Bad Faith: Why Are Fund Houses Transferring Low-quality Debt from Credit Risk Schemes to Other Debt Schemes?
Recently, credit risk schemes faced high redemptions and inflicted deep losses on investors, after Franklin India Mutual Fund wound up its six credit risk-based schemes, which had had over Rs26,000 crore in assets.
 
This news affected credit risk schemes of other fund houses as investors assumed that even those might face the same fate. As a result, we saw massive outflow from the...
Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital Access

Subscribe

Moneylife Magazine Subscriber or MAS member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
  • ABSL Mutual Fund Suspends Fresh Subscription in Credit Risk, Medium Term Debt Schemes
    Aditya Birla Sun Life Mutual fund (ABSLMF) announced that it has temporarily stopped accepting fresh subscriptions and switch-in applications in two of its debt schemes. 
     
    The two schemes are: Aditya Birla Sun Life Medium Term Plan and Aditya Birla Sun Life Credit Risk. The suspension in fresh subscriptions will be effective 22 May, 2020.
     
    Further, the fund house also stated that it will not accept any fresh registrations under the systematic transactions, viz., systematic investment plans (SIPs), Century SIP (CSIP) and systematic transfer plan (STP).
     
    However, instalments falling due under SIP/CSIP/STP registered prior to the effective date will continue to be processed under the respective plans/options of the scheme, the fund house said in a circular to its unit-holders.
     
    Aditya Birla Sun Life Medium Term Plan is an open-ended medium-term debt scheme investing in debt papers with Macaulay duration between 3-4 years. The scheme has given poor returns due to multiple write-offs in the past one year. The one-year return of the scheme was -8.48%.
     
    Aditya Birla Sun Life Credit Risk is an open-ended debt scheme predominantly investing in AA and below rated corporate bonds. The scheme has delivered poor returns in the past six months due to write-offs of some of the debt papers in the portfolio. The one year return of the scheme has been 0.59% and three-year return was 4.22%.
     
    Understanding the Troubles Facing Certain Debt Schemes
     
    Credit risk debt schemes faced large-scale redemptions in April after Franklin Templeton India Mutual Fund (FTIMF) shut down six of its credit risk based debt schemes. 
     
    The shutdown was as an effect of the high exposure of the schemes to low credit quality, illiquid debt. The high credit risk profile of the schemes could not work in the current stressed economic scenario, where indebted companies are finding it difficult to meet loan obligations or raise funds.
     
    Due to this, investors in the credit risk schemes took the exit and moved to safer assets. Credit risk schemes witnessed a net outflow of Rs19,238.98 crore in the previous month. The total assets under management (AUM) in credit risk schemes at the beginning of April was Rs55,380 crore. This means 35% of the assets in the schemes took the exit.
     
    Other debt scheme categories, which had exposure to low-rated debt papers, were also affected and saw high redemptions. The next worst hit category was low duration funds and medium term funds with net outflow of Rs6,841 crore and Rs6,363 crore, respectively.
     
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    msivanand

    4 months ago

    The font used for stories is grey. Any reason for that beyond style? Can we have a choice of black font? Black font will be easier to read. Thank you.

    cjninan

    4 months ago

    As advocated by moneylife. Commission shoukd be based on earnings not aum. Amc and mf were supposed to be professionals. All are thieves. The best option for retail investors are

    - invest thru etf
    - invest in nps
    Balance in fd

    All crooks

    narayan.jeevan

    4 months ago

    I invested in ADITYA BIRLA SUN LIFE, pure value fund, 30 months back & redeemed now with capital loss of 50%. I wrote to mutual fund for not alerting when capital loss is 15 to 20% , to stop further loss to investors. Now they tell many stories. They lure investors for business/ incentives, hide risks in the scheme. They enjoy hefty salary and incentives at investors cost. No protection for retail investors from any agency including SEBI.

    REPLY

    soundararajanmk

    In Reply to narayan.jeevan 4 months ago

    Did you not receive annual statement of performance and NAVs from time to time? If they had not complied, you should have exited; even if the furnished data is reflected unsatisfactory performance. Whether there is profit or loss, the Fund Organziers will continue to debit the fund account with the establishment and other expenses. They will never be losers, even a rupee, under any circumstances. Govt. should close down all the Mutual Funds as the Stock Market is a Gambling Field and the Industrialists are extravagants/looters of public money, obtained from the PSBs. Govt. &SEBI appear to be party to such lootings, if not silent spectators.

    Udayan Dasgupta

    4 months ago

    I wonder who bears the cost? Hapless investors? Do we even know what the cost is?
    What is their brief? Does being "independent advisor" include acting against the interests of FT and their masters if need be, when it is in the interest of investors? Who oversees the independent advisor? Are any investor representatives involved? Is SEBI involved?
    Does FT and Kotak Bank even care to inform investors and take their approval, given the circumstances? Or is this another cosy fee arrangement between financial firms?

    Ramesh Popat

    4 months ago

    jaisi karni vaisi bharni! and to hide the wrongdoing, amcs are transferring bad
    securities in other schemes.! regulator either silent or can't stop it as its unavoidable
    evil! ML should expose such malpractices. (fertile ground!)

    REPLY

    narayan.jeevan

    In Reply to Ramesh Popat 4 months ago

    Every 10 years scams happen & retail investors lose. Harshad Mehta, Ketan parekh, Satyam to now YES BANK, DHFL, ILFS, JET AIRWAYS, KINGFISHER etc due to bad governance. Funds are systematically diverted over a period of time with the help of board, Banks, AUDITORS & many agencies. No protection for retail investors from any agency including SEBI when investors lose. Market is full of manipulation.

    Franklin Templeton appoints Kotak Mahindra Bank to monetize assets in six wound-up
    Franklin Templeton Trustee Services has appointed Kotak Mahindra Bank as an independent adviser to assist Franklin Templeton Asset Management (India) Private Ltd with all portfolio actions in six funds being wound up, including monetising their assets.
     
    Kotak Mahindra Bank will assist through its Debt Capital Markets team.
     
    The shut funds are Franklin India Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund, and Income Opportunities Fund.
     
    Sanjay Sapre, President, Franklin Templeton, India, said: "Franklin Templeton is committed to ensuring an orderly and equitable exit for all investors at the earliest possible time, and we will partner with the Board of Trustees and Kotak Mahindra Bank to ensure an efficient wind-up of these schemes, while preserving maximum value for our investors."
     
    Sujata Guhathakurta, President of Debt Capital Markets, Kotak Mahindra Bank Limited, said: "Kotak Mahindra Bank is pleased to take on this assignment and is looking forward to working closely with the trustees and the AMC to assist them in wind-up of these schemes."
     
    The company had on April 23 announced to shut the six credit funds due to liquidity issues amid the coronavirus crisis. The total assets under management (AUM) of the six shut funds stands at over Rs 25,000 crore.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Udayan Dasgupta

    4 months ago

    PS: One more question from an ignorant person:
    Why are they smiling in the photograph, having let down investors so badly?

    Udayan Dasgupta

    4 months ago

    I wonder who bears the cost? Hapless investors? Do we even know what the cost is?
    What is their brief? Does being "independent advisor" include acting against the interests of FT and their masters if need be, when it is in the interest of investors? Who oversees the independent advisor? Are any investor representatives involved? Is SEBI involved?
    Does FT and Kotak Bank even care to inform investors and take their approval, given the circumstances? Or is this another cosy fee arrangement between financial firms?

    Ramesh Popat

    4 months ago

    Dr kotak has already critical icu patient called ilfs on life support. Dr should take care of his child, k bank!

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone