Thread by @KirtanShahCFP

Not sure of how will the Debt mutual funds react to the change in valuation rules of AT1 & Tier 2 bonds and what should you do?

A thread for my retail investor friends.

Do re-tweet & help us educate more investors.
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The first step is to understand what are AT1 & Tier 2 bonds. Have written about them in the past. It’s a must that you read both of these before going ahead
(a)

https://twitter.com/KirtanShahCFP/status/1235933007833370625?s=20

(b)

https://twitter.com/KirtanShahCFP/status/1334697428113522693?s=20

(2/8)

In brief,

AT1 bonds have no defined maturity and are dependent on the bank/issuer to call the bonds back where as Tier 2 bonds are bonds where there is a defined maturity in place. (3/8)

If u now look @ the new valuation norms, the norms r only for AT1 for all practical purposes as Tier 2 bonds always had maturity in place & were used while doing the valuation. So ignore the tier 2 holding of ur Mutual Fund portfolio as there will nt b ny material impact. (4/8)

Markets have already priced in AT1 bonds down and yields have risen by 100-120 bps. Market is not waiting for April 1 implementation to show the impact. Which means your funds having AT1 would have already got affected whatever it had to. (5/8)

What should you do now?

(1) If your funds have less than 5% AT1 bonds, don’t do anything. Most of it is priced in (6/8)

(2) If your funds have more than 5% AT1 bonds, there still can be a small impact depending on the exposure. But if your investment is below 3 years, the tax disadvantage is more if you redeem. (7/8)

I have written multiple threads earlier on
- Sector Analysis
- Macro Economics
- Debt Markets
- Real Estate
- Equity Markets etc.

You can find them all in the link below. (**END**)

https://twitter.com/KirtanShahCFP/status/1337953717274832896?s=20