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Hybrid funds invest in asset classes like stocks, bonds, gold, or real estate. They focus on three main ideas: asset allocation (distributing money across assets), correlation (how assets move together), and diversification (using different assets to reduce risk). This helps reduce overall risk and improve returns.

Hybrid funds offer a balanced approach for investing by combining equity and debt to suit varied financial goals. Whether you’re planning for retirement or seeking wealth creation, a mutual fund distributor or advisor can help you align hybrid mutual funds with your goal-based investing journey.

For more details, please refer to the AMFI website below:
https://www.amfiindia.com/investor-corner/knowledge-center/SEBI-categorization-of-mutual-fund-schemes.html

Liquid mutual funds are a type of debt mutual fund designed to invest in short-term financial instruments like treasury bills, certificates of deposit, and commercial papers. These instruments have very short maturity periods, often up to 91 days. Liquid funds are a popular choice for those looking to park money temporarily, save for short-term goals, or build an emergency fund.

Liquid funds pool money from multiple investors and professional fund managers invests this money in a mix of short-term debt instruments. The goal is to preserve the investor’s capital while providing steady, low-risk returns. Due to the short maturity of these instruments, liquid funds face minimal interest rate risk, ensuring stability.

Types of Liquid Funds

• Overnight Funds: Invest in assets that mature in just one day. These are extremely safe and have very low risk.
• Liquid Funds: Invest in instruments maturing within 91 days, offering slightly better returns than overnight funds while still being low-risk.
• Ultra-Short Duration Funds: Invest in instruments with a maturity of up to 180 days. They provide higher returns compared to liquid and overnight funds but still maintain relatively low risk.

Key Features of Liquid Funds

• Quick Access: Liquid funds offer high liquidity, allowing investors to redeem their money easily, often within 24 hours.
• Market-Linked Returns: Returns are not fixed but typically better than what savings accounts offer.
• Low Cost: They have the lowest expense ratio among debt funds.
• Safe and Stable: These funds focus on safety, making them ideal for conservative investors.
• Ideal for Emergencies: Perfect for parking money temporarily or saving for short-term needs.

Liquid funds are perfect for short-term needs, such as saving a bonus, building an emergency fund, or setting aside money for an upcoming expense. Their low risk, quick redemption, and market-linked returns provide an excellent alternative to traditional savings accounts.

For example, Canara Robeco Liquid Fund, Mirae Asset Liquid Fund, Kotak Liquid Fund, ICICI Prudential Liquid Fund & Parag Parikh Liquid Fund are popular with investors seeking stability and convenience.

Liquid funds are a smart choice for short-term parking of idle money or building an emergency fund. They offer flexibility and low risk, making them ideal for meeting immediate financial needs or goals. A mutual fund distributor or advisor can help you integrate liquid funds into your broader goal-based investing strategy, ensuring your money works efficiently even in the short term. With expert guidance, your investment journey can be smooth, strategic, and stress-free.

To understand an Arbitrage Fund, let’s first look at the word “Arbitrage.” Arbitrage is when you buy something at a lower price in one place and sell it at a higher price in another. It’s a way to make a profit without risk. This happens because sometimes markets don’t work perfectly, causing the same item to be sold at different prices.

For example, imagine Hindustan Unilever (HUL) stock is selling for ₹ 2,375.50 (as of 6^th Feb 2025) on one exchange and ₹2,375.60 on another. An investor can buy the stock at ₹2,375.50 and sell it for ₹ 2,375.60/- making a small profit of 10 paise per share with no risk. This is called arbitrage.

Arbitrage happens in different markets, like stock exchanges, futures markets, or even currency exchanges, when there is a price difference. Arbitrage Funds are mutual funds that use these price differences to make money. They buy an asset in one market and sell it in another at a higher price. For example, a stock costs ₹100 in the cash market and ₹105 in the futures market. An arbitrage fund buys it in the cash market and sells it in the futures market. This results in a ₹5 profit.

The best thing about arbitrage funds is that they are considered low-risk investments. Since the buying and selling happen simultaneously, there is no chance of prices changing unexpectedly. Even if the market becomes volatile and prices go up and down quickly, these funds can still profit.

