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Kudos to SEBI
Posted On Friday, Jun 28, 2019
The Mutual Fund Regulator SEBI should be commended for their steadfast approach in making Indian Mutual Funds simpler, cheaper, true to label, accessible and hopefully safer.
This is especially true in Liquid and Debt Funds where over the last 10 years they have tightened guidelines on how the
a) portfolio is invested,
b) how it is valued,
c) how it is disclosed and
d) the risk management practices to be followed.
Yesterday, in the backdrop of continued risks emerging in the liquid and debt funds, the SEBI board announced further regulatory changes which should make Liquid Funds more Liquid, Diversified and hopefully Safer.
| Announced reforms in SEBI Board Meeting Press Realease | Rationale | Impact on Quantum Liquid Fund | Quantum Comment |
| All instruments to be completely marked-to-market (MTM) | Fair Valuation guidelines require mark-to-market to ensure declared NAVs reflect market reality | No Impact | Quantum Liquid Fund Follows full Mark-to-Market since 1st July 2012 |
| Liquid Funds will hold atleast 20% in Cash, Treasury Bills and Government securities | To increase portfolio liquidity and to lower credit and default risks | No Impact | The internal risk management guidelines requires Quantum Liquid Fund to hold Cash, Treasury Bills and Government Securities up to 25% of Portfolio |
| Cap on Sector Exposure, Tighter norms for Housing Finance Companies | To make Debt and Liquid Funds more diversified | No Impact; but need clarity on whether Banks and AAA Rated Public Financial Institutions remain exempted from this regulation | The Scheme Information Document allows leeway to the fund manager, but based on internal investment policy, the Quantum Liquid Fund currently invests only in Government Securities, Treasury Bills and Instruments issued by Top Rated PSUs and Public Financial Institutions |
| Liquid Funds cannot invest in Short Term Deposits. Structured Credit, Credit Enhanced Instruments | To make Liquid Fund portfolios less risky from a credit/default risk and liquidity perspective | No Impact | These instruments should never have been invested in a liquid fund in the first place |
| Tightening of valuation norms on inter scheme transfers and self trades | Use of independent valuation for all trades leads to more transparency and standardization | No Impact | Independently valued full MTM portfolio. Inter-Scheme Transfers are not allowed. |
| Graded Exit Load upto to 7 days in Liquid Fund | To ensure Liquid Fund and short term Bank Deposits are similar and to lower daily volatility in subscriptions/redemptions | No Portfolio Impact, but Waiting for actual guidelines | QLF has higher share of retail/HNI investors who tend to remain invested for longer period. |
As evident in the table above, Quantum Liquid Fund already follows many of these guidelines and there is unlikely to be any impact on how the fund is managed.
We re-iterate that a Liquid Fund’s main objective is to keep the portfolio liquid, Safe and then try and earn returns. Investors should see it as an alternative to Bank Savings/Current Account and/or to seek a systematic way to invest into the Equity Fund by using the Switch/Systematic Transfer Plans.
| Name of the Scheme & Primary Benchmark | This product is suitable for investors who are seeking* | Risk-o-meter of Scheme |
| Quantum Liquid Fund An Open Ended Liquid Scheme | • Income over the short term • Investments in debt / money market instruments. |  Investors understand that their principal will be at Low Risk |
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.
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