Best article for those IFAs who have not seen any turbulence in Debt Fund. The last paragraph is worth saving. ( 9 points of Positives to take from these incidents & Lessons to be learnt). When we sell any MF scheme, it has different types of risks. Well explained in the beginning. Mr. Bond, Please continue such articles which are long term treasure.

Let me state that I am not a spokesperson for any AMC, especially FT. By my logic says that they had to sell JSPL security only for the benefit of the investors. Their maturities are in 2017/18/19. Imagine JSPL remains in their portfolios for this long. Naturally, looking at it,advisory community will recommend only redemptions from these schemes. This will create huge liquidity risk by forcing them to sell other good securities as JSPL wud be illiquid. Credit issue may or may not arise, liquity risk will be created by us. Hence, according to me FT has done well to sell JSPL

Secondly we discuss lower expense ratio. Are we all matured enough to understand how good it is in Debt fund. Lower expenses means lower brokerage. When the actual Deal happens the day we ensure the fund goes to the Fund house with lower expense (if other things are common) and not to the Fund House which pays maximum. Hand on heart, are we doing it?

A very good in depth interesting article. I fully agree that investor should have hold that portfolio instead of coming out fullishly which resulted in panic and Templeton was forced to sell. Its also gives us a point to ponder. Have we done justice? Hundreds of messages were floated on negative news of JSPL. Each day the NAV change was flashed as if its a Liquid fund. Few competition industry people (Both distribution and AMC) were super active in sharing how dooms day is nearing and its better to come out so that one looses, the other gains. One missed the point that in all these the investor lost. There are positive trends as well. There are AMCs and advisors who tried to educate the correct way, issued notes etc. I think people will respect them.

Another eye opener article from Mr.Bond Sunil Sir,and I also agree with your suggestion to make accrual fund in competition of Fixed Deposits with lower TER and holding proper securities to long term and also IFAs should advise Investors to hold investment in scheme at least till long term gain status.

Mr.sunil, Very good analysis. The main issue is notional loss has been converted into real loss. Templeton has taken unnecessary real hit on NAV, which could have been avoided. Second issue is every one was kept in dark as to size of redemptions on day to day basis which has given room for big speculation and many distributors rushed for redemption. clarity and Transparency was missing. Good and timely article from a knowledgeable guru.

Well articulated Sunil. At such times there is tendency to paint the canvas with a single brush

Dear sir That really awesome wY to explain the concept . Very few people in industries i feel have this thought process in which they focused on what is actually happening . And how to handle it . Other wise i was reading in twitter and face book so on that all are disscussing what wrong had happen . What are fund manager or amc mistake ? We our self say to our clients invest for long term and try to avoid short term volatility ( which you beautifully explain by example of equities and exact data points ) . Which really give awareness of credit risk which we always ignore . Thank you so much to give your time and effort. In writing such authentic articles with data points, and explanation , which contribute so much in advisor community . Looking for such productive article more

When its fixed income , the real bench mark is FD and not these complicated indices! When we take the average returns , even after taking the tax benefits , they are not out performing the FDs with any great margin. While the risk in and average debt fund is very high compared to the FD. The value proposition is not making a case. In order to make them worth , the costs have to be reduced. The expense ratios in debt funds have to be kept well bellow 1% so that that the savings can be passed on to investor.

In response to Atul Shah ARN-0225 (Ahmedabad).JSPL held and subsequently sold by Franklin Templeton had no collateral (clarified by Santosh Kamath in concall), only OPJ Trading of Naveen Jindal group carries collateral in the form of JSPL shares which are covered to the tune of 150%.hence in case of total default in order to recover full money either liquidation of assets or buyout by another company is the only option...in case of liquidation since no collateral is there banks will be considered senior security since they do project funding and hence whole project is the collateral.Franklin will be second only to banks in liquidation process.The only reason for Franklin to sell would have been tremendous redemption pressure like in case of corporate bond fund the assets have collapsed from 9000 to 7000 crores.but you are right there is no doubt they have taken a massive haircut but in this event the behavior of Franklin has been like of common investors (full of panic and stress).

The most amazing analysis from the most amazing analyst you will ever come across....views very different from momentum followers...an eye opener.....Sunil Jhaveri Sir (Mr. Bond) should be made the guru of all IFAs...lot to learn from him....if IFAs follow him rigorously they are bound to create great wealth for their clients and themselves...the most relevant views on both debt and equity investing...

HI SUBIR, I THINK GREAT MINDS THINK ALIKE. I have been a proponent of lowering expense ratios from these accrual schemes. We charge 2% (which is 20% to 30% of returns potential) whether YTM is 10% or 8%. How are we different fom Insurance products? I have telling AMCs to make it floating rate of expenses linked to the YTM. Lets see what pans out

A Bond is always A Bond . Great, Keep it up for sake of our industry. An accrual fund is a all weather fund for a retail investor and accrual funds have a potential to get funds more than CASA of banking in long run if managed in letter and spirit.

As always Sunil, nobody marries context with hard numbers, the way you do it. I agree, the twitterati went berserk, on this one.Nothing travels faster than negative news :-) . Having said that, while I am a big believer in debt funds and their superiority over fixed deposits, we also need to evaluate the TER of these funds. I think we can bring down the costs from the current 1.8-2 % p.a. to 1.0-1.2 % p.a. For this ,AMCs as well as the distributors need to share the reduced cost. I believe this can improve returns for investors or more importantly , reduce the risk of the holdings . Disclaimer : I am not advising this in the backdrop of the JSPL/Amtek issue.I have been sharing this feedback, with AMCs, from the very beginning. We distributors, need to share a big part of the blame, as the reduced expenses would mean lower brokerage.However, the increased volumes would more than make up for the reduced percentage. Once again, thanks a lot for putting things in right perspective.

Debt market experts are requested to guide - create healthy discussions---- "Whether Franklin AMCS action of selling JSPL instruments at huge loss is wise step or is against unit holders interest"-- I understand that AMC has forgone opportunity of NAV gain as & when JSPL honour its obligations-- AMC could have held JSPL ,as AMC had enough collaterals-- The R.M.(SALE PEOPLE) said that timing to encash collaterals at present is not fair-- Why AMC sold JSPL & gave permanent loss to investors? AMC has lost chance to earn in future (recovery of downgrading loss-)--- AMC has to take hit in NAV- whether held or sold-- Why not to hold securities at bargain price?-- PLEASE OPINE--

Yes Mr. Bond Very simple message for IFAs "Waqt Har Zakhm Bhar Deta Hai"

Important lesson with simplified example, for each stakeholders in Mutual Funds business including media. Only pain or complaint in JSPL case is complete exit by Franklin Templeton after taking full losses, which is more or less like an action by the immature Investor or Advisor, for whom the article is primarily written by the author.

Dear Mr Sunil, You have shown very good analysis of the debt funds. Also pre & post outcome of returns of the funds after 2 corporate event happenings. This will give true picture of the Debt Funds.