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.
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 |
How to profit from content writing: is our new ebook for those interested in getting side income via content writing. It is at available at a 50% discount for Rs. 500 only!
Use our Robo-advisory Excel Template for a start-to-finish financial plan!
Join our courses in exclusive Facebook Groups!
- 520+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). 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 how to achieve by showcasing your skills and building a community that trusts you and pays you!
- Goal-based portfolio management! Join 2125+ members and 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 of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content) in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author

About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Your Ultimate Guide to Travel

Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "goodbye" to your employer (Google Play Store)