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Why blame Value Research For awarding Taurus Liquid Fund that is in trouble for continuing to buy a near-junk bond (Ballarpur Industries), five stars (four stars when commissions are removed)? That is like blaming someone because they could not predict a market crash!

Before we go any further, it is important to recognise that many in the advisor community use star ratings. So there is no need to get holier than thou and start blaming "direct investors" here.

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Each week I try and answer generic questions on personal finance. Here is part two of this week's edition. You can use the form below to ask your questions.
Alim:
I understand that debt funds/bonds are inversely variable to the current interest rates. I hold some tax free bonds @7.2% & have invested in ICICI Pru long term fund. But the returns on them are dismal. In fact the NAV of both have fallen in the last 2 months. Where did I go wrong. When are the returns on the above likely to stabilize.

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Each week I try and answer generic questions on personal finance. Here is part one of this week's edition. You can use the form below to ask your questions.

Shrirang: Sir, I have my home loan currently going on which will be completed end of the year. The EMI costs about 40% of my current salary. My current expenses are about 35% of my current salary. I am looking to start doing investment for my retire plan. How could i start to proceed? Your help is appreciated.

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The incredulous 7% fall in the NAV of Taurus Liquid Fund due to a credit rating downgrade has many worried.  Can investors avoid such funds? Is this a "small amc" problem? Is this a small aum problem? I thought liquid funds were safe!  Just a sample of how many investors feel. In this post, I discuss these issues and how to minimise risk associated with liquid funds.

First, let us get the obvious out of the way. No mutual fund is safe. Risk cannot be avoided (without enhancing other types of risk)  and can only be minimised.

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Here we go again! Yet another AMC has been caught on the wrong foot with one of its bonds downgraded in value. This time it is Taurus Mutual Fund which held at least 65 crores of Ballarpur short-term bonds in four of its funds.  In what was a probably a first for the Indian industry, Taurus liquid (a five-star rated fund by VR (direct)) fell by an astounding ~ 7.2%.

As Ashal pointed out at Asan Ideas For Wealth, this means that at the time of the crash, the holding was much higher than the 4% shown at VR. The other funds that fell are the Taurus short-term, ultra-short-term and dynamic income funds.

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