Are Mutual Funds Really Worth a Risk for Long Term?

iTrade

Well-Known Member
#1
The recent market fall has made me think that should we really invest in mutual funds by sip or whatever way. I am long mutual fund investor and so I know patience, longterm, continue your sip and blah blah stuff already. My concern is different. what happened to franklin templeton debt fund day before yesterday or whatever gains recent equity markets have wiped out have made me think this. What if “this was the year” where I wanted my long term mutual funds investment to be booked So that I could fund my son’s education or my daughters wedding this year. Or what if this was about the right for booking profits since I was about to retire.
I am not just thinking of corona here. It could any future event like a financial crash or anything that could take years to recover. It takes just 2 weeks to wipe out gains from a 5 10 year old sip. Diversification and blah blah is ok. But still is it worth taking a risk for future with mutual funds? I am referring to blue chip large cap funds only.
 

TracerBullet

Well-Known Member
#2
1) Credit Risk Funds - Credit risk funds are badly structured and regulator should probably have put more restrictions there. You cannot give full liquidity to customers when a large part of your portfolio is illiquid

2) Equity MF - Yes, so this is part of the risk of Buy and Hold Equity. Crashes will happen and suddenly you cannot sell without deep discount. One option is to start removing money say 5 years before you need it. Even there that plan will face issue if market crashes 5 years before but then atleast you have those years where you can wait for market to recover. But i agree, if that money is badly needed later, you will be in a spot. This is the risk and you have to plan for it. But without Equity normal people will have trouble beating inflation in the long run and that also is a big risk.

3) Probably a good way to mitigate it is to have multiple assets and to rebalance between them say every year. High Qualiity, low holding period debt is fine in normal times or you can use liquid/overnight funds or hold say gilt funds. Long term gilt funds can be volatile, so there balancing can help.

4) From a trader point of view - i have been an investor for long time and now making shift to trading - investing may make less sense. If i can do better, why do buy and hold ? This assumes you have edge and that your system can scale to your capital, which will be an ongoing issue as capital grows. So may need multiple systems, maybe shift to higher TF.

So in this case, maybe its not worth the risk, or you can do it for diversification and some peace of mind (against extreme scenario in trading). A lot of people have suggested diversification and periodic asset re-balancing, so don't dismiss it. Debt is fine, in this crash i took money from there and put into my trading. But if you take risk ( credit/duration) in debt then need to understand it - no free lunch.
 
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iTrade

Well-Known Member
#3
Actually, most of the people who invest in mutual fund are not aware of all this diversification and exiting in parts. They either do it self and some of them have financial advisors(not mutual fund agent but registered financial advisors). All these advisors suggest investment base on goals like kids education, wedding, retirement.

This part exit or early exit that you mentioned in 5 years is not known and difficult to manage for a MF investor. This is good for traders like us who are active in market. Rest of the majority and just blind mutual fund investors. Taking positions into equity directly is also something they want to avoid and so they take the mutual fund route.
 

siddhant4u

Well-Unknown Member
#4
Actually, most of the people who invest in mutual fund are not aware of all this diversification and exiting in parts. They either do it self and some of them have financial advisors(not mutual fund agent but registered financial advisors). All these advisors suggest investment base on goals like kids education, wedding, retirement.

This part exit or early exit that you mentioned in 5 years is not known and difficult to manage for a MF investor. This is good for traders like us who are active in market. Rest of the majority and just blind mutual fund investors. Taking positions into equity directly is also something they want to avoid and so they take the mutual fund route.
Most of developed world discourage direct investment in equities but through funds or retirement plans.
For short term best to keep money in FD. Or if you are aware of market, keep taking small chunk 3-4 year before you need money from mf as tracerbullet suggested.
 

trendtrade

niftytrader12
#5
Friends, the way in which "Franklin Templeton Debt Fund" has blocked its investors (and now they are stuck for a next few years into it), has made me a bit worried as well. I also invested 12 lac into a debt fund last year in April. I invested with 3 cheques of 4 lac each, on 3 different dates for which I got 325 Totoal Units of the Fund, as follows 108.45 + 108.55 + 108.59 = 325.59 Units.

All of it is invested into this - "HDFC Liquid Fund - Direct Plan - Growth"
https://www.moneycontrol.com/mutual-funds/nav/hdfc-liquid-fund-direct-plan-growth/MHD1205

Is there any chance that HDFC Fund might also face such issues ? Should I liquidate and take my money out ? I cannot afford to block this money for a few years.

Infact I have pledged all of this 12 lac amount units with my broker, for which he is giving me around Rs 10 lac worth of trading margin facility. The units are with the broker currently and I am not even sure, how this whole thing works. If legally I am still the owner of my debt fund units, or if the broker has become their owner now, because I have pledged it to him, by signing the delivery slips and transferring the units to his account !

Please guide me. Thanks for any help.

Best Regards

PS: My original purpose of investing this 12 lac into THE DEBT FUND was to get higher return compared to the Bank Saving Account, as well as use the same money for trading purpose by pledging the fund units to the broker. Is this approach correct, or am I making a mistake by doing this ?
 
#6
Friends, the way in which "Franklin Templeton Debt Fund" has blocked its investors (and now they are stuck for a next few years into it), has made me a bit worried as well. I also invested 12 lac into a debt fund last year in April. I invested with 3 cheques of 4 lac each, on 3 different dates for which I got 325 Totoal Units of the Fund, as follows 108.45 + 108.55 + 108.59 = 325.59 Units.

