Liquid funds have suffered due to recent credit events. How did you manage to insulate Parag Parikh Liquid Fund?
Our fund house is primarily an equity fund house. We had launched a liquid scheme in May 2018, mainly to facilitate STPs and switches to our equity schemes.
Given that our focus is more on safety of capital rather than providing 'the highest return', most of our portfolio is invested in sovereign securities. Only a minuscule percentage is allocated to corporate paper (CPs and CDs). None of the companies which have defaulted/delayed the repayments, formed part of our investment long-list and, consequently, we were not adversely affected by any of the dire corporate and debt fund category related headlines over the past 12-18 months.
Take us through the fund management philosophy of Parag Parikh Liquid Fund.
Our focus on the liquid scheme is to provide safety and liquidity to our clients. Return is an aspect which comes lower in the pecking order, specifically in the liquid fund category. We are very conscious of the benefits that issuer diversification provides in the debt categories. There is no benefit of concentration in few securities, unlike equity funds.
How do you mitigate risks in Parag Parikh liquid fund?
Within the limited exposure that we have towards corporate papers, we do our own credit research and have a defined the universe of companies where we invest in. There is some credit analysis done in terms of specific criteria for different industries. This is in addition to the work that the credit rating agencies do.
Overnight funds are getting popular among investors after introduction of exit loads. In such a scenario, why do you think liquid funds have edge over overnight funds? How is Parag Parikh liquid fund different from other liquid funds in the market?
I would say, Parag Parikh Liquid fund is somewhere in between the overnight funds and other liquid funds in the industry. We provide liquidity with low risk like overnight funds but returns are slightly higher than them due to exposure to t-Bills and g-secs.
Liquid funds as a category has been seeing some outflows but we have seen good inflows since all these defaults started cropping up. Investors have clearly moved towards more safer, conservative liquid funds in the industry.
Why should distributors recommend Parag Parikh Liquid Fund to their clients?
It is very different product compared to the others primarily because of the limited corporate exposure and hence lower credit risk. At the same time, it should give higher returns compared to the overnight funds due to higher maturity sovereign rated papers.
So, those investors who want their funds to be really liquid and invest them without worrying about the credit & liquidity risk, distributors can recommend our Liquid Fund to them.
