Why Liquid funds and money market funds also fell in the last few days

Here is why liquid funds and money market funds also fell in the last few days

Published: March 20, 2020 at 11:34 am

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.


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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

Benchmark1 Day3 Day1 Week
Crisil Liquid Fund Index-0.06-0.06-0.01
Crisil 1 Yr T-Bill Index0.02-0.15-0.10
Nifty 1D Rate Index0.010.040.09
Crisil 91 Day T-Bill Index0.020.060.12

The 1D index is for overnight funds.

Liquid funds

Scheme Name1 Day3 Day1 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)0.000.030.09
DSP Liquid ETF0.000.020.05
DSP Liquidity Fund-Reg(G)-0.04-0.030.02
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)-0.06-0.050.00
HDFC Liquid Fund(G)-0.08-0.07-0.03
HSBC Cash Fund(G)-0.14-0.16-0.12
ICICI Pru Liquid ETF0.010.020.06
ICICI Pru Liquid Fund(G)-0.07-0.07-0.02
IDBI Liquid Fund(G)-0.05-0.050.00
IDFC Cash Fund-Reg(G)-0.11-0.12-0.08
IIFL Liquid Fund-Reg(G)-0.02-0.020.03
Indiabulls Liquid Fund(G)0.000.020.07
Invesco India Liquid Fund(G)-0.09-0.08-0.04
ITI Liquid Fund-Reg(G)0.010.040.09
JM Liquid Fund(G)-0.010.000.06
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)-0.06-0.050.00
Motilal Oswal Liquid Fund-Reg(G)0.010.030.08
Nippon India ETF Liquid BeES0.010.020.05
Nippon India Liquid Fund(G)-0.09-0.09-0.04
Parag Parikh Liquid Fund-Reg(G)0.010.040.09
PGIM India Insta Cash Fund(G)-0.08-0.08-0.04
Principal Cash Management Fund(G)-0.04-0.020.03
Quant Liquid Plan(G)-0.020.010.07
Quantum Liquid Fund(G)-Direct Plan-0.010.000.05
Sahara Liquid-Fixed Pricing(G)0.000.000.04
SBI Liquid Fund(G)-0.05-0.040.00
Sundaram Money Fund-Reg(G)-0.05-0.040.01
Tata Liquid Fund-Reg(G)-0.10-0.11-0.06
Taurus Investor Education Pool – Unclaimed Div(G)0.000.000.00
Taurus Liquid Fund-Super Inst(G)0.010.030.08
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)0.010.040.10
Average-0.05-0.040.00
Median-0.06-0.050.00

Money Market Funds

Scheme Name1 Day3 Day1 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)0.00-0.070.00
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)0.010.040.09
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)-0.010.020.09
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
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