All of it is invested into this - "HDFC Liquid Fund - Direct Plan - Growth"
https://www.moneycontrol.com/mutual-funds/nav/hdfc-liquid-fund-direct-plan-growth/MHD1205

Is there any chance that HDFC Fund might also face such issues ? Should I liquidate and take my money out ? I cannot afford to block this money for a few years.

Infact I have pledged all of this 12 lac amount units with my broker, for which he is giving me around Rs 10 lac worth of trading margin facility. The units are with the broker currently and I am not even sure, how this whole thing works. If legally I am still the owner of my debt fund units, or if the broker has become their owner now, because I have pledged it to him, by signing the delivery slips and transferring the units to his account !

Please guide me. Thanks for any help.

Best Regards

PS: My original purpose of investing this 12 lac into THE DEBT FUND was to get higher return compared to the Bank Saving Account, as well as use the same money for trading purpose by pledging the fund units to the broker. Is this approach correct, or am I making a mistake by doing this ?
Bhai, I heard liquid funds are safe. But, you never know.

My 75k is blocked in the Franklin debt fund. I bought that only on this March 30th, as part of an emergency fund.

It will be wise if you do transfer that fund to some equity (large cap), so you will not face this problem.

Lastly, it is your money so you are the best person to take the decision.
 
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trendtrade

niftytrader12
#7
Bhai, I heard liquid funds are safe. But, you never know.

My 75k is blocked in the Franklin debt fund. I bought that only on March 30th, as part of an emergency fund.

It will be wise if you do transfer that fund to some equity (large cap), so you will not face this problem.

Lastly, it is your money so you are the best person to take the decision.
Bhai, really sorry to hear that your money is also stuck now! There would be so many retail guys who would have been thinking that the DEBT FUNDS ARE SAFE, because we hear this same thing over and over from the Mutual Fund Industry guys, that we start to believe this literally. But the realty is very different.
 
#8
Bhai, really sorry to hear that your money is also stuck now! There would be so many retail guys who would have been thinking that the DEBT FUNDS ARE SAFE, because we hear this same thing over and over from the Mutual Fund Industry guys, that we start to believe this literally. But the realty is very different.
Don't feel bad Bhai. It is my mistake, I should have done enough research.

I accept my mistake and I am never going to deal with any sort of mutual funds again. I am sticking to full Equity. If I am not sure, then I will do Bank FD
 

trendtrade

niftytrader12
#9
Franklin Templeton has sent a audio conference proceedings recording lasting for about 50 minutes explaining why they had to take a decision to close 6 of its debt schemes to protect interest of its investors due to illiquid debt market,how they will close them,how they plan to send the money received from maturity process of their investments every month to its investors in equitable manner. It seems they are doing it systematically in fair manner to protect investor interest.

These funds are short and ultra short duration funds so I guess the complete process of getting investors money back can be completed in next 4 months ,getting some money every month.

Many investors are afraid that their investment in sunk now.....which is not the case.Closing the schemes and stopping redemptions was a right step taken by the fund management to safeguard the interest of the investors.

Smart_ trade
ST sir is saying that most of the money could get refunded in 4 months itself and it would not take 2-3 years as mentioned by some other members here. Let us hope ST sir calculation proves to be correct.

Best Regards
 

siddhant4u

Well-Unknown Member
#10
Friends, the way in which "Franklin Templeton Debt Fund" has blocked its investors (and now they are stuck for a next few years into it), has made me a bit worried as well. I also invested 12 lac into a debt fund last year in April. I invested with 3 cheques of 4 lac each, on 3 different dates for which I got 325 Totoal Units of the Fund, as follows 108.45 + 108.55 + 108.59 = 325.59 Units.

All of it is invested into this - "HDFC Liquid Fund - Direct Plan - Growth"
https://www.moneycontrol.com/mutual-funds/nav/hdfc-liquid-fund-direct-plan-growth/MHD1205

Is there any chance that HDFC Fund might also face such issues ? Should I liquidate and take my money out ? I cannot afford to block this money for a few years.

Infact I have pledged all of this 12 lac amount units with my broker, for which he is giving me around Rs 10 lac worth of trading margin facility. The units are with the broker currently and I am not even sure, how this whole thing works. If legally I am still the owner of my debt fund units, or if the broker has become their owner now, because I have pledged it to him, by signing the delivery slips and transferring the units to his account !

Please guide me. Thanks for any help.

Best Regards

PS: My original purpose of investing this 12 lac into THE DEBT FUND was to get higher return compared to the Bank Saving Account, as well as use the same money for trading purpose by pledging the fund units to the broker. Is this approach correct, or am I making a mistake by doing this ?
your debt funds portfolio seems good. They have invested mostly in govt t-bills or with govt companies (REC, NABARD, PFC, ETC)

only prvt companies i could see (i haven't check all, just scrolled through...) was bajaj finance,kotak, aditya birala finance, L&T housing finance etc but percentage is low. I don't see any signs of worry in this debt fund. I am not certified professional to know much in detail, but what I learned in market so far is govt bonds are much more trusted. Plus major chunk is also with Reliance Industries which one can assume safe in current scenario.
 

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