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Investing in debt schemes with exposure to JSPL – a bane or a boon for new investors?

A video on debt schemes with exposure to JSPL

Debt Funds

Lull After (Self-Created) Storm

This article is not to defend any AMCs decision to include Amtek Auto/JSPL or any such papers in their debt schemes. Neither is to justify their actions or inactions in either retaining the same or selling them. This article is also not to comment on creditworthiness of these papers or otherwise. Also, I am not writing this on behalf of any AMCs to defend or justify their actions or inactions in these situations. Once I have made these points clear, now let me tell you why I have penned this article.

Debt Funds

Debt Investing In Equity Language – Post JSPL

Once again media & Twitteratis went to town to create huge noise around JSPL downgrade to D by CRISIL a few days back. As responsible institutions, one should weigh both pros & cons of an event, its impact on markets & portfolios & come up with some sensible solution for the readers & hand hold them instead of only instilling fear in investors’ minds who can then take some knee jerk, irrational decisions on their portfolios which in the bargain are injurious to their financial health & injurious to the overall industry as a whole. One can actually draw a lot of comfort from Amtek Auto/JSPL issues by analyzing the positives of the whole situations. Since most investors understand the language of Equity investing (v/s investments in Debt markets), let me draw some similes & explain the same for readers’ benefit.

Debt Funds

Understand Concepts & Risks Involved In Debt Markets

Understand Concepts & Risks Involved In Debt Markets Before taking Investment/Disinvestment Decisions This article is a concluding one in a series of articles I have written on Amtek Auto default fiasco (TRIOLOGY). Kindly read my earlier articles on this subject dated August 08’2015 – Stay Away from Chines Whispers & another dated September 28’2015 – Can We Rely on Rating Agencies?

Debt Funds

Stay Away from Chinese Whispers

We saw one bad news last Monday when equity markets corrected on Chinese & global cues. Industry is just getting back on its feet when another news – now on debt side has surfaced. Without getting into details of the whole situation, suffice it to say that though it is one off kind of a situation; to panic & have knee jerk reaction is not in the best interests of the Mutual Fund Industry. Many rumors, Chinese whispers with added mirch masala will do the rounds for some time to come. As informed Advisors it becomes our duty & responsibility in not adding fuel to fire & escalate the situation.

Debt Funds

How, When and Why Of Duration Themes

Many readers have interpreted my earlier article on why duration themes are not for retail investors as understanding that I am totally against Duration calls. If one has read the article thoroughly, one would have realized that I had also given investment calls from time to time to my Institutional investors including in 2008 November; but followed it up with aggressive disinvestment calls as well. I am not & have never been against giving Duration calls. I have only been stating at various forums & platforms that these calls are not for Retail investors who have come into Mutual Fund Debt schemes for predictability, lower volatility & better tax efficiency. Neither have I spoken in favor or against Duration call in that article. Entire gist of the article was that Duration themes are more like trading calls, need constant monitoring, need timely entry & exit calls & should be given by those advisors who understand when to give disinvestment calls & to those investors who are savvy on

Debt Funds

Put this Asset Class in Your Negative List

HISTORY REPEATING ITSELF IS HISTORY’S OLDEST STORY – STEVE WICK There have been many conflicting & confusing articles in media (http://goo.gl/yTdCK3, http://goo.gl/kl2D2u & http://goo.gl/PMkNxY) about whether there is any story brewing in Duration schemes. In the recent past, this call was given in January 2013 with some disastrous results. In spite of that industry had once again started giving an aggressive investment call in Duration theme in mid-2014. Post that, RBI cut interest rates on 2 occasions. However, interest rates have only inched up thereafter. Unfortunate part of this whole saga is that AMCs as well as Advisors invested funds of retail investors in this theme; thereby bringing only volatility in their portfolios with negative bias over short to medium term.

Debt Funds

Investor Dilemma – Duration or Accrual

Interest rates have softened over past 1 year even without any monetary policy intervention by RBI. 2013 was a year when duration call backfired & investors rushed back to either FMPs/FDs or Accrual Schemes with lower durations. Since then interest rates have softened from highs of August/September 2013 till date (as is evident from the table below); even pure accrual schemes with average maturities ranging between 1-3 years also benefited & generated double digit figure returns. However, current net YTMs of these schemes have come off significantly from 2013 highs.

Debt Funds

Duration Call in Perspective

Revisiting Our Call on Hold & Add Strategy in Income Schemes Post July 2013 Duration Call Fiasco Everyone is aware of the outcome of investment call in Duration schemes (Income & GILT schemes) given by the industry in January 2013. Post July 2013 (when RBI raised interest rates v/s cutting rates as was expected by the industry) Income schemes started generating negative returns v/s almost double digit returns they had generated from January 2013 till April 2013. Though Income fund story was almost over by April 2013 end when Fed announced tapering of QE; till June 2013 these schemes did generate double digit returns.

Debt Funds

History Repeating Itself

Once again history is repeating itself. After a huge rally in equity markets, MF Industry is recommending investments in asset class called MIPs (including cover page article in ET Wealth dated October 13-19’2014 & in ET dated October 13, 2014). I do not have any objection to MIP as an asset class (I am actually an advocate of this asset class – as many IFAs who have attended my workshops would have realized); but have an objection to timing of these recommendations and articles & it’s positioning.  Those who have been in the industry long enough will relate to what I am about to write: Till 2003 Income schemes were sold as safe havens as RBI was cutting interest rates & Fund Managers were increasing duration of these schemes & generating double digit returns. However, interest rates started inching up from 2003 to 2004 (when benchmark yield after touching a low of 5% levels started rising & touched a high of 7% by end 2004).

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