In the last week of April 2020, Franklin Templeton Mutual Fund announced its decision to wind up six of its fixed-income schemes.
I have SIP in Franklin Templeton equity fund. Should I withdraw the full amount as the company is in trouble in India?
Since the IL&FS crisis, markets have witnessed a liquidity crunch owing to increased risk-aversion by banks. Amid the economic slowdown, this has resulted in several downgrades and defaults in recent times, with several funds witnessing significant drawdowns (over 25%). The lockdown to mitigate the spread of the coronavirus pandemic, has only added to the financial stress.
The sharp markdowns have resulted in heavy redemptions by investors, across debt categories over the past year, with a few funds witnessing significant erosion in their AUM (>40%). To meet high redemptions, fund managers are forced to liquidate the higher-rated (safer) instruments, leading to a rise in the percentage exposure to lower-rated instruments which are typically illiquid, further escalating the liquidity crunch.
In the last week of April 2020, Franklin Templeton Mutual Fund announced its decision to wind up six of its fixed-income schemes. The fund house took this extreme decision citing ‘a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the Covid-19 crisis’. The Franklin Templeton debt fund crisis does not impact its equity funds, which would continue to function as before. Except for minimal exposure to cash equivalents and money market securities (typically <5%), equity funds do not have exposure to fixed-income securities. You can continue with your investment in line with your risk profile.
As an investor in mutual funds, do I have to give KYC related documents every year to the AMC?
Fulfilling KYC requirements is a one-time activity. Once it’s is done through a Securities and Exchange Board of India (Sebi) registered intermediary like mutual fund company, broker or depository participant, one does not have to repeat it while dealing with another Sebi registered intermediary. However, if Sebi or the government stipulates any changes in the KYC norms, the investor would need to fulfil those requirements. For example, updating Aadhaar number is now mandatory, hence one would need to provide the details to the existing intermediary.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to email@example.com