 16th Jan 2020?

[zkar]

The Segregated units of FTUSB fund (UBSG1GPD-MF) that were present since segregation in my Kite Holdings have disappeared since yesterday.
Did not get any intimation regarding that.

Have not yet received any amount in Bank account either.

Pl. clarify.

@Bhuvan

[ShubhS9]

@zkar

The Segregated units of FTUSB fund (UBSG1GPD-MF) that were present since segregation in my Kite Holdings have disappeared since yesterday.
Did not get any intimation regarding that.

Have not yet received any amount in Bank account either.

Request you to raise ticket at support.zerodha.com

[raoawesome]

hey @Bhuvan what’s your take on this? I mean like are ultra short bond funds that invest in treps safe or should we expect something like this to happen ?

Also does Ultra short bond funds have TDS , and are they safe? If not what are the risks?

[Bhuvan]

@raoawesome

what’s your take on this? I mean like are ultra short bond funds that invest in treps safe or should we expect something like this to happen ?

At the risk of stating the obvious, the safety of the fund depends on the portfolio. So, making sure you stick to funds that invest only in govt securities, and AAA/A rated instruments is a good thing.

@raoawesome

Also does Ultra short bond funds have TDS

Nope.

@raoawesome

If not what are the risks?

Read this post

A quick explainer on the basics of investing in debt mutual funds

Debt funds play an important role in your asset allocation. Since debt funds are relatively less risky than equities, they help reduce the volatility in your portfolio by providing stability. They are less risky, but not riskless. There are a few key risks you need to understand. The first key risk you need to know is interest rate risk. Bonds and, by extension, debt funds have an inverse relationship with interest rates. When interest rates rise, bond prices fall. The reason is that if intere…

[raoawesome]

@Bhuvan

At the risk of stating the obvious, the safety of the fund depends on the portfolio. So, making sure you stick to funds that invest only in govt securities, and AAA/A rated instruments is a good thing.

I am saying with reference to this thread. Leave all other funds, just consider Franklin Templeton’s ultra short fund. I am pretty sure they had treps & gov securites in their portfolio. So why did they fall to 4%, ? Just say with reference to Franklin Templeton’s ultra short fund. I am just trying to grasp how safe ultra short fund is and how much will be loss if there is an event.

@Bhuvan

Nope

I see , ultra shorts MF growth does not TDS like tax on dividend income like liquidbees. Am I correct,?

[SpacemanSpiff]

@raoawesome

I am saying with reference to this thread. Leave all other funds, just consider Franklin Templeton’s ultra short fund. I am pretty sure they had treps & gov securites in their portfolio. So why did they fall to 4%, ? Just say with reference to Franklin Templeton’s ultra short fund. I am just trying to grasp how safe ultra short fund is and how much will be loss if there is an event.

Franklin one had lower rated bonds and faced trouble when things went south. They had to close down and return money i think - there were multiple funds from franklin which closed down. Before that it had a high yield, because it held those kind of bonds. So basically it was a credit risk + ultra short term bond. Not all ultra short term funds will do that, i think most don’t.

So you have to read what the fund can and cannot do and also look at portfolio. treps, repo etc are all safe, treps has collateral with 3rd party, look it up. I put a lot of trading capital in overnight funds, and they hold treps and similar things (and in return yield is lower). Liquid funds also are generally safe.

@raoawesome

I see , ultra shorts MF growth does not TDS like tax on dividend income like liquidbees. Am I correct,?

yeah, just take growth funds to avoid dividend always. Irrespective of TDS, dividend is anyway tax inefficient. I only hold growth funds, TDS cannot apply there as its taxed only when you book gains.

[Bhuvan]

@raoawesome

I am saying with reference to this thread. Leave all other funds, just consider Franklin Templeton’s ultra short fund. I am pretty sure they had treps & gov securites in their portfolio. So why did they fall to 4%, ? Just say with reference to Franklin Templeton’s ultra short fund. I am just trying to grasp how safe ultra short fund is and how much will be loss if there is an event.

Their funds had the riskiest of risky papers and when COVID hit, they couldn’t see forcing them to wind down schemes.

This is the gist of it.

Why Franklin India Ultra Short Bond Fund fell more than 4% on 16th Jan 2020?

Franklin one had lower rated bonds and faced trouble when things went south. They had to close down and return money i think - there were multiple funds from franklin which closed down. Before that it had a high yield, because it held those kind of bonds. So basically it was a credit risk + ultra short term bond. Not all ultra short term funds will do that, i think most don’t. So you have to read what the fund can and cannot do and also look at portfolio. treps, repo etc are all safe, treps ha…

@raoawesome

I see , ultra shorts MF growth does not TDS like tax on dividend income like liquidbees. Am I correct,?

No growth schemes have TDS.

[raoawesome]

@Bhuvan

growth schemes have TDS.

can you explain this better, I mean with regards to ultra short mutual fund growth ?

I searched this forum and didnt understand below line

@Bhuvan

The screenshot says 6% odd but why are my actual returns around 3.5%?
Good question. The returns in Liquid ETFs are in the form of dividends they are subject to a Dividend Distribution Tax. Before Budget 2020, a flat DDT of 28.84% was applicable. Post the budget, dividends are now taxable in the hands of the investors at their income tax slab rate. Plus a TDS of 10% will be applicable on mutual fund/ETF dividends once the dividends cross Rs 5000.

So, the returns of Liqudibees will now be similar to Overnight mutual funds or the RBI repo rate and you’ll have to pay DDT on the units you receive as dividends as per your income tax slab.

Is TDS going to be collected even for overnight mutual funds growth ?? will it show in 26AS? will show it in AIS??

[Bhuvan]

@raoawesome

can you explain this better, I mean with regards to ultra short mutual fund growth ?

I searched this forum and didnt understand below line

Doesn’t matter if its equity or debt, growth plans of mutual funds have no TDS.

@raoawesome

Is TDS going to be collected even for overnight mutual funds growth ?? will it show in 26AS? will show it in AIS??

Same asnweer as above.

@raoawesome

I searched this forum and didnt understand below line

That is specific to liquid ETFs. The way those ETFs work is the NAV is constant and the returns are in the form of cash or unit dividends. On dividends, a TDS of 10% is applicable above Rs 5000.
https://www.amfiindia.com/investor-corner/knowledge-center/tax-corner.html