The Tortoise Speaks...

A blog which periodically revisits evergreen investment principles!

A Machine for Your Job

“Never send a human to do a machine’s job” – “Agent” Smith

This is a dialogue from the 1999 Action/Sci-fi film – The Matrix. The film showed a very gloomy outcome for the human race. It showed a world where machines become self-aware. The machines realize that they need to dominate the human race to survive and grow. The quote has never seemed more appropriate than it does today. Especially when we choose to call the AI tools “Agents”.

I could’ve written this entire article (maybe I still should) using an LLM. At least to make it more entertaining & readable. But that would mean sending a machine to do a human’s job.

The narrative around jobs & layoffs is horrible right now. The capital vs labour debate has never been this stark. AI-enabled automation may have become a convenient excuse to resize the employee base. The past automation cycles at least gave a few years for the transition. AI models are seeing a lot of quality improvements; their recent capabilities make it seem like we will all be out of a job tomorrow.

The worst part is being asked why does your job even exist?

What is the machine’s job?

The machine’s job is to reduce human labour.

There’s a difference between labour-reducing technology & labour-replacing technology. A crane can lift heavy objects. This doesn’t mean a manual labourer cannot lift the same object by breaking it into small loads. There is a size & scale difference in the unit of labour a machine can replace. The economy works on this productivity formula.

For the cost of using that machine, how much worth of human labour will it replace?

The machine can definitely bring in these benefits. The machine can bring productivity gains in another way as well. Someone designs the machine. Someone builds it. Someone sells it & someone is an expert in using it.

For a unit of labour that the machine replaces, there are a variety of jobs & tasks it creates. This has been the logic behind our industrial economy since the Industrial Revolution. This is the job of the machine.

It breaks down the units of labour consumed & frees up the human to extract more value from their labour. If our entire job was to do one task, then the job loss to a machine is a very real possibility for us. If the value of your labour multiplies by using a machine, then your total value goes up.

That brings us to the question…

What is a human’s job?

Or rather — what is a job fit for a human? There are parts of labour which a machine couldn’t do well. Imagining the possibility of the job to exist. Thinking through the steps needed to execute the job. Finding and organizing the right combination of resources to get the job done.

There’s a reason why Al-doomers don’t like the idea of AI technology developing – the belief that AI can become super intelligent. They believe that AI can learn to organize itself against humanity. A bit like The Matrix.

The human’s job is to provide guidance, resources & validation. To do each of these tasks well, the human needs to develop the skill & capability for the job. The resources come in the form of money. Money helps educate us, the money helps in buying computing power or tokens (as it is also called). The resource would also come in the form of time devoted to guiding the system & verifying the output.

People today work with Al agents to automate some tasks. They may sometimes fear that they are training the machine to replace themselves. That’s a very limited view of our own jobs. This means that we have stopped learning & evolving our skills. This also means we have decided that we know the boundaries of our work. Both are okay if that’s what we want. However, many jobs are not always hierarchical in nature. Jobs can also improve the breadth of the work one can do. If a machine helps a human improve breadth, that’s a good outcome. If a machine still helps to find a sense of meaning & purpose in our work, that’s a good co-working outcome.

Too much work?

Is this situation creating more work to be done by less people? On the contrary, it is separating important work from the more labour-consuming work. It is not definite if we will need less or more people.

I could’ve used an LLM-based tool to write this article. Someone else can take the same topic and come up with a much better post.

But my job behind the pen is not to only put ink on paper & create a soup of familiar-sounding words. My job is to think through the impact of technology on myself, my ability to learn and understand the world. My job is also to interpret what can work well & what won’t. An AI tool can make you feel all those things, but it will not help create the action necessary to take the next step. To do the work. To write with meaning.

Disclaimer: Views are personal.
Statutory Disclaimer: https://amc.ppfas.com/schemes/riskometer-with-media-disclaimers/

Marathons & Money – A story of long-term compounding

Since the 5th century BC, when Pheidippides ran from Marathon to Athens to deliver the news of a battle victory; running 42.195km has remained the pinnacle of endurance activities.

Marathons are a great metaphor for careers, building businesses and winning in life. And the common phrase you will often hear is “Investing is a marathon not a sprint”. But how many people who use this line have actually run one? As both a marathon runner and a long-term investor here are ten of my favourite insights on the parallel between the two:

