Mutual fund body assures investors after Franklin shuts 6 schemes

New Delhi: Mutual fund industry body Amfi on Friday assured investors that majority of fixed income mutual funds assets are invested in superior credit quality securities and such schemes have appropriate liquidity to ensure normal operations.

The statement by the industry body came after Franklin Templeton Mutual Fund voluntarily 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.

The industry body, in a statement, 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.

"We expect fixed income funds across entire mutual fund industry to continue their normal operation without any material impact," 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, the Association of Mutual Funds in India (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.

"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.

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

While Amfi said it is in the process of collecting the data, many mutual funds have informed that they don't have any outstanding borrowing.

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

"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," Nilesh Shah Amfi Chairman said.

"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 that the industry has seen many cycles and its professional fixed income fund managers have managed crises efficiently over the years.