Arbitrage funds are perfect for people who want to invest at a low risk and still earn good returns, especially when the market is volatile. They are taxed like equity mutual funds, which can benefit tax efficiency.

Key Features of Arbitrage Funds:

1. Low Risk: Arbitrage funds are considered safe because the fund manager tries to reduce the risk by hedging (protecting against losses). These funds are not affected much by market volatility.
2. Benefit from Market Volatility: When the market is more volatile, there are more chances to find mispriced assets, which can help these funds perform better.
3. Taxation: Even though arbitrage funds are low risk, they are taxed like equity funds. This means they can give you tax benefits similar to equity investments.
4. Not an Alternative to Debt Funds: While arbitrage funds carry lower risk than stocks, they are not a substitute for debt funds, as they don’t react much to interest rate changes.
5. Returns Depend on Fund Manager’s Skill: The fund manager’s ability to spot arbitrage opportunities is key. Since more funds are now available, these opportunities can become more challenging, which may lower the returns.

Example: Some popular arbitrage funds include the Invesco India Arbitrage Fund and the HDFC Arbitrage Fund.

Arbitrage funds may be a suitable option for conservative investors seeking low-risk, tax-efficient returns with relatively lower volatility. These funds aim to generate returns by capitalizing on price differences across markets. A mutual fund distributor or advisor can help you understand how arbitrage funds work and whether they fit into your goal-based investing, whether it’s retirement planning, emergency fund creation, or long-term wealth building. Expert guidance ensures you choose the right options based on your needs and financial goals.

Franklin Templeton India decided to wind up six of its debt mutual funds on April 23, 2020, citing severe liquidity challenges in the bond market due to the COVID-19 pandemic. The affected schemes were:

1. Franklin India Low Duration Fund
2. Franklin India Dynamic Accrual Fund
3. Franklin India Credit Risk Fund
4. Franklin India Short Term Income Fund
5. Franklin India Ultra Short Bond Fund
6. Franklin India Income Opportunities Fund

Why Did Franklin Templeton Wind Up These Funds?

Franklin Templeton cited three key reasons for the decision:

1. Liquidity Crisis in the Debt Market:
   • The COVID-19 lockdown caused a significant liquidity crunch, making it difficult for the funds to sell their lower-rated debt instruments and meet redemption requests.
2. High Exposure to Low-Rated Securities:
   • The six affected funds invested in high-yield, lower-rated debt papers (AA and below) to generate higher returns. These bonds became illiquid when market conditions deteriorated.
3. Massive Redemption Pressures:
   • As investors panicked during the crisis, they rushed to withdraw funds, creating a cash crunch for Franklin Templeton. Since the market for lower-rated bonds had dried up, the fund house had no option but to wind up the schemes to prevent forced selling at distressed prices.

What Happened After the Wind-Up?

• Investors Were Locked In: Since winding up means stopping fresh investments and redemptions, investors could not access their money until the funds were monetized.
• SEBI & Legal Battles: The move led to legal disputes, with investors challenging the decision. SEBI and the Supreme Court intervened, eventually allowing orderly liquidation and cash distributions.
• Fund Recovery Process Began: The AMC started selling assets and repaying investors in a phased manner.

Current Status (As of 2025)

1. Majority of Payouts Completed:
   • Over ₹26,000 crore has been returned to investors as of 2023.
   • Investors have received 85-95% of their holdings in most of the six schemes.
2. Final Phases of Liquidation:
   • The fund house continues to recover and distribute the remaining assets.
   • Some illiquid securities and pending dues are still being resolved.
3. Regulatory Impact & Lessons Learned:
   • SEBI has tightened rules on debt mutual fund investments to avoid similar crises.
   • Investors have become more cautious about credit risk funds and liquidity risks.

What Should Investors Do?

• Investors who haven’t received their full amount should check updates from Franklin Templeton and registrar services like CAMS for payout details.
• If there are any pending dues, they will be distributed as Franklin Templeton continues the recovery process.

This move, though difficult, was seen as a way to protect the long-term interests of the remaining investors.

