Investors Rush to Safest India Debt Funds on Franklin Freeze
Investors remain concerned about riskier debt after Franklin Templeton, shut six debt funds.
(Bloomberg) -- Indian funds that invest largely in state-backed debt received the highest inflow in 14 months as investors remained wary of riskier fixed-income plans after Franklin Templeton abruptly shut such funds in April.
The Banking and PSU Funds took in a net 88.7 billion rupees ($1.2 billion) in May, according to data released by the Association of Mutual Funds in India. That’s the highest inflow for the category since April 2019. These funds invest at least 80% of their assets in debt sold by banks and the state-owned firms.
Investors remain concerned about riskier debt after Franklin Templeton, a big buyer of high-yield Indian notes, shut six debt funds and may take more than five years to return the entire amount invested to unitholders. Withdrawals from credit risk plans in May totaled 51.7 billion rupees, AMFI data show.
“The flight to safety has seen money shuffling into categories perceived as being credit worthy,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in. “The overall increase in flows to debt shows that the search for better returns in a low-return scenario has begun.”
Total inflow into debt-oriented funds -- including liquid and money-market plans -- rose by almost 50% to 637 billion rupees in May from April, helped by steps taken by policy makers to boost investor confidence in such products.
The Reserve Bank of India late April offered banks as much as 500 billion rupees to lend to mutual funds to contain the fallout from the Franklin’s freeze. The biggest-ever forced closure of funds in India triggered redemptions at other fund houses managing similar plans.
| Read more on India mutual funds here: |
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Franklin’s $4.1 Billion Fund Halt Shows Lasting Credit Pain “Credit-risk concerns have ebbed following regulatory support, and redemptions have come down,” AMFI’s Chief Executive Officer N.S. Venkatesh said. Stock funds got 53 billion rupees, the smallest inflow in 2020, as the sharp rebound in share values from their lows in March gave investors pause. Still, contributions from regular savers into equity funds stayed above the 80-billion rupee mark for the 18th straight month, according to AMFI “The reduced flows suggests that people are not ready to commit fresh sums to this asset class, and are possibly taking some money off the table after the rally,” Primeinvestor’s Bala said. |
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