Credit Risk Schemes See Outflows After Franklin Templeton’s Wind-Down
Investors have started exiting credit schemes as Franklin Templeton Mutual Fund’s decision to freeze six such plans on liquidity concerns has triggered fresh turmoil in India’s debt market.
Multiple fund houses have seen contraction in assets under credit schemes since April 24 when Franklin Templeton announced that it is winding down its schemes, according to data released by Association of Mutual Funds in India.
Kotak, Aditya Birla Sun Life and HDFC mutual funds are among the firms that have seen assets under credit schemes fall by more than 20 percent during the period.
While assets have largely declined because of withdrawals, a drop in net asset value due to market conditions would have also contributed.
“Investors are right now choosing to exit these funds because they are worried that if one fund house has wound up its schemes, others too may follow suit, which is clearly a panic reaction and not warranted,” said Lakshmi Iyer, chief investment officer-fixed income and head-products at Kotak Asset Management Co. Ltd., the worst affected by this exodus.
It has been a year-and-a-half of turmoil for debt markets, starting with the defaults at IL&FS Group in 2018 and followed by troubles at Essel Group, Cox & Kings (India) Ltd. and Anil Ambani's Reliance Group.
That has prompted mutual funds to either write down or offer standstills on investments. This time it’s the credit risk funds that invest in high-risk, lower-rated paper in search of returns. Franklin Templeton wound down schemes as it faced redemption pressure.
“Investors’ concern in the current times is understandable. It is advisable for an investor to speak with an adviser and understand the portfolio,” Amol Joshi, founder, PlanRupee Investment Services, said. “Staying put if you find the portfolio to be safe will help investors save money in terms of exit load or STCG taxation, as applicable.”