Debt funds pose no systemic risk: AMFI 

#GS3 #Economy  

Brokers want SEBI, FinMin to intervene following Franklin Templeton winding up six schemes 

  • After Franklin Templeton Mutual Fund decided to wind up six debt funds due to illiquid, low-rated securities, the mutual fund industry clarified that the issue is limited to just one fund house and there is no market or systemic risk posed by debt funds.  
  • The Association of Mutual Funds in India (AMFI) highlighted the fact that while credit risk funds account for a very small portion of the overall debt assets, more than half of the assets in debt schemes have a rating of AA or above.  
  • While around 20% to 30% of the total debt AUM (assets under management) are AAA rated or in cash, another 30% to 50% would be in AA+ or AA rating.  
  • Franklin Templeton Mutual Fund has decided to wind up six debt funds that have combined assets worth ₹25,856 crore as on April 22.  
  • This action is limited to the funds which have material direct exposure to the higher yielding, lower rated credit securities in India that have been the most impacted by the ongoing liquidity crisis in the market.  
  • The schemes that have been shut are Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.  

5% of overall debt AUM  

  • The fact that credit risk funds account for mere 5% of the overall debt AUM. A majority of our funds should not have any impact on operations due to an isolated instance of winding down at one mutual fund.  
  • The Association of National Exchanges Members of India (ANMI), the umbrella body of stock brokers, believes that the abrupt closure of six schemes has created a panic in the markets.  
  • It has requested the Ministry of Finance and the Securities and Exchange Board of India (SEBI) to intervene and take swift action to protect investor money.  
  • Ministry of Finance (MoF) and SEBI to take swift action for protecting the hard-earned savings of lakhs of investors who have invested in FTMF (Franklin Templeton MF).  
  • An expert committee of mutual fund professionals should be formed by them to determine the precise problem in FTMF schemes. ANMI believes that it is of paramount importance as the confidence of investors in debt mutual funds is at risk.  
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