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Trust AMC to launch a liquid fund; should you invest?

The companies raised money for funding expansion plans, retiring debt, supporting working capital requirements and other general corporate purposes.Premium
The companies raised money for funding expansion plans, retiring debt, supporting working capital requirements and other general corporate purposes.

  • When it comes to liquid funds, it is better to go with a fund, which predominately invests in public sector units, and the private credit is on the lower side. A key positive of this fund is that it is giving more importance to long-term ratings

NEW DELHI: Trust Asset Management Company on Tuesday announced the launch of an open-ended liquid fund, which will largely invest in debt and money market instruments. The fund house aims to raise Rs1,000-2,000 crore through the new fund offer (NFO), which will be open for subscription during 8-22 April.

This is the second such offer from Trust MF, having launched its maiden NFO of banking and PSU debt fund in January, which received an opening asset under management of Rs580.24 crore.

The fund will be managed by Anand Nevatia, fund manager, Trust Mutual Fund.

“We will be creating a portfolio with weights based on outstanding issuance amounts, consisting of highest rated issuers with high liquidity. Our liquidity will be high as portfolio liquidity depends on credit quality and liquidity of its investments and not on the size of the portfolio," said Nevatia.

The expense ratio the fund is 10 basis points for the direct plan and 25 bps for the regular plan.

According to the fund house, it will focus on long-term rating of the company instead of the short-term rating. Investment advisers generally suggest liquid funds for short durations.

“A common misconception is to equate short-term A1+ rating to the long-term rating of AAA. In reality, an issuer with lower long-term rating could be given an A1+ rating for short-term instruments. The highest short-term rating does not necessarily translate into the highest long-term rating," the company said in the product presentation.

Over the past year, liquid funds have delivered an average return of 3.5%.

In a model portfolio, the fund house will have a maximum of 15% allocation to commercial papers of PSUs, 35% to papers of private companies and 20% to certificate of deposits.

“When it comes to liquid funds, it is better to go with a fund, which predominately invests in public sector units, and the private credit is on the lower side. A key positive of this fund is that it is giving more importance to long-term ratings. For liquid funds, retail investors should look at the quality of the portfolio and not the return column as a priority should be safety," said Harshad Chetanwala, a Sebi-registered investment adviser and co-founder of MyWealthGrowth.

Investors should note that gains from debt funds held for less than three years are added to the overall income and taxed at the income tax slab rate.

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