Following the announcement of winding up of six fixed income schemes having exposure to credit risk securities by Franklin Templeton Mutual Fund, AMFI has come out with an announcement to reassure investors that fixed income funds have exposure to superior credit quality securities and these schemes have appropriate liquidity to ensure normal operations.
AMFI has urged investors to continue to focus on their investment goals and consult their mutual fund distributors and investment advisors before taking a call on redeeming their units from fixed income funds. AMFI said that investors should not get side-tracked by an event in a few schemes.
The industry trade body further said that the AUM of these six schemes constitute less than 1.4% of the Indian mutual fund industry’s aggregate AUM as on March 31, 2020. Also, 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, added AMFI.
SEBI regulations allow mutual funds schemes to borrow up to 20% of their assets to meet liquidity needs for redemption / dividend pay-out. While AMFI is in the process of collecting the data, many fund houses have informed that they do not have any outstanding borrowing.
Nilesh Shah, Chairman, AMFI, commented, "Banking liquidity in excess of Rs.7 lakh 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."
NS Venkatesh, Chief Executive, AMFI, said, "The mutual fund industry has seen many cycles and its professional fixed income fund managers have managed crises efficiently over the years. Investors continue to repose trust in the industry and over the last 5 years the Indian MF Industry 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."
“We expect fixed income funds across the entire mutual fund industry to continue their normal operations without any material impact. 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.
