Indian credit risk funds suffered large redemptions in April after Franklin Templeton’s shock decision to wind up six debt schemes triggered fresh turbulence in the nation’s debt market. The category saw a net withdrawals of ₹19,239 crore last month, up from outflows of ₹5,570 crore in March, according to data released Friday by the Association of Mutual Funds in India.
The assets under management of credit risk funds have fallen to ₹35,222 crore, as of April 30, showed AMFI data.
“The Franklin event intensified redemptions in credit funds that we saw in March," Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in, told Bloomberg. “There’s a clear flight to safety as flows to gilt funds have jumped and a good chunk would have moved to deposits."
Franklin Templeton India, on 23 April, had decided to wind up six of its debt schemes, with total assets under management (AUM) of ₹25,856 crore, owing to severe illiquidity and redemption pressures caused by the covid-19 pandemic.
Equity funds received a net ₹6,210 crore in April, the smallest inflow this year, as the world’s most expansive lockdown to curb the spread of coronavirus infections stalled economic activity and disrupted processes at mutual funds and their distributors.
To be sure, the redemptions in credit funds tapered after the central bank offered a credit facility to avoid distressed sales of assets by funds. The Association of Mutual Funds in India (AMFI) on Sunday said that net redemptions under credit risk funds dropped 81.5% after the Reserve Bank of India (RBI) announced a special liquidity facility of ₹50,000 crore for the mutual fund industry.
The Reserve Bank of India on April 27 offered as much as ₹50,000 crore to banks for lending to mutual funds to contain the fallout of the Franklin’s shock decision. (With Agency inputs)