In this pandemic and high market volatility with FT situation the very first thing to start with is that do not panic and take hasty decision by the announcement of winding up of six fixed income schemes that have exposure to credit risk securities by Franklin Templeton Mutual Fund. The AUM of these six schemes constitutes less than 1.4% of the Indian mutual fund industry’s aggregate AUM as on March 31, 2020.
We can understand that this announcement has created worries like as an investor, what you will do now, and what impact would it have on your investment in this situation. Now here are the answers to all your worries –
Q – Why you should not redeem fixed income funds?
A – AMFI has already reassured investors through an announcement that fixed-income funds hold superior credit quality securities as confirmed by ratings of independent credit rating agencies, and these schemes have appropriate liquidity that you can be sure of its normal operations. AMFI also urged investors to continue to focus on your investment goals and consult mutual fund distributors and investment advisors before taking a call on redeeming their units from fixed-income funds. Therefore as an investor, you should not get distracted by this event in a few schemes.
Q – Will the industry continues to get the support of government and the RBI?
A – The government and the RBI have been proactive and supporting industry and markets. Nilesh Shah, Chairman, AMFI, has said that Banking liquidity in excess of Rs.7 lakh crore, Long Term Repo Operations (LTRO) conducted by the RBI. If there will be further rate cuts and ‘operation twist’ by the RBI, it will keep bond market liquid and normally functioning in current challenging times.
Q – How will the mutual fund industry support investors?
A – The mutual fund industry remains fully committed to investor interests and there is no need for them to panic and redeem their investments. The mutual fund industry has seen many cycles and its professional fixed income fund managers have managed major crises efficiently over the years. That is why AAUMs have doubled from Rs. 11.88 lakh crores as on March 31, 2015 to Rs. 24.70 lakh crores of AAUM as on March 31, 2020. SEBI also modifies valuation norms for debt instruments held by MFs.
Q – Have investors lost their money in the recent FT event?
A – No, the fund manager will gradually sell the assets in the schemes and return the money back to investors.
Q – What if the liquidity crunch continues under which any mutual fund can undergo the same fate?
A – In that case, Regulators will step in to provide liquidity to the market.
Q – What if Regulators won’t step in to provide liquidity to the market?
A – Most debt mutual fund schemes are not as risky and illiquid as these six funds. And liquid funds, low duration funds, ultra-short duration funds will not face this problem.
There is nothing wrong with the debt market structure or the financial system in India. The situation arises solely due to COVID-19 pandemic lockdown and people not being able to work normally, certain cash flows have been hampered. Most credit risk funds have pretty good credit quality and sufficient liquidity in today’s challenging times, and it will continue to remain an attractive investment option for investors. Therefore stay with us. Rest assured.[/vc_column_text][vc_separator]