Amfi Assures Investors After Franklin Templeton MF Shuts Six Schemes

New Delhi, Apr 24 (PTI) Industry body Amfi on Friday said the winding up of debt schemes by Franklin Templeton Mutual Fund is an isolated event and assured investors that their investments in debt schemes are safe.

The industry body assured investors that majority of fixed income mutual fund assets are invested in superior credit quality securities and such schemes have appropriate liquidity to ensure normal operations.

The assurance by Association of Mutual Funds in India (Amfi) came after Franklin Templeton MF decided to wind up its six debt schemes citing redemption pressure and lack of liquidity in bond markets due to coronavirus pandemic.

This is the first instance when a fund house is shutting its schemes because of coronavirus related pandemic.

In a concall, Amfi Chairman Nilesh Shah said, winding up of schemes by the fund house is an isolated event and will have no bearing on other mutual funds and assured investors that their investments in debt mutual fund schemes are safe.

Shah further noted that many mutual funds have independently informed that they don't have any outstanding borrowing.

He said that liquidity, maturity profile and credit quality for debt funds are appropriate for day-to-day operations to continue uninterruptedly.

HDFC MF managing director Milind Barve and Aditya Birla Sunlife MF CEO A Balasubramanian who also attended the concall, said this was an one-off incident and retail investors should not panic.

They said that fixed income funds across entire mutual fund industry will continue with their normal operation without any material impact.

Sebi regulations allow mutual funds schemes to borrow up to 20 per cent of their assets to meet liquidity needs for redemption or dividend pay-out.

The industry body has strongly recommended that investors should continue to focus on their investment goals, consult their financial advisor and not get side-tracked by an isolated event in a few schemes of one fund company.

“Fixed income schemes of most mutual funds have superior credit quality as confirmed by ratings of independent credit rating agencies and continue to remain fairly liquid even in these challenging times,” it added.

The action taken by the particular AMC is limited to the six specific credit risk fixed income schemes managed by the said Asset Management Company (AMC) due to the illiquidity of their portfolios, Amfi said.

The assets under management (AUM) of these six schemes constitute less than 1.4 per cent of the Indian Mutual Fund Industry's aggregate AUM as on March 31, 2020, it added.

“Banking liquidity in excess of Rs 7,00,000 crore, Long Term Repo Operations (LTRO) conducted by the RBI, expectations of further rate cuts and Operation Twist by the RBI is likely to keep bond market liquid and normally functioning in current challenging times,” Shah said.

Shah said that regulators -- Securities and Exchange Board of India (Sebi) and Reserve Bank of India -- have taken lot of steps to maintain liquidity and normal functioning of market and added that more needs to be done in this direction.

"The mutual fund industry remains fully committed to investor interests and there is no need for them to panic and redeem their investments. The industry continues to remain robust like in 2008 sub-prime crisis or 2013 taper tantrum crisis,” he added.

NS Venkatesh, Chief Executive, at Amfi said the mutual fund industry has seen many cycles and its professional fixed income fund managers have managed crises efficiently over the years.

He assured investors about credit quality of credit risk funds.

“Most credit risk funds have pretty good credit quality and sufficient liquidity in today's challenging times and continue to remain an attractive investment option for investors,” he added.

During the past five years, the industry average assets under management (AAUMs) have more than doubled from Rs 11.88 lakh crore as on March 31, 2015 to Rs 24.70 lakh crore of AAUM as on March 31, 2020.

Sebi on Thursday eased the valuation policies for debt mutual funds and asked them not to term a paper as default if the delay in payment of interest or extension in maturity is mainly due to coronavirus pandemic related lockdown.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)