Fund managers said investors are still not comfortable to invest in credit risk funds after the Franklin Templeton fiasco.
Assets under management (AUMs) of credit risk funds continued to decline in June on concerns over further downgrades and defaults. The data from the Association of Mutual Funds in India (Amfi) show that daily AUMs of credit risk funds at the end of March 31 were Rs 55,182 crore, which came down to Rs 29,174 crore on June 30.
Fund managers said investors are still not comfortable to invest in credit risk funds after the Franklin Templeton fiasco. “There is still a worry in the mind of investors about the outlook of credit risk funds. With the economy slowing down, there are chances we might see some more defaults and downgrades which could impact credit risk funds negatively and that is the reason they are exiting credit risk funds,” said a debt fund manager from a leading fund house.
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The data from Amfi show that daily AUMs of credit risk funds stood at Rs 35,817 crore in April and went down to Rs 30,241 crore in May. Daily AUMs are down for almost all the credit risk schemes in the mutual fund industry between March and June.
Mahendra Kumar Jajoo, CIO-fixed income at Mirae Asset Investment Managers (India), said, “Investors have been moving out from the credit risk funds since past two-three months. There is belief that economic situation is not favorable as of now and there may be more downgrades and defaults which could impact returns on credit risk funds. Many credit risk schemes hold debt papers issued by non-banking and financial services (NBFC) and infrastructure sector which are already under stress due to Coronavirus.”
Credit Risk funds invest approximately 65% of their total assets in ‘AA’- and below-rated corporate bonds. Data from Value Research show that average category returns for credit risk funds have been (-)1.29% in the last one year.