Top 5 Worst Debt Mutual Funds that lost upto 50% now – What Next?

Top 5 Worst Debt Mutual Funds that lost upto 50% now – What NextTop 5 Worst Debt Mutual Funds that lost upto 50% now


All along, Debt mutual funds have been providing good returns compared to bank FDs. However, investors are getting scared of investing in debt mutual funds these days. Starting from PNB scam to recent DHFL financial crisis, debt mutual funds are the most affected investment options. There are several debt mutual fund schemes that got eroded in the recent months. Which are the Top 5 Worst Debt Mutual Funds that lost upto 50% in the last few months? What should you be your strategy in debt mutual funds?

Also Read: 5 Star Rated Mutual Fund Schemes to invest in 2019

Why Debt Mutual Funds are falling these days?


Debt mutual fund invests in various fixed investment options like commercial papers, NCDs, Fixed Deposits of corporates, money market instruments and government securities depending on the investment strategy detailed in the mutual fund offer document. However in the last 9 months there were several scams unearthed like PNB. Even NBFC companies started defaulting payments. Trouble started with the IL&FS fiasco, where a default and subsequent rating downgrade adversely affected several mutual fund schemes holding its bonds. The problem has spread to other companies like DHFL, Essel Group, Yes Bank and Reliance Anil Dhirubhai Ambani Group. While many of the instruments were rated AAA or equivalent at the time of investment, the de-rating of such instruments has eroded their net worth. Debt schemes had to mark down the value of affected securities and we would see falling NAV of the fund.

Top 5 Worst Debt Mutual Funds that lost upto 50% now – What Next?


Let us analyse top 5 worst debt mutual funds where investors has lost upto 50% in just couple of months.

#1 – DHFL Pramerica Medium Term Fund


Objective of the fund: The scheme seek to generate income and capital appreciation by investing in a portfolio of debt and money market instruments.

This fund has fallen by 7% in the last 5 years, 17% fallen in the last 3 years and 50% fallen in the last 1 year. It actually fallen by 50% in the last 1 month.

This steep fall is due to its exposure to DHFL which was around 38% of its portfolio and where credit rating agencies has downgraded from A4+ to D (by Crisil and ICRA) and Mutual Fund AMC has to mark down the value of such instruments.

DHFL Pramerica Mutual Fund said it would halt fresh inflows into the schemes affected by delays in the interest payments by DHFL (a co-promoter of the asset management company or AMC). AMC said, “We will also further be restricting fresh purchases into the affected schemes in order to safeguard the interests of existing investors in these schemes.”

Currently this fund holds DHFL Debentures of 2021 of 9.15% and 8.9% to the tune of 80% and balance 20% in GOI Savings Bonds.

#2 – DHFL Pramerica Floating Rating Fund


Objective of the fund: The scheme seek to generate income through predominantly investing in a portfolio comprising of floating rate debt instruments.

This fund has fallen by 6% in the last 5 years, 14% falling in the last 3 years and 44% fallen in the last 1 year. It actually fallen by 48% in the last 1 month.

This steep fall in this fund too is due to its exposure to DHFL which was around 32% of its portfolio and where credit rating agencies has downgraded from A4+ to D (by Crisil and ICRA) and Mutual Fund AMC has to mark down the value of such instruments.

Currently this fund holds DHFL Debentures of 9.05% of 2021.

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#3 – TATA Corporate Bond Fund


Objective of the fund: The scheme aims to generate returns over short to medium term by investing predominantly corporate debt instruments.

This fund has fallen by 2% in the last 5 years, 7% falling in the last 3 years and 30% fallen in the last 1 year. It actually fallen by 30% in the last 1 month.

This steep fall in this fund too is due to its exposure to DHFL which was around 28% of its portfolio and where credit rating agencies has downgraded from A4+ to D (by Crisil and ICRA) and Mutual Fund AMC has to mark down the value of such instruments.

Currently this fund holds HUDCO 2020 debentures, Trent 2019 debentures, IRFC 2020 Bonds etc.,

#4 – BOI AXA Credit Risk Fund


Objective of the fund: The scheme aims to generate returns over short to medium term by investing predominantly corporate debt instruments.

This fund has fallen by 3% in the last 3 years and 25% fallen in the last 1 years. It actually fallen by 18% in the last 1 month.

Last year, it was hit by default of commercial papers by IL&FS, Later by default from Avanthi holdings and now by DHFL ratings downgrade and default.

Currently this fund holds Karuna Healthcare 2020 debentures, Sintex 2027 debentures, DRSR Logistics 2022 debentures etc.,

#5 – Baroda Treasury Advantage Fund


Objective of the fund: The fund aims to generate regular returns from investments in fixed income instruments, while maintaining adequate liquidity. The fund will invest a minimum of 65% of its assets in money market instruments while investing the rest in debt instruments.

This fund was consistent performer few months back. However with recent DHFL Crisis, it has lost 17% in the last 1 month.

Currently this fund holds Indiabulls Housing Finance NCDs, ARM Infra Debentures, Yes Bank NCDS, Edelweiss rural and corp services 2019 debentures etc.,

What lessons learnt from Worst Debt Mutual Funds that lost upto 50% now?


Last year, we have seen PNB Scam. Later we had IL&FS financial crisis. Essell Group and Yes Bank have started defaulting the payments. Now DHFL started delaying redemptions and its credit rating downgrade is a concern.

1) Currently debt mutual funds are not that safe as it used to be earlier.

2) Investors should be careful while investing in debt mutual funds now. These are now converted into high risk mutual funds category.

3) If you are already holding debt funds, keep an eye on such mutual funds.

4) If you have invested in debt mutual funds now and have a financial commitment (like daughter marriage or kids education or car down payment) in near future, please exit from such funds immediately.

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Suresh

Top 5 Worst Debt Mutual Funds that lost upto 50% now

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