This scenario underscores the critical role of mutual fund advisors and distributors in helping investors make informed decisions, select funds that align with their financial goals and risk tolerance, and navigate market uncertainties. For example, the decision by Franklin Templeton to wind up six of its debt funds highlights the importance of effective risk management. In times of market volatility, such as during the COVID-19 crisis, expert guidance is invaluable in ensuring a balanced, diversified portfolio. A mutual fund advisor or distributor can assist with tailored, goal-based investing strategies, whether for retirement planning or safeguarding your investments.

Segregated portfolios, often referred to as side pocketing, are distinct portfolios established within a mutual fund to manage specific debt securities impacted by credit events such as downgrades in credit ratings or defaults by issuers. This approach was implemented by SEBI in December 2018 to protect investors in mutual funds in debt. Side pocketing serves as a protective measure for investors in Debt Mutual Funds when these funds possess distressed or defaulting securities. This became increasingly relevant following the Non-Banking Financial Company (NBFC) crisis in 2018.

How Does Side Pocketing Protect Investors?

Think of it as separating “bad” and “good” investments into two separate spaces. Imagine a debt fund holds ₹100 in total and ₹20 of that is invested in a defaulted bond. The fund creates a segregated portfolio for the ₹20, isolating it from the main portfolio, which holds the remaining ₹80. This separation allows the regular portfolio to continue functioning normally, growing with the market, while the ₹20 is kept in the side pocket. If the defaulted bond recovers, investors can still benefit from the return, but it won’t affect the main portfolio.

Segregated portfolios protect investors by ensuring that the distress or default of one investment does not impact the overall fund’s value. The main portfolio continues to operate smoothly, and if the distressed asset recovers, investors can still benefit from the potential upside without affecting the performance of the main portfolio.

For example, Franklin Templeton created a segregated portfolio for its funds in 2020 when DHFL (Dewan Housing Finance Corporation) bonds defaulted. This allowed the fund to isolate the distressed assets while protecting the interests of regular investors.

Understanding concepts like segregated portfolios can be complex, particularly when managing risk in debt fund investing during periods of financial stress. These strategies help protect investor interests in cases of defaults or credit downgrades. A mutual fund distributor or advisor can guide you through these complexities, helping you select the right funds, assess risks, and align your strategy with long-term goals. Whether you’re planning for retirement or focused on wealth preservation, expert guidance—especially from a mutual fund advisor or distributor—provides the clarity and confidence necessary to make informed investment decisions.

Credit ratings in Debt Mutual Funds are crucial for evaluating the risk linked to the bonds and debt instruments held within the fund. These ratings, assigned by agencies such as CRISIL, ICRA, and CARE in India, reflect the creditworthiness of the issuer, whether it’s a corporation or a government entity. The ratings typically range from AAA (indicating minimal risk) to D (indicating default risk).

A company’s performance can lead to upgrades or downgrades in its credit ratings. Debt mutual funds share the ratings of bonds in their portfolios each month, enabling investors to evaluate the associated credit risk. Bonds with higher ratings, like AAA, are considered safer but provide lower returns, while lower-rated bonds, such as BBB or below, carry greater risks but may offer higher returns to compensate for the increased default risk. Bonds with an SOV credit rating carry no credit risk and are issued by the Government, indicating the highest safety rating. For example, Gilt Funds invest solely in SOV-rated securities, and Corporate Bond Funds predominantly hold AAA-rated bonds, making them a suitable choice for conservative investors seeking safety.

Understanding credit ratings is essential for evaluating the level of risk in debt mutual funds. These ratings influence the stability of your investments, especially for risk-averse investors or those seeking consistent income. Given the complexities involved, consulting an AMFI-registered mutual fund distributor or advisor can help you assess credit quality in line with your risk tolerance, investment horizon, and financial goals—whether it’s retirement planning, emergency fund preparation, or long-term wealth creation. Expert guidance ensures you make informed, goal-aligned decisions for lasting financial success.

In conclusion, Corporate Bonds, Corporate Fixed Deposits (FDs), and Debt Mutual Funds each offer distinct characteristics, risk profiles, and return potential. Your investment choice should align with your financial goals, risk tolerance, and time horizon.

