Hyderabad: More investors are likely to redeem their investments from mutual funds due to the investment sentiment turning negative after Franklin Templeton last week announced shutdown of six funds due to liquidity issues, say industry experts.
The liquidation by Franklin Templeton will be linked to easing down of lockdown and restarting of economic activities, they said. Units of the wound-up funds will no longer be available for purchases and redemptions effective April 23 including through systematic investment plans (SIPs), systematic transfer plans (STPs) or systematic withdrawal plans (SWPs). Put together, over Rs 26,000 crore is stuck in the six funds that have been shut.
How does the market view the situation?
Vijay Kuppa, co-founder, Orowealth, said, “The winding up is not on account of defaults but due to lack of liquidity in the system. However, this will greatly affect the confidence of investors as there may be a fear about liquidity. Thus, we believe there may be some outflows from other funds.” “Investors will relook at the underlying portfolios and may rebalance their portfolio,” said Kuppa.
Omkeshwar Singh, head, RankMF, Samco Securities, said there has been constant redemption pressure in debt funds from March 2020. The lockdown aggravated the pressure as most corporates redeemed for their cash requirement. “Investors have no choice but to wait so that the liquidity gets back to the lower end of the system. When the lockdown is over and economic activities start, only then the AMC will pay back the realisable money,” said Singh.
“The sentiments have turned very negative therefore there may be massive pressure on other funds,” said Singh. While asset management companies can borrow up to 20 per cent of the AUM, that borrowing will depend upon the quality of the collaterals , he said. Earlier, only corporates were taking out money for cash management. Now, high net worth individuals and retail investors will go for panic redemption, he said.
Mutual funds industry body AMFI had met last Friday to allay investor fears and termed the winding up of six funds by Franklin Templeton as an isolated issue. The RBI on Monday announced a special liquidity facility of Rs 50,000 crore for mutual funds. Under this, the RBI will provide funds to banks at lower rates and banks can avail funds for exclusively meeting the liquidity requirements of mutual funds.
Franklin Templeton India president Sanjay Sapre on Monday clarified that winding up did not mean write-off for investors. He assured that the investors will get their money as it starts liquidating. “All our other funds besides these six funds remain open for subscriptions and redemptions. We have over 25 years of history in India, we have more than one-third of our global workforce based here and we remain committed to our investors and our business in India,” he said in a TV interview, which has also been sent to retail investors.
Nilesh Shah, chairman, AMFI, said RBI announcing Rs 50,000 crore special liquidity facility for Indian MF sector is a confidence building measure. “Barring four fund houses who have collectively taken loan of Rs 4,427.68 crore as on April 23, which is a small percentage of the RBI announcement and also overall MF Industry AUMs, none of the other 40 mutual fund houses have any borrowings, thereby indicating sound liquidity,” said Shah adding that the MF industry continues to be on sound footing both on portfolio quality as also on the liquidity fronts.
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