Mutual funds with feet of clay

The magic of mutual funds lies in their having transparent and liquid assets. However, this edifice stands on top of secondary market trading

Ajay Shah

In the last decade, the mutual fund industry has grown remarkably. However, we remain stuck with a fledgling bond market. With a large base of assets, ordinary fluctuations can lead to a day of large sales by mutual funds, which will kick off a large drop in bond prices, which can trigger off more redemptions, and so on. We do wrong by building a large superstructure of a mutual fund industry on feet of clay. This calls for short-term actions — changing the nature of the liquidity promised by mutual funds — and building the Bond-Currency-Derivatives Nexus. The growth of ...