Net Redemptions Under Credit Risk Funds Have Come Down By 81.5%

On April 23, 2020 Franklin Templeton Mutual Fund in India announced to wind up suite of six yield oriented, managed credit funds on the back of significantly reduced liquidity in the Indian bond markets for most debt securities. Given the elevated level of tension in the mutual fund industry that rose from this decision, the Reserve Bank of India (RBI) also announced Special Liquidity Facility to Mutual Funds (SLF-MF) of Rs 50,000 crore on April 27, 2020. With that the banks are allowed to lend to MFs using this facility which will allow the MFs to meet their liquidity requirements. With all the measures to reinforce faith in MF industry, the Association of Mutual Funds in India (AMFI) on May 3, 2020 announced that the net redemptions under Credit Risk Funds have come down by 81.5 per cent.

“Net redemptions under Credit Risk Funds, one of Debt Mutual Fund scheme category, which constitute less than 5 per cent of Total Debt Mutual Fund AUM, are tapering off substantially, post RBI's announcement of special liquidity measure of Rs 50,000 crore for the MF Industry,” notes AMFI circular. Having said that, the net redemptions or redemptions minus funds mobilised under Credit Risk Funds stood at Rs 2,949.49 crore on April 24 and peaked at Rs 4,294.36 crore as on April 27, 2020.  However, post that, for the next three days - April 28, 29 and 30, the net redemptions under Credit Risk Funds were at Rs 1,847.29 crore, Rs 1,251.17 crore and Rs 793.99 crore respectively.

“On April 30, 2020 there was a drop of 81.5 per cent in net redemptions observed for Credit Risk Funds category from their highest net redemptions on April 27, 2020. ''Declining trend in net redemptions from Credit Risk Funds is a welcome development, indicative of investors‘ comfort from RBI's special liquidity facility available to the MF industry. AMFI will continue to work with Regulators for normal functioning of the market,” says Nilesh Shah, Chairman, AMFI.