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Thursday, August 13, 2020

Mutual Funds investors panic-sell amid Franklin Templeton crisis

According to fund managers, after Franklin Templeton’s unilateral decision to wind up its six schemes, debt MF investors reacted negatively adding to the redemption pressure since morning.

Written by George Mathew , Sandeep Singh | Delhi, Mumbai | Updated: April 25, 2020 1:47:09 pm
franklin templeton, franklin templeton news, franklin templeton india fund, franklin templeton fund, franklin templeton fund news, franklin templeton fund latest news, franklin templeton fund closure Worried investors who fear heavy losses in Templeton’s six schemes also demanded action against Franklin Templeton for destroying investor confidence in debt schemes of MFs.

The mutual fund industry Friday witnessed a turmoil after anxious investors resorted to panic selling in debt schemes following Franklin Templeton Mutual Fund’s abrupt decision on Thursday to wind up six schemes with aggregate assets under management (AUM) of over Rs 28,000 crore. Industry leaders and CEOs of five leading mutual funds later came together to allay investor fears and assure them of the credit quality of the portfolio held by the MF industry.

Sources said the RBI is likely to intervene by opening a special window to provide support to mutual funds — which are facing tremendous redemption pressure — through banks. The RBI had opened a similar facility in 2008 in the wake of the global financial crisis. Debt funds which witnessed an outflow of over Rs 1.94 lakh crore are likely to witness more outflows in April in the wake of the Franklin Templeton fiasco.

According to fund managers, after Franklin Templeton’s unilateral decision to wind up its six schemes, debt MF investors reacted negatively adding to the redemption pressure since morning. “Several of my clients have been redeeming their holding from not just credit risk funds but also other debt schemes of various mutual funds. While they need not worry about their holdings, we are seeing such a reaction,” said the head of a financial services firm that is also a big MF distributor.

Explained: What Franklin Templeton winding up credit funds means to investors

Worried investors who fear heavy losses in Templeton’s six schemes also demanded action against Franklin Templeton for destroying investor confidence in debt schemes of MFs. “Sebi must take action against Franklin Templeton. They messed around with Rs 28,000 crore of investor money. The fund house is now blaming Covid and lockdown for the closure. Sebi should ask why they put money in papers of shady companies,” said veteran stock broker and mutual fund tracker Pawan Dharnidharka.

Industry insiders say that with investors getting wary over their investments in debt MFs, the CEOs of leading fund houses came to address the concerns and assure that the debt schemes have strong portfolio of assets with high credit quality and liquidity profile. They said Franklin Templeton was an isolated case.

At the joint video conference, Milind Barve, MD, HDFC AMC, said, “It is not appropriate to brush all credit funds and all fund houses and all products in the same category. Retail investors should not panic.” Stating that there is a ‘degree of anxiety’ around credit risk fund, he pointed that “almost 30 per cent of the credit risk funds comprises AAA rated paper and cash and another 30-50 per cent in AA or AA+ rated papers. It is not that entire portfolio is high yield or low-quality paper.” While the average assets of MF credit risk funds are Rs 58,361 crore, total assets of debt funds (excluding liquid and overnight funds) were Rs 6.75 lakh crore.

Other than Barve, the others were Nilesh Shah, CEO, Kotak MV (who is also the Chairman of Association of Mutual Funds in India), Nimesh Shah, CEO, ICICI Pru, A Balasubramanian of Aditya Birla Sun Life, and Ashwani Bhatia of SBI MF. Industry participants said the sudden rise in redemption, if continued, will pose a lot of concern for the industry as then MFs will be forced to sell good assets to honour the redemption request from a particular scheme as in these times there won’t be many takers for weaker assets. “If good assets are sold, what will be left within the scheme will be weaker assets and that is not very comforting for the investors who stay put,” said a senior official with a fund house.

A senior official with a financial services firm pointed that if the redemption continues and mutual funds are forced to sell papers of companies they hold, “it puts pressure not only on that paper of the company but also on other bonds of that company leading to a rise in yield and drop in price of the bond. This weakens the ability of that company to raise funds from the market.” He further said that investors should not worry and hold on to their investments.

Nilesh Shah, Chairman, AMFI, said, “The MF 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.”

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