The troubles for credit risk funds began soon after the IL&FS fiasco. It actually got exacerbated by cases like Essel, DHFL, ADAG, Jet, and Yes Bank. The real last straw was when Templeton opted to wind down six of its funds due to the pressure of redemptions. That posed a real challenge for credit risk funds.
Templeton effect
Just a week after Templeton decided to shut down six of its funds, the impact was virtually visible across credit risk funds in India. For example, credit risk funds saw redemptions to the tune of 25% of the overall AUM in just four days since Templeton announced its decision to wind down the funds. The AUM of credit risk funds fell from around Rs.48,000 crore to Rs.36,000 crore in just four trading days flat. The impact was not just felt on the credit risk funds but also on all the non-gilt funds where the funds had exposure to credit risk. Ironically, many of the funds had taken on huge credit risk in a short duration and medium duration funds. The irony was that the short duration fund invested in structured debt with 7-10 year maturity. That literally defeated the very purpose of a short duration fund. The impact of the Templeton winding down was not only felt on other funds of Templeton but across debt funds of other AMCs too. Clearly large corporate investors and institutions were not too pleased with the risks assumed by these credit rating funds in terms of quality.
