Last Updated on March 20, 2020 at 2:45 pm
Liquid funds and money market funds also felt the heat of the stock and bond market sell-off as they one-day and three-day returns turned negative. Here is why this happened.
We had earlier reported negative weekly returns in short, medium and long-term segments of debt mutual funds (dated 15th March) due to a sharp increase in bond yields. The same has now affected liquid and money market segments as well. Only overnight funds have so far been spared.
With an imminent economic crisis, the demand in the bond market has suddenly gone down as institutional investors sold off their positions. With a sudden drop in demand, the bond prices dropped. This resulted in a fall in NAV.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Market demand and supply is measured with the Bond yield = interest income/ current price. When prices fall, the yield shoots up. Longer the duration of the bond more will be the fall in price if demand falls, more will be the increase in yield, more will be the fall in NAV.
It does not matter if the bond is gilt or AAA-rated or A1+ rated. A sudden mismatch of sellers and buyers (sellers > buyers) will lead to a fall in the NAV. The image above shows how the five-year gilt yield shot up in the last few days resulting in trailing one-week (one-month) negative debt fund returns. It would also affect hybrid funds to varying extents.
The RBI has stepped in by buying Rs 10,000 crore of bonds to create demand (and therefore bond yields) in the market on 18th March. This has arrested the increase in yield a little.
The six-month gilt yield was 4.78% on 16th Mar. It shot up to 4.92% on 17th, 5.08% on the 18th, 5.15% on the 19th. The increased has slowed down but it is still an increase and therefore money market funds were not spared. Source: tradingeconomics: GINDGM
The three-month gilt yield was 4.73% on 16th Mar. It shot up to 4.80% on 17th, 4.88% on the 18th, 4.87% on the 19th. RBI’s action has made a better impact in this segment but was not enough to prevent a fall in liquid fund NAV. The situation should be better in the coming days. Source: tradingeconomics: GIND3M
With already low demand a decrease in interest rates could spell more trouble for debt mutual fund investors and RBI is likely to go slow in this regard. In any case, a drop in rates is unlikely to heighten the mood in the market immediately. It would only result in angering the common man.
What should investors’ do? The situation in the short-term segment of the bond market should stabilize soon. A few days of negative returns are possible now and then. So investors can continue to hold money market and liquid funds. Returns will be affected over the short-term though.
The last 1-day, 3-day and 1-week absolute change in NAV of liquid and money market funds along with relevant indices is shown below.
Short-term debt benchmark indices
| Benchmark | 1 Day | 3 Day | 1 Week |
| Crisil Liquid Fund Index | -0.06 | -0.06 | -0.01 |
| Crisil 1 Yr T-Bill Index | 0.02 | -0.15 | -0.10 |
| Nifty 1D Rate Index | 0.01 | 0.04 | 0.09 |
| Crisil 91 Day T-Bill Index | 0.02 | 0.06 | 0.12 |
The 1D index is for overnight funds.
Liquid funds
| Scheme Name | 1 Day | 3 Day | 1 Week |
| Aditya Birla SL Liquid Fund(G) | -0.08 | -0.07 | -0.03 |
| Axis Liquid Fund-Reg(G) | -0.06 | -0.05 | -0.01 |
| Baroda Liquid Fund(G) | -0.06 | -0.06 | -0.02 |
| BNP Paribas Liquid Fund(G) | -0.07 | -0.07 | -0.02 |
| BOI AXA Liquid Fund-Reg(G) | -0.08 | -0.08 | -0.04 |
