The Association of Mutual Funds in India has started the process of collecting data on outstanding borrowings to ascertain their financial health following the sudden closure of six debt funds by Franklin Templeton on Thursday.
The move has raised questions on mutual funds’ ability to handle large-scale redemptions despite SEBI allowing them to borrow up to 20 per cent of their assets to meet redemption pressure.
While AMFI is in the process of collecting the data, many mutual funds have informed that they do not have any outstanding borrowings, said AMFI in a statement on Friday.
Liquidity, maturity profile and credit quality of debt funds are appropriate for day-to-day operations to continue uninterruptedly.
AMFI expects fixed-income funds across the entire mutual fund industry to continue their normal operations without any material impact, it said.
Nilesh Shah, Chairman, AMFI, said banking liquidity in excess of ₹7-lakh crore, long-term repo operations having been conducted by the RBI, expectations of further rate-cuts and operation twist by the RBI are likely to keep the bond market liquid and functioning normally in the 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 the 2008 sub-prime crisis or 2013 taper tantrum crisis, Shah said.
NS Venkatesh, Chief Executive, AMFI, said the industry has seen many cycles and its professional fixed-income fund managers have managed crises efficiently over the years.
The industry AAUMs have doubled from ₹11.88-lakh crore as in March 2015 to ₹24.70-lakh crore as in March 2020.
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, said Venkatesh assuring investors that majority of fixed-income mutual funds’ AUM is invested in superior credit quality securities with appropriate liquidity to ensure normal operations.
The action taken by Franklin Templeton is limited to the six specific credit risk fixed-income schemes due to the illiquidity of their portfolios.