Understanding the differences between corporate bonds, fixed deposits, and debt mutual funds is essential for making informed investment decisions. Each comes with unique risks, returns, liquidity, and tax implications. An AMFI-registered mutual fund distributor or advisor can help assess your goals, risk tolerance, and liquidity needs, guiding you toward goal-based investing strategies like retirement planning or long-term wealth creation. Their expertise ensures your investments are aligned with your financial objectives and suited to your risk profile.

Let’s learn the difference between Floater Debt Funds and Dynamic Debt Funds. Here’s a simple explanation:

In summary, Floater Debt Funds focus on debt instruments with floating rates, providing protection against rising interest rates, while Dynamic Debt Funds have the flexibility to adjust their portfolio duration to market conditions, offering higher return potential but with greater interest rate sensitivity.

Choosing between floater and dynamic debt funds depends on market outlook, interest rates, and risk appetite. These funds have distinct strategies and risk profiles, making it essential to consult an AMFI-registered mutual fund distributor or advisor. A professional can help you understand how each fund type aligns with your financial goals, like retirement planning, emergency fund preparation, or long-term wealth creation. With expert guidance, you can navigate interest rate cycles effectively and align your investments with your long-term financial objectives.

Credit Risk Funds are debt mutual funds that invest in bonds, debentures, and other debt instruments issued by companies with lower credit ratings (below investment grade, or “junk bonds”). These funds aim for higher returns by investing in riskier corporate bonds that offer higher interest rates to compensate for the increased risk of default. While they can provide attractive returns, they come with greater exposure to credit risk due to the lower ratings of the companies in which they invest. Here are the key features of credit risk funds:

1. Credit Risk: Credit risk funds invest in lower-rated bonds, which carry a higher chance of default on interest or principal payments. This increased risk makes them more vulnerable to significant losses. Compared to investment-grade funds, the likelihood of such defaults is much greater. Investors in credit risk funds may face higher volatility and potential losses. It’s important to assess the risk before investing in these funds.
2. Return Potential: These funds offer higher returns compared to other debt funds to compensate for the increased risks. They are suitable for investors seeking higher returns with some exposure to risk. The potential for high returns comes with greater unpredictability, meaning returns can vary significantly.
3. Interest Rate Risk: These funds are sensitive to interest rate changes. Rising rates can reduce the value of bonds in the portfolio, potentially leading to lower returns or losses.
4. Liquidity Risk: Lower-rated bonds may be less liquid, making it harder to sell them during market stress without incurring a loss, reducing the fund’s flexibility.
5. High Volatility: Credit risk funds tend to be more volatile, with NAV fluctuations due to economic uncertainty or credit downgrades, leading to unpredictable returns.

Credit Risk Funds aim for higher returns by investing in lower-rated corporate bonds, but they come with higher risks such as default, volatility, and liquidity concerns. These funds may suit high-risk investors focused on long-term wealth creation, but are generally unsuitable for conservative profiles. A mutual fund distributor or advisor can help assess whether such funds align with your risk appetite and financial goals, whether it’s retirement planning, wealth creation fund, or broader goal-based investing. Expert guidance is essential to navigate the complexities and make informed choices.

Gilt funds are debt mutual funds that invest primarily in government securities like Treasury Bills and bonds issued by the central or state government. These funds are considered safe because they do not carry credit risk, as they are backed by the government. However, they are highly sensitive to interest rate changes—when interest rates rise, the value of government securities falls, and vice versa.

While gilt funds offer moderate returns, their performance tends to improve in a falling interest rate environment but may underperform when rates are rising. They are generally more liquid than other debt investments, as government securities are highly traded, but liquidity can still be affected during times of market stress or when investing in long-term bonds. Gilt funds are ideal for conservative investors seeking safety and stable returns, and they are more suited for long-term investment horizons rather than short-term goals.

Gilt funds can be a smart choice for conservative investors seeking capital preservation and moderate returns, especially within a goal-based investing framework. While low-risk, timing the market and aligning gilt fund investments with objectives like retirement planning, emergency corpus, or wealth creation is crucial. An AMFI-registered mutual fund distributor or advisor can guide you through the right strategies, helping you choose suitable options and avoid unnecessary risks, ensuring your investments stay on track with your financial goals.