Page 32 - mutual-fund-insight - Mar 2021_Neat

COVER STORY

meter’). These results are
obviously far from satisfactory. The
level of risk inherent in a small- ,X\P[` M\UKZ HZ WSHJLK VU YPZR V TL[LY
cap fund versus an aggressive The current risk-o-meter
hybrid, which invests partly in classifies almost all open-end Moderate Moderately
High
debt, is clearly very different. But equity funds in the ‘Very
Moderate
the risk-o-meter fails to High’ category, which is Low to High
acknowledge that. not of much use for
While we still believe that there investors.
is nothing wrong with the Low Very High
underlying parameters chosen to
define the risk, it is the way the RISKOMETER
risk values are assigned and then
combined into an aggregate risk Figures represent the number of funds; Excludes funds suspended for sale
Note: All funds which were launched at end of 2020 have been excluded as they would have higher levels of
grade that needs a tweak. With the cash and may cause anomaly in the risk-o-meter representation
current rules, it appears to have
become a mathematical
improbability for any equity fund <S[YH ZOVY[ K\YH[PVU M\UKZ HZ WSHJLK VU
to have a risk level other than
‘High Risk’ or ‘Very High Risk’. So, [OL YPZR V TL[LY
investors will have to wait for the As per the new risk-o-meter,
next version before putting the most ultra-short-duration Moderate Moderately
High
risk-o-meter to some good use. debt funds bunch up under
Moderate
So, there you go. All the hype the ‘Low to Moderate’ Low to High
we had built up about the risk-o- risk grade.
meter so far has come down to a
nought. But wait. There’s more to Low Very High
this story.
Debt funds RISKOMETER
On the debt side, the risk-o-meter Figures represent the number of funds; Excludes funds suspended for sale
passes with flying colours. And
this is where it holds a lot more
relevance too. Debt-fund investors (UHS`ZPZ VM [OL \S[YH ZOVY[ K\YH[PVU JH[LNVY`
have witnessed frequent and
massive NAV markdowns since the Funds which have been giving higher returns are also placed higher on the
IL&FS fiasco in late 2018, followed new risk-o-meter.
by segregations due to industry- 35 z Low z Low to Moderate z Moderate z Moderately High
wide defaults and the winding-up
of six yield-oriented schemes. So, 30
the risks in debt funds have come 25
about in a substantial way in the
recent times. Exposure to AA and below rated papers (%) 20
The new risk-o-meter 15
disclosures are very informative.
For instance, let’s look at the 10
seemingly homogeneous and 5
fairly narrowly defined category
of ultra-short-duration funds (the 0 1.0 1.5 2.0 2.5 3.0 3.5
chart titled ‘Ultra-short-duration 6-month returns (%)
funds as placed on the risk-o- Returns as on January 29, 2021; Excludes funds suspended for sale and funds that haven’t completed six months;
Credit exposure as on December 31, 2020
meter’). Here, the funds spread

30 Mutual Fund Insight March 2021
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