| Canara Rob Liquid Fund-Reg(G) | 0.00 | 0.03 | 0.09 |
| DSP Liquid ETF | 0.00 | 0.02 | 0.05 |
| DSP Liquidity Fund-Reg(G) | -0.04 | -0.03 | 0.02 |
| Edelweiss Liquid Fund-Reg(G) | -0.06 | -0.06 | -0.01 |
| Essel Liquid Fund-Reg(G) | -0.06 | -0.06 | -0.02 |
| Franklin India Liquid Fund-Super Inst(G) | -0.06 | -0.05 | 0.00 |
| HDFC Liquid Fund(G) | -0.08 | -0.07 | -0.03 |
| HSBC Cash Fund(G) | -0.14 | -0.16 | -0.12 |
| ICICI Pru Liquid ETF | 0.01 | 0.02 | 0.06 |
| ICICI Pru Liquid Fund(G) | -0.07 | -0.07 | -0.02 |
| IDBI Liquid Fund(G) | -0.05 | -0.05 | 0.00 |
| IDFC Cash Fund-Reg(G) | -0.11 | -0.12 | -0.08 |
| IIFL Liquid Fund-Reg(G) | -0.02 | -0.02 | 0.03 |
| Indiabulls Liquid Fund(G) | 0.00 | 0.02 | 0.07 |
| Invesco India Liquid Fund(G) | -0.09 | -0.08 | -0.04 |
| ITI Liquid Fund-Reg(G) | 0.01 | 0.04 | 0.09 |
| JM Liquid Fund(G) | -0.01 | 0.00 | 0.06 |
| Kotak Liquid Fund-Reg(G) | -0.10 | -0.11 | -0.08 |
| L&T Liquid Fund(G) | -0.09 | -0.10 | -0.05 |
| LIC MF Liquid Fund(G) | -0.07 | -0.07 | -0.02 |
| Mahindra Liquid Fund-Reg(G) | -0.08 | -0.09 | -0.04 |
| Mirae Asset Cash Management-Reg(G) | -0.06 | -0.05 | 0.00 |
| Motilal Oswal Liquid Fund-Reg(G) | 0.01 | 0.03 | 0.08 |
| Nippon India ETF Liquid BeES | 0.01 | 0.02 | 0.05 |
| Nippon India Liquid Fund(G) | -0.09 | -0.09 | -0.04 |
| Parag Parikh Liquid Fund-Reg(G) | 0.01 | 0.04 | 0.09 |
| PGIM India Insta Cash Fund(G) | -0.08 | -0.08 | -0.04 |
| Principal Cash Management Fund(G) | -0.04 | -0.02 | 0.03 |
| Quant Liquid Plan(G) | -0.02 | 0.01 | 0.07 |
| Quantum Liquid Fund(G)-Direct Plan | -0.01 | 0.00 | 0.05 |
| Sahara Liquid-Fixed Pricing(G) | 0.00 | 0.00 | 0.04 |
| SBI Liquid Fund(G) | -0.05 | -0.04 | 0.00 |
| Sundaram Money Fund-Reg(G) | -0.05 | -0.04 | 0.01 |
| Tata Liquid Fund-Reg(G) | -0.10 | -0.11 | -0.06 |
| Taurus Investor Education Pool – Unclaimed Div(G) | 0.00 | 0.00 | 0.00 |
| Taurus Liquid Fund-Super Inst(G) | 0.01 | 0.03 | 0.08 |
| Union Liquid Fund(G) | -0.11 | -0.11 | -0.08 |
| UTI Liquid Cash Plan-Reg(G) | -0.08 | -0.09 | -0.05 |
| YES Liquid Fund-Reg(G) | 0.01 | 0.04 | 0.10 |
| Average | -0.05 | -0.04 | 0.00 |
| Median | -0.06 | -0.05 | 0.00 |
Money Market Funds
| Scheme Name | 1 Day | 3 Day | 1 Week |
| Aditya Birla SL Money Manager Fund(G) | -0.55 | -0.76 | -0.82 |
| Axis Money Market Fund-Reg(G) | -0.48 | -0.64 | -0.68 |
| Baroda Money Market Fund-Reg(G) | 0.00 | -0.07 | 0.00 |
| DSP Savings Fund-Reg(G) | -0.69 | -0.94 | -1.06 |
| Franklin India Savings Fund(G) | -0.50 | -0.66 | -0.68 |
| HDFC Money Market Fund(G) | -0.54 | -0.75 | -0.84 |
| ICICI Pru Money Market Fund(G) | -0.44 | -0.64 | -0.68 |
| IDFC Money Manager Fund-Reg(G) | -0.55 | -0.73 | -0.79 |
| Indiabulls Savings Fund-Reg(G) | -0.18 | -0.23 | -0.19 |
| Invesco India Money Market Fund(G) | -0.43 | -0.54 | -0.55 |
| JM Money Market Fund(G) | 0.01 | 0.04 | 0.09 |
| Kotak Money Market Fund(G) | -0.36 | -0.46 | -0.46 |
| L&T Money Market Fund-Reg(G) | -0.46 | -0.63 | -0.69 |
| Nippon India Money Market Fund(G) | -0.36 | -0.46 | -0.48 |
| PGIM India Money Market Fund-Reg(G) | -0.37 | -0.45 | -0.44 |
| Quant Money Market Fund(G) | -0.01 | 0.02 | 0.09 |
| SBI Savings Fund-Reg(G) | -0.43 | -0.54 | -0.56 |
| Sundaram Money Market Fund-Reg(G) | -0.31 | -0.39 | -0.40 |
| Tata Money Market Fund-Reg(G) | -0.50 | -0.66 | -0.70 |
| UTI Money Market Fund-Reg(G) | -0.31 | -0.41 | -0.43 |
| Average | -0.37 | -0.50 | -0.51 |
| Median | -0.43 | -0.54 | -0.56 |
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter with the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)