The credit market is anyways under pressure due to unprecedented slowdown in the broader economy. The recent events are likely to make the credit markets more vulnerable.
Given that liquidity conditions are likely to remain in surplus mode, returns from overnight and liquid funds and money market fund which do not take too much credit risks, should also remain muted in line with the Repo Rate.
There will be recommendations to allocate to credit risk strategies given the fall in yields of government bonds and AAA companies. However, as we have been highlighting for some time, we do not yet see the end of the credit crisis in the bond markets despite the RBI’s actions, and crisis in the NBFCs, telecom and now banking sector are extension of the same crisis.
Thus debt investors need to apply extra caution while choosing debt funds. We advise investors to prefer safety and liquidity over returns in this environment rather than trying to earn higher returns from bond funds.
We once again like to reiterate that Quantum Liquid Fund (QLF) prioritizes safety and liquidity over returns and invests only in less than 91-day maturity instruments issued by Government Securities, treasury bills and top rated PSUs.
Quantum Dynamic Bond Fund (QDBF) takes higher interest risks, but does not take any credit risks and is invested only in Government Securities, treasury bills and top rated PSU bonds.
The author, Pankaj Pathak is Fund Manager - Fixed Income, Quantum Mutual Fund