Since April 24, a day after Franklin Templeton MF decided to wind up its six debt schemes, investors have pulled out around Rs 4,500-5,000 crore from credit risk funds, market participants say. The total assets under management (AUM) of credit risk funds were around Rs 45,000 crore in mid-April.
The CEO of a top fund house said that there has been some redemption from credit risk funds as investors fear their investments are in danger post Franklin Templeton’s closure of six schemes. “I would say the assets of credit risk funds might have come down by 10-12% in the past few days. Anxious investors have redeemed the money and exited completely from credit risk funds but we expect things to stabilise in next few days as it is an isolated event,” he said.
On April 23, six schemes collectively worth Rs 25,800 crore were wound down — Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.
Meanwhile, BOI AXA Credit Risk fund has given negative returns of 72.05% in the last one year, data from Value Research showed. The returns are as on April 27, 2020. Last week, BOI AXA Mutual Fund marked down various debt securities in the range of 50-100%. Few fund houses have marked down their investments in Dewan Housing Finance (DHFL) and Vodafone Idea in the last one year.
The holdings which were marked down by 50-100% include DHFL, Avantha Holdings, RKV Enterprise, Coffee Day Naturals Resources, among others. “A few of the securities in our schemes have already been marked down in the past taking into account the overall stress in the credit and debt markets since September 2018. This stress has worsened in the current market conditions and heightened illiquidity for these securities,” said BOI AXA in a statement.
Significantly lower liquidity in the Indian bond markets for most debt securities and high levels of redemptions following the Covid outbreak and lockdown were the reasons for Franklin Templeton to shut down the six schemes.
Credit risk funds invest approximately 65% of their total assets in AA and below rated corporate bonds. The data from Value Research showed that out of 20 credit risk funds, 11 funds have delivered negative returns in the last one year. In the last one year, downgrades in credit ratings of several debt instruments have led to mark down by fund houses in their debt schemes holding those papers, impacting their returns.