Posted at 2:18 PM , on May 4, 2020
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.
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.
Posted at 12:50 PM , on January 20, 2020
Mutual funds have been disappointed over the last two years as there has been little respite in the Budget. This time around, mutual funds will look at parity on a number of areas plus a reversal of some of the recent measures pertaining to capital gains tax and the tax on distribution of dividends by MFs.
Time to bring in DLSS
While ELSS has become extremely popular as a tax saving instrument, one argument has been that it forces people to take on risk. The answer could be in extending these Section 80C benefits to debt funds too and introduce a separate DLSS classification for the same. Of course, the lock-in period can be either retained at 3 years or extended to 5 years. The idea is that conservative investors need not be penalized when their financial plan dictates caution.
Parity with ULIPs and NPS
This has been a persistent demand of AMFI over the last few years. The first demand is to put pension plans of mutual funds at par with the National Pension Scheme (NPS) in terms of tax benefits. That will entail extending the additional exemption of Rs.50,000 on NPS to pension plans too. Secondly, while equity MFs are subject to LTCG tax, the ULIPs are exempt from any form of capital gains tax. This puts the mutual funds at a disadvantage and AMFI has been demanding parity.
Posted at 12:30 PM , on June 30, 2016
The recent circular from SEBI on May 31st has put several conditions for restriction of redemptions by mutual funds. Currently, mutual funds can decide to freeze redemptions on any scheme if the Board of the AMC and the Board of the Trustees agree to it. We recently saw the case J P Morgan Mutual Fund. It two debt funds had and exposure of nearly Rs.193 crore to the bonds of Amtek Auto. When Amtek got into financial trouble, the bonds were downgraded by CRISIL. This led to a crash in the price of these bonds. With these bonds becoming illiquid, there was no way the fund could have handled redemptions. As a result they had to freeze redemptions, till the issue had got sorted out. Continue reading
Posted at 6:28 PM , on January 13, 2016
Will they continue to dominate equity markets in 2016?
The big story of the Indian equity markets in 2015 was the emergence of mutual funds as a serious player. Post 2009, equity mutual funds had seen fund outflows for each quarter, for five years till the first half of 2014. Post mid-2014, retail money has come back in droves into mutual funds. In the calendar year 2015, nearly $15 billion was invested by retail investors into equity mutual funds. So how did it impact Indian markets? Continue reading