  1. You don’t run 42km once. You run one kilometre forty-two times.
    Insight: Break the big task up into smaller goals and SIPs are the best way to do this. 
  2. A marathon is a 10km race with a 32km warmup.
    Insight: Compounding is back ended.
  3. Every uphill has a downhill.
    Insight: In markets, things are never as good or as bad as they seem.
  4. To finish first, you must first finish
    Insight: It doesn’t matter how late you started, how little you are saving or how far away your financial goal is. Just keep going!
  5. It never gets easier, you only get faster
    Insight: Progress is the essence of life. Keep growing and raising your ambition.
  6. You only see the runners in front of you, never those behind you
    Insight: Appreciate everything you have and how far you have come in life. Gratitude and contentment are pillars of long-term compounding.
  7. The hardest part is not finishing, it is believing you can finish
    Insight: Self-belief is your greatest source of strength. And focus on the present and only on the present. 
  8. A marathon is not run on the road. It is run in the six inches between your ears.
    Insight: Equanimity is the secret to success in long-term investing.
  9. For every minute you gain on the first half, you will give back three in the second half.
    Insight: Stay patient and stick to your plan. There are no shortcuts to getting rich.
  10. It takes a team to run a marathon alone
    Insight: Acknowledge and celebrate the role your financial advisor, family and friends play in your financial success.

Disclaimer: Views are personal  

Statutory Disclaimer:
https://amc.ppfas.com/schemes/riskometer-with-media-disclaimers/ 

How PRC Rating Matters in Liquid Funds

Have you thought about the PRC rating in liquid funds? Do you know why it matters and what the matrix represents for these funds?

The PRC (Potential Risk Class) matrix, introduced by SEBI, requires debt funds to disclose the maximum level of risk they intend to take in the future based on their current and future investments.

This matrix evaluates two major risks that debt mutual funds are exposed to:

1. Credit Risk – the risk that the issuer of security may default.

2. Interest Rate Risk – the risk of the security’s value fluctuating due to changes in interest rates.

The position of the debt scheme in the matrix shall be displayed by the AMCs by this matrix. Here is have a look at the matrix –  

Let me interpret it for you, the Rows I,II and III represent the interest rate risk a fund can take with Row I being the relatively low risk (Macaulay Duration ≤ 1 year), Row II being the moderate risk (Row II: Moderate risk (Macaulay Duration ≤ 3 years) and Row III being the relatively high interest rate risk (Any Macaulay Duration). In the case of liquid funds, investments are restricted to securities with maturity up to 91 days. Because of this short duration, interest rate risk is minimal. Therefore, liquid funds are always placed in the Row “I” category, indicating relatively low-interest rate risk.

However, the PRC rating still matters because liquid funds can differ in credit risk, depending on the type of short-term instruments they choose—ranging from very high-quality (AAA rated) securities to slightly lower-rated ones. Category ranges from columns A to C represents the credit risk a fund is willing to take, Column A being the lowest and Column C being the highest. 

SEBI has assigned a Credit Risk Value (CRV) to different categories of debt securities. The higher the CRV, the lower the potential credit risk—and vice versa.

· Government securities (G-Secs), State development loans/Treasury Bills/ Repo on Government Securities/TREPS / Cash carry a CRV of 13 

· AAA-rated securities have a CRV of 12 

· AA+ securities have a CRV of 11

· AA securities have a CRV of 10 and so on

Classification based on the weighted average CRV of a fund’s portfolio: 

· CRV ≥ 12 → Classified as “A” class (relatively low credit risk) 

· CRV of 10–11 → Classified as “B” class (moderate credit risk)

· CRV < 10 → Classified as “C” class (relatively high credit risk) 

Although moderate credit-risk funds should theoretically outperform low credit-risk funds on a risk-adjusted basis, the performance differential has meaningfully narrowed over the past one year. This trend has been influenced by improved market flows, compression in credit spreads, and a strategic tilt among fund managers toward lower credit-risk instruments. 

Median Rolling returns of PRC A-I vs B-I Liquid Funds

Source: ICRAMFI360, PPFAS Research

The spread between median rolling returns of A-I and B-I rated liquid funds has been reduced over the past year with better liquidity conditions since April 2025. A fund that takes higher credit risk may offer slightly higher returns but with increased potential volatility or credit events. Since liquid funds are designed primarily for short-term goals and emergency requirements, safety and liquidity should be preferred over returns.

Disclaimer – The views are personal. Macaulay Duration (Duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk between securities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights are nothing, but the present value of the cash flows themselves. It is expressed in years/days. The duration of a fixed income security is always shorter than its term to maturity, except in the case of zero-coupon securities where they are the same. The Potential Risk Class (PRC) matrix, mandated by SEBI, discloses the maximum interest rate and credit risk a debt scheme may assume. PRC classification provides transparency on permissible risk boundaries but does not guarantee safety, liquidity, or returns. Past performance, including the mentioned narrowing of return differentials between A‑I and B‑I liquid funds, is not indicative of future results. Investors should evaluate their objectives and risk tolerance and consult the respective Scheme Information Document (SID), Key Information Memorandum (KIM), and professional advisors before investing. 

