Mumbai: Terming the shut down of six debt schemes by Franklin Templeton Mutual Fund (FTMF) as an extreme step that has created panic, an umbrella body of brokers on Friday sought markets regulator SEBI and the Ministry of Finance's intervention to protect investor interest.
FTMF stunned all by deciding to shutter operations of six schemes with assets under management of more than Rs 25,000 crore late Thursday evening, citing redemption pressures and market volatilities in wake of the COVID-19 pandemic. The fund house has said that capital markets regulator SEBI was informed in advance about the decision, which has been taken to protect investor wealth.
"Such an extreme step by FTMF has created panic among their investors as well as mutual fund investors in other debt schemes across asset management companies," the Association of National Exchange Members of India (ANMI) said.
Read more:COVID-19 impact: Franklin Templeton MF shuts six schemes
The ANMI wrote to capital markets watchdog SEBI and the Ministry of Finance, seeking their intervention to "protect the hard earned savings" of lakhs of investors.
The body pitched for the formation of an expert committee of mutual fund executives to "determine the precise problem in FTMF schemes".
It said the confidence of people in debt mutual funds is at a risk and an event like this should not lead to an erosion of trust in a Rs 24 lakh crore industry.
Over Rs 25,000 cr involved in Franklin Templeton's shut funds
The total assets under management (AUM) of the six shut funds of Franklin Templeton Mutual Fund stands at over Rs 25,000 crore.
The asset under management of the six funds stood at Rs 30,853 crore in March end but came down to Rs 25,856 crore, as on April 22, amid liquidity concerns.
The funds which will be shut are Franklin India Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund, Income Opportunities Fund, the company said in a statement.
The funds house said that individual emails are being dispatched to the unit holders regarding the closure of the schemes.
The trustee or the people authorised by it will continue to realise or dispose-off the assets of the schemes in the best interest of the unit holders. The sale proceeds after discharge of all liabilities and expenses will be paid to the unit holders in proportion to their respective interests in the assets of schemes.
Credit risk funds to face redemption pressure, say experts
In the aftermath of Franklin Templeton MF winding up six debt schemes, industry experts believe credit risk funds are going to face redemption pressure from investors worried about the safety of their money.
The experts also advised investors to be prudent while investing in debt funds.
Smaller fund houses too can face issues as smaller fund size means more liquidity stress in case of redemptions, they added.
"We believe stress even in a small segment of the credit market can turn highly contagious in bad times due to lack of liquidity and extreme risk aversion," said Pankaj Pathak, Fund Manager - Fixed Income at Quantum Mutual Fund.
"The negative sentiment...coupled with the pessimism emanating from the COVID-19 pandemic, created a situation where a large number of investors started redeeming from fixed income funds, of which Franklin Templeton MF saw amongst the highest outflows," according to Morningstar.
Meanwhile, industry body Amfi has called the incident an isolated event and assured investors that their money in debt schemes is safe.
It said that majority of fixed income mutual funds assets are invested in superior credit quality securities and such schemes have appropriate liquidity to ensure normal operations.
(PTI and IANS Report)
