Liquid funds invest in papers of 91 days maturity and below. Recently, the Securities and Exchange Board of India (Sebi) changed the valuation norms for these funds.
Earlier, they had to use mark-to-market valuation for papers of 60 days and above. Now, they will have to use this valuation approach for papers of 30 days and above.
Mark-to-market valuation means that papers have to be valued in the portfolio according to their valuation in the secondary market. The other method of valuation is the accrual method. Suppose that a paper was purchased at Rs.95 and will pay Rs.100 on maturity. In this case, the paper is valued at Rs.95 initially in the portfolio. The interest rate of Rs.5 is divided by the tenure and this amount is added to the valuation of the paper each day. Thus, the valuation of that paper moves steadily in a straight line and is not affected by swings in valuation in the secondary market.
But, the accrual method of accounting has a downside. The credit risk in the paper gets hidden. Suppose that a fund manager, in his quest for higher returns, has invested in a lower-grade papers. Usually, when credit risk rises in a bond and there is fear of a default, its price plummets. The risk in the paper gets immediately reflected in the NAV of the liquid fund if it is mark-to-market. The fund manager could then try to exit the paper, if he can. Investors will also become aware of the risk in the portfolio faster and could, if they want, exit the fund.
この記事は Investors India の April 2019 版に掲載されています。
7 日間の Magzter GOLD 無料トライアルを開始して、何千もの厳選されたプレミアム ストーリー、9,000 以上の雑誌や新聞にアクセスしてください。
すでに購読者です ? サインイン
この記事は Investors India の April 2019 版に掲載されています。
7 日間の Magzter GOLD 無料トライアルを開始して、何千もの厳選されたプレミアム ストーリー、9,000 以上の雑誌や新聞にアクセスしてください。
すでに購読者です? サインイン
Indians are Developing Weak Bones
In India, 1 out of 8 males and 1 out of 3 females suffer from osteoporosis, making India one of the largest affected countries in the world.
"The strategy behind the Tata India Innovation Fund centers on identifying companies that are driving transformative or incremental changes through innovation"
Yes, we certainly believe innovation is a powerful theme with immense potential for the coming years, and we are excited to bring it to our investors.
What is Hybrid Mutual Fund?
Hybrid Mutual Fund is a combination of more than one type of fund. While they invest in shares of companies listed on the exchange, like equity funds.
Should you invest in dynamic bond funds?
Dynamic bond funds have delivered a category average return of 8.68 per cent over the past year, making them the fourth best-performing category, following long-duration funds, constant maturity gilt funds, and gilt funds. With interest rate cuts yet to begin, these funds remain a viable option for investors seeking to benefit from possible rate reductions.
The Multicap Solution to India's MultiDimensional Growth
India is entering a transformative era of economic growth, backed by a unique combination of demographic strength, infrastructure development, and rising global prominence.
The Long-Term Benefit of Investing in Children's Future
A child is the most treasured part of any parent's life, and naturally, we want to give them the best of what the world has to offer. This often means not only ensuring we can meet their needs but also nurturing them to pursue their unique aspirations. Each child has their own dreams and challenges, making the early years critical as they lay the foundation for a healthy and fulfilling future.
ASK THE EXPERT
Ques. One of my friends told me that your company provides detailed Retirement plans. I want to know what is the procedure to get my Retirement plan. I will be retiring in March 2025. R.P Gupta, Noida
How to Naturally Reverse Fatty Liver Disease
The liver, located on the upper-right side of the abdomen, is the body’s largest internal organ and plays a critical role in detoxifying the blood and processing nutrients.
Banking sector which has underperformed in the last two years, now offers a favorable risk-reward profile
Do you think the market is overpriced? Is yes, should investors refrain from investing in index schemes at the current valuation?
India will continue to enjoy benefits of a close US relationship and trade will continue to grow
Q1. The US elections are said to be one of the closest till date, what impact will the election of a Republican / Democratic party have on the US economy and how is that going to affect India in the short as well as the long term?
