A day after Franklin Templeton Mutual Fund decided to wind up six debt funds due to illiquid, low-rated securities, the mutual fund industry clarified that the issue is limited to just one fund house and there is no market or systemic risk posed by debt funds.
The Association of Mutual Funds in India (AMFI) highlighted the fact that while credit risk funds account for a very small portion of the overall debt assets, more than half of the assets in debt schemes have a rating of AA or above.
“While around 20% to 30% of the total debt AUM (assets under management) are AAA rated or in cash, another 30% to 50% would be in AA+ or AA rating,” said Milind Barve, managing director, HDFC Asset Management Company, during a media conference call arranged by AMFI.
“It is not appropriate to put all credit risk funds in the same category. Retail investors should not panic. This is a one-off instance and money in credit risk funds is not at any significant risk,” he added.
On Thursday, Franklin Templeton Mutual Fund announced that it has decided to wind up six debt funds that have combined assets worth ₹25,856 crore as on April 22.
“This action is limited to the funds which have material direct exposure to the higher yielding, lower rated credit securities in India that have been the most impacted by the ongoing liquidity crisis in the market,” stated a release by Franklin Templeton Mutual Fund. The schemes that have been shut are Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.
5% of overall debt AUM
Nilesh Shah of Kotak Mutual Fund, who is also the chairman of AMFI, highlighted the fact that credit risk funds account for mere 5% of the overall debt AUM.
“A majority of our funds should not have any impact on operations due to an isolated instance of winding down at one mutual fund,” said Mr. Shah, while speaking to the media during the AMFI conference call.
The Association of National Exchanges Members of India (ANMI), the umbrella body of stock brokers, believes that the abrupt closure of six schemes has created a panic in the markets.
It has requested the Ministry of Finance and the Securities and Exchange Board of India (SEBI) to intervene and take swift action to protect investor money.
“ANMI humbly requests the Ministry of Finance (MoF) and SEBI to take swift action for protecting the hard-earned savings of lakhs of investors who have invested in FTMF (Franklin Templeton MF).
“An expert committee of mutual fund professionals should be formed by them to determine the precise problem in FTMF schemes,” it said in a letter written on Friday. ANMI believes that it is of paramount importance as the confidence of investors in debt mutual funds is at risk, it added.