AMFI reassures debt fund investors after Franklin Templeton shuts six schemes

Following the announcement of winding up of six credit risk fixed income schemes by Franklin Templeton Mutual Fund, mutual fund industry body Association of Mutual Funds in India (AMFI) assured investors that majority of Fixed Income Mutual Funds AUM is invested in superior credit quality securities and schemes have appropriate liquidity to ensure normal operations, AMFI said in a press release.

Franklin Templeton Mutual Fund wound up six of its open-ended debt funds, effective April 23. All these schemes followed the high-risk, high-return credit risk strategy.

AMFI strongly recommended that investors 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.

Also Read: Franklin Templeton India closes 6 funds. 6 questions answered

Without naming the fund house, AMFI said, “The action taken by the particular AMC is limited to the six specific credit risk fixed income schemes managed by the said AMC due to the illiquidity of their portfolios.”

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

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.

Also Read: Franklin Templeton shuts down six credit risk strategy debt funds; All investors need to know

SEBI regulations allow mutual funds schemes to borrow up to 20 percent of their assets to meet liquidity needs for redemption / dividend pay-out.

While AMFI is in the process of collecting the data, many mutual funds have informed that they do not have any outstanding borrowing.

Liquidity, maturity profile and credit quality for debt funds is appropriate for day-to-day operations to continue uninterrupted.

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“We expect fixed income funds across entire Mutual Fund Industry to continue their normal operation without any material impact,” AMFI stated.

Nilesh Shah, Chairman, AMFI, was quoted as saying, “Banking liquidity in excess of Rs 700,000 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”.

“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,” Shah added.

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NS Venkatesh, Chief Executive, AMFI, said the mutual industry has seen many cycles and its professional fixed income fund managers have managed crises efficiently over the years. "Over the last five years, the Indian MF Industry AAUMs have 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,” he said.

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, Venkatesh said.