The Association of Mutual Funds in India (Amfi) on Friday said the decision by Franklin Templeton Mutual Fund to wind up six debt schemes was an isolated event and investments in other debt schemes were safe.
In a conference call, Amfi chairman Nilesh Shah said investors should not worry at this point of time as the majority of the fixed income mutual fund assets were invested in superior credit quality instruments and have adequate liquidity to ensure normal operations.
He said several mutual funds had informed Amfi they don’t have any outstanding borrowing. If required, they were in a position to leverage a Sebi rule that allows them to borrow up to 20 per cent of their assets to meet the liquidity needs for any redemption or a dividend payout.
According to the industry body, investors should continue to focus on their investment goals, consult their financial advisers and not get side-tracked by an isolated event involving a few schemes of one fund company.
The action taken by the AMC is only limited to the six specific credit risk fixed income schemes and the closure was necessitated by the illiquidity of their portfolios, Amfi said.
Further, the assets under management (AUM) of these six schemes constitute less than 1.4 per cent of the domestic mutual fund industry’s aggregate AUM as on March 31, 2020.
Shah said that factors such as banking liquidity in excess of Rs 700,000 crore, the RBI’s long-term repo operations (LTRO) and Operation Twist and expectations of further rate cuts were likely to keep the bond market liquid and functioning normally in the current challenging times.
He said the mutual fund industry continued to remain robust like in the 2008 sub-prime crisis or 2013 taper tantrum.
HDFC MF managing director Milind Barve and Aditya Birla Sunlife MF CEO A Balasubramanian, who also attended the conference call, said this was an one-off incident and retail investors should not panic.
They said that fixed income funds across the entire mutual fund industry will continue with their normal operations without any material impact.
N.S. Venkatesh, chief executive at Amfi, said the mutual fund industry had seen many cycles and its professional fixed income fund managers have managed crises efficiently over the years.
“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.