 Mutual Fund investments are subject to market risks, read all scheme related documents carefully

Curveball in Credit How Bear steepening is repricing risk and opportunity

Corporate bond yields attracted strong investor interest up to July 2025, with record-high issuances being comfortably absorbed by the market. Spreads remained attractive relative to State Development Loans (SDLs). Backed by the RBI’s liquidity easing measures and a cumulative 100 bps of rate cuts in CY2025, overall liquidity conditions have turned comfortable. Corporate bonds continued to offer appealing spreads as investors sought to lock in higher yields amid expectations of further rate declines. Notably, the corporate bond curve, which had remained inverted last year amid liquidity deficit conditions, has now steepened in line with improving market dynamics.

Bond Yield Curve (31st July,2025) Source: CCIL (Yields are annualized)

Following the August 2025 monetary policy meeting, a more cautious tone has emerged. Fiscal concerns linked to GST reforms, tariff-related announcements, and subdued bank demand have driven yields higher across G-Secs and SDLs. Elevated state borrowing has also added pressure, with issuances in FY25 (up to 15 August 2025) rising to Rs 3.80 lakh crore compared to Rs 2.53 lakh crore in the same period of FY24. As a result, SDL spreads over G-Secs have widened sharply to 70–80 bps, well above their usual 45–50 bps range. Lower participation from insurance and pension funds—particularly at the longer end, where they typically dominate—has further contributed to the steepening.

In contrast, corporate bond issuances remained muted in August 2025 as issuers refrained from locking in debt at elevated interest rates. A few attempted issues were eventually withdrawn amid higher investor bid expectations. The combination of elevated SDL yields and subdued corporate supply has driven a sharp compression in AAA PSU corporate bond spreads over the past month. While the PSU corporate bond yield curve remains steep, spreads have narrowed considerably—turning unattractive beyond the 2–3-year segment, where they have even slipped into negative territory. The government bond yield curve including SDLs has now turned more attractive, with unusual spreads emerging from the recent steepening. However, given these unusual circumstances, the expectation is that the RBI to intervene and stabilize the market through appropriate measures.

Yield Curve (26th August ,2025) Source: CCIL (Yields are annualized)

Identification of funds for a short-term goal

“Arbitrage” is when one simultaneously purchases and sells the same security in different markets to profit from unequal prices. Arbitrage Funds are schemes that invest a minimum of 65% of money in equity stocks and hedge them with corresponding sale of a futures contract, thereby earning a risk-free arbitrage yield when the positions are held till maturity. However, at every given point of time, the spread between the security so purchased and the future contract so sold keeps changing resulting in volatility on returns at that point of time. Yes, the balance of up to 35% can be invested in Debt securities & Money Market Instruments, however the same differs from scheme to scheme.

As against arbitrage, “Liquid” represents being flexible. Liquid Fund schemes primarily invest in money market securities such as treasury bills, commercial papers, certificates of deposits, etc. having a maturity of not more than 91 days.

Post removal of indexation benefit of Debt Mutual Funds, Arbitrage funds have received significant inflows from investors. Gains from Liquid Funds are taxed at Slab rate while Arbitrage Funds qualify for taxation similar to equity-oriented funds (20% short term capital gains tax if redeemed before one year and 12.5% if redeemed after one year)

Source: AMF

Arbitrage returns can be volatile in the short run (less than 3 months):

Arbitrage yields are more volatile because they are dependent on dynamic factors like market liquidity, transaction costs, price corrections, broader economic and regulatory changes, etc. and all of which can fluctuate quickly. Liquid funds, which invest in short-term debt instruments are less volatile.

The 1 month and 3 month rolling return of both the fund in the below chart shows the volatility of arbitrage fund returns which evens out in the medium term

Source: ICRA MFI Explorer (Annualized average Rolling returns of 5 schemes for 3 month and 1 month rolling one month basis) 

The average rolling returns of both arbitrage and liquid Funds over the three-month period are almost similar, making the arbitrage fund more tax efficient over liquid funds. However, one month rolling returns has volatility which investors with short-term goals should be mindful of. 

Exit load: Arbitrage funds have higher exit loads if redeemed quickly and are suitable for investments with a time horizon of more than 3 months. In contrast, liquid funds are designed for safer, short-term parking of funds, with lower exit loads if redeemed within a brief period, usually 7 days. 

Expense Ratio: Arbitrage funds have higher expense ratios due to the complexity of their strategies, their intensive risk management and the infrastructure required to execute trades efficiently. Liquid funds, by contrast, have relatively less operational demand, leading to lower costs.

Arbitrage funds may be more suitable for investors in higher tax brackets with an investment horizon of at least 3 months and who do not mind some volatility in returns.

On the other hand liquid funds are more suitable for investors with shorter investment horizons or those in lower tax brackets due to their lower expenses, stability and liquidity. Ultimately, the choice depends on an investor’s financial goals, risk appetite, and investment horizon. 

Disclaimer: Views are personal  

Statutory Disclaimer:
https://amc.ppfas.com/schemes/riskometer-with-media-disclaimers/ 

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