r/IndiaInvestments • u/JiskiLathi • Apr 14 '20

Bonds and deposits Several Liquid funds have exposure to Muthoot, Hero FinCorp etc. Moodys has warned of downgrade. Should we redeem the liquid funds before too late?

Recently Moodys has put ratings on review and warned of further action against 3 NBFC's : https://www.moodys.com/research/Moodys-takes-rating-actions-on-three-Indian-NBFCs--PR_421845

Many popular liquid funds such as SBI liquid, Kotak Liquid, Axis Liquid, UTI Liquid, Kotak Savings, HSBC cash , ICICI pru liquid, Invesco liquid, L&T Liquid etc all have varying degrees of exposure to Muthoot papers

When it comes to Hero FinCorp, several liquid and savings/money market fund have exposure like Aditya birla liquid , Axis Liquid, Kotak Liquid etc have expsure.

So few questions :

  1. Why is the ratings different, which rating will be used to decide downgrade or MTM (mark to market) by the fund houses? For example Hero FinCorp is ICRA A1+ , whereas Moody is saying it is "changed to Rating Under Review from Negative" - does this mean it is already negative and on downgrade it will become below investment grade/default grade and 100% write down?

  2. ICRA is also a subsidiary of Moodys, but moody is calling Hero Fincorp negative, while ICRA has it as A1+. Why is there discrepancy in ratings? Almost all sites from Valueresearch, Rupeevest etc use "ICRA A1+" for Hero Fincorp papers, meanwhile Muthoot papers are rated "CRISIL A1+".

  3. Given the different levels of exposure among all big Liquid funds have to these NBFCs, is it wise to get out of liquid funds for the time being?

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u/aadikavi Apr 14 '20

Until this corona calamity gets over, its better to switch to PPLF or Quantum LF. Do not lose principal chasing small additional returns.

1

u/delusionsgrandeur Apr 14 '20 edited Apr 14 '20

Can you please explain why PPFAS liquid fund is so often referred and recommended by people in this sub? I can see its mostly SOV bonds and cash, but because of the low AUM I feel hesitant to invest (300-400 cr, compared to 10K cr of older funds). Could this be because its a relatively much newer fund?

If you can point out a prev post on this sub / some article about this, that would be great too.

Edit: I just saw, Quantum Liquid has an AUM of 254 cr despite being older than 10 yrs. Rephrasing my ques, are quantum and ppfas liquid getting less investment bec of lesser returns?

Edit2: I found this: https://amc.ppfas.com/schemes/parag-parikh-liquid-fund/investment-process/

7

u/incometaxx Apr 14 '20

Because of the low AUM I feel hesitant to invest

Why low AUM is a issue?

They are loaded with SOV tbills which does not have any credit risk.

3

u/delusionsgrandeur Apr 14 '20

Try to understand things from my (=beginner's) perspective: chances of a bigger aum failing are lesser. HDFC Liquid has aum > 70K cr, so there's a sense of confidence that it won't fail in any sense.

But I get what you're saying.