Traders Magazine
By Vinodh Nagaiyan, Risk and Finance Solution Consultant, Oracle Financial Services
As of 2019, the worldwide mutual fund industry had $55 trillion in total assets, according to the Investment Company Fact Book.
[1] This figure has seen a consistent increase in the past decade and is poised to grow further in the near future. The growth of this industry highlights the importance of risk management practices – particularly liquidity risk management.
In a collective investment scheme, from the investor perspective, subscriptions and redemptions are smooth, mostly online. From the company perspective, however, redemptions are the outcome of a delicate balancing act. If the fund holds a large number of liquid securities to facilitate redemptions, then it misses out on returns. If it holds a low number of liquid securities, then it might not be able to honor redemptions on a timely basis. Every redemption request should be honored on time, to be both compet