In the last 3 months we have seen large liquid mutual fund redemptions across the country. As per AMFI data, redemptions exceed inflows in months of December 2019 and February 2020. In January 2020, redemptions almost matched inflow. Some amount of regular redemptions in liquid funds is natural because many companies use these to park funds needed for their working capital, but the high levels of redemptions indicate some panic selling.
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Over the last 18 months we have seen a number of downgrades and defaults by debt and money market papers issued by some NBFCs, banks and other companies. The downgrades have impacted NAVs of some liquid funds which invested in those papers. This has created a perception among a small section of investors that liquid funds are not safe. False rumours about an impending run on liquid mutual funds may have caused panic among even those investors who were not impacted by these downgrades.
We want to assure our customers that there is no need to get alarmed about your liquid fund investments. Though liquid funds are subject to market risks, investors should understand that there is very low risk and high degree of capital safety in these funds for the following reasons:-
If you have invested in liquid funds, you should remain invested till you need the money for their intended use. If you have idle cash in your bank which you want to park for the short term (few weeks to 1 year), then you should invest in liquid funds. In the current environment of economic uncertainty, liquid funds are one of the safest short term investment options. However, you should check the credit quality profile of the liquid fund before investing. Your Eastern Financier’s financial advisor can help you select the highest quality liquid funds. If you have any question, concern or need further guidance on liquid funds, please contact with your financial advisor or emailus at service@easternfin.com