Home / News / India /  Redemptions in credit risk funds taper after RBI liquidity window

Mumbai: Net redemptions in credit risk funds declined by 81.5% after its peak on 27 April (Monday), which were at 4,294 crore. The redemptions stabilised in the following days of the week, said Association of Mutual Funds in India (AMFI) in a statement.

Panicked investors had pulled a staggering 9,000 crore out of credit risk funds in just three trading days since Franklin Templeton India decided to shut down six of its debt schemes.

After the Franklin Templeton episode, the Reserve Bank of India (RBI), on 27 April, had opened up a 50,000-crore special credit window to help mutual funds (MFs) tide over redemption pressures, said AMFI in the statement on Sunday.

"Declining trend in net redemptions from credit risk funds is a welcome development, indicative of investors comfort from RBI's special liquidity facility available to the MF (mutual fund) industry. AMFI will continue to work with regulators for normal functioning of the market," said Nilesh Shah, chairman, AMFI.

Net redemptions under credit risk funds had started rising on 24 April at 2,949.5 crore, which peaked on 27 April at a 4,294 crore. The redemptions started tapering off after the RBI opened up the liquidity window. On 28 April, redemptions stood at 1,847 crore, on 29 April further reduced to 1,251 crore and on 30 April stood at 793.99 crore.

The assets under management (AUM) of credit risk funds now stand at an estimated 37,000 as against 55,000 crore at the end of March.

While the net redemptions have stabilised, this week was one of the trickiest for mutual funds in battling heavy redemption pressures. The three-day redemption figures for 24 April, 27 April, 28 April stood at 25,000 crore.

To meet the heavy redemption pressures, the mutual funds were seen dumping additional tier-1 bonds of public-sector banks in the secondary market at steep discounts.

According to data from the National Stock Exchange (NSE), perpetual bonds issued by Union Bank of India, Canara Bank, Bank of Baroda, Punjab National Bank, State Bank of India, Axis Bank Ltd, HDFC Bank Ltd, IndusInd Bank Ltd, Andhra Bank were traded. The yields of these trades ranged from 8.7%-16%, nearly 100-350 basis points above their coupon, said market participants. These bonds will carry a call option at the end of 2021-22.


Jayshree P Upadhyay

Jayshree heads a team of reporters focussing on legal, regulatory, investigative stories. She has worked for over a decade, reporting on financial scams, legal stories and the intersection of corporate and regulatory issues. She is based in Mumbai and has previously worked with Business Standard, Mint, The Morning Context and Bloomberg TV India.
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