The mutual fund (MF) wound up six debt schemes amid liquidity issues. This has alarmed investors in other schemes as well. They have sought to redeem their money from Franklin’s other funds and from other asset managers as worries about debt investments have climbed, shows data from the Association of Mutual Funds in India. Other MF houses like BOI AXA Investment Managers and Aditya Birla Sun Life AMC also saw a fall in their net asset value after reducing the value at which certain instruments were held.
Meanwhile, debt assets under PMS players now exceed Rs 13.8 trillion, according to the latest data available with the Securities and Exchange Board of India. The data appears with a lag, and is available for March. This is more than double the Rs 6.28 trillion in debt assets in March 2015.
A large proportion of this is likely to be money from the Employees’ Provident Fund Organisation (EPFO). Most of this is invested in government securities, which is the safest instrument. However, PMS debt holdings also indicate that Rs 1,281 crore is deployed in structured debt. This can be a slightly riskier investment.
Uncertainty around the Covid-19 pandemic and its impact on business is weighing on many firms. This is also affecting their debtors as the businesses and their ability to pay back money is under scrutiny in some cases. Many debt instruments are also illiquid, which means MFs have been unable to get an exit by selling it to others, except at a steep discount.
An asset manager suggested that differing structures among PMS players might help avoid the kind of redemption pressures that contributed to the winding up of Franklin’s schemes.
A senior official at a debt PMS said terms are better stated in debt schemes under PMS. There is clarity at the time of investment that some of the papers could be illiquid. Every investor’s account is distinct, unlike the pooled structure of MFs. If redemption is required in an illiquid security, the investor can take the instrument on his or her own books. While there have been a few calls, there is no significant redemption pressure currently, said the person.
There are some schemes with only debt securities, but there doesn’t seem to be any evidence of withdrawals similar to what was seen in MFs after the Franklin incident, according to Daniel G M, founder-director at industry-tracker PMS Bazaar. “I don’t see any panic,” he said.