BQ Big Decisions: Mutual Fund Schemes Of The Same Type Could Have Varying Degrees Of Risk, So Choose Wisely
A mutual fund scheme in one fund house may have a much higher degree of risk attached than the same type of scheme in another.
BloombergQuint’s Big Decisions podcast gets you the insights you need to make big money decisions with confidence.
The markets regulator SEBI has mandated that asset management companies classify their mutual fund schemes into broad categories based on certain key traits.
For example, equity mutual fund schemes are divided based on their market capitalisation into large, mid, small and multi-cap schemes. Similarly, debt mutual funds are categorised primarily based on duration and type of debt instrument.
The winding up of six mutual fund schemes by Franklin Templeton Mutual Fund brought to the fore concepts that are usually ignored when markets are in an uptrend. One of the primary reasons that prompted the winding up of the schemes was the prevalence of a large quantity of lower-rated and therefore illiquid debt papers in each of the schemes. This was based on a strategy that was followed by the fund managers at Franklin Templeton--one that had borne positive results for years together, but which failed due to the chaos brought on by the Covid-19 pandemic.
Mutual fund schemes are now dealing with the fallout of Franklin Templeton’s decision. Redemption pressure, particularly in credit risk funds has been tremendous. Harshvardhan Roongta, certified financial planner and founder of Roongta Securities, said it has resulted in investors viewing the mutual fund industry with the lens of distrust.
On this BQ Big Decisions podcast, BloombergQuint speaks to Roongta about differing approaches even within the same types of mutual fund schemes that could result in an investor taking on much more risk than they intend to.