On Monday, the RBI had opened a Rs 50,000-crore liquidity window for MFs in light of Franklin’s move to wind-up six of its debt MF schemes. The central bank's announcement was aimed at containing the contagion risk and restoring confidence among investors.
“While the RBI’s liquidity move has helped calm the nerves of investors to a certain extent, categories — such as credit risk and medium duration — continue to witness significant redemptions,” said Kaustubh Belapurkar, director (fund research) at Morningstar Investment.
Since Franklin’s announcement, the asset erosion has sped up. The data shows the asset size of credit risks fund is down 18.7 per cent (Rs 9,066 crore) since April 23, when the fund house had made the winding-up announcement. For the medium duration, the erosion has increased to 11.5 per cent (Rs 2,948 crore). For the low duration, it has sped up to 5.6 per cent or Rs 2,475 crore.
According to the RBI data, within two days of operations, Rs 4,000 crore has been drawn from the standing liquidity facility for mutual funds
(SLF-MF), extended by the RBI.
“Prevailing illiquidity in the markets
is forcing MFs to continue with borrowing options,” said a fund manager.
The chief executive of a fund house said: “Redemption pressure in certain debt categories has continued, with Franklin’s move creating perception risks on fixed-income schemes.”
Earlier, the MF industry sought to assuage investor concerns, stating that borrowing of schemes at the industry level had significantly reduced since March. The Association of Mutual Funds
in India stated the industry’s borrowing declined to Rs 4,427 crore as of April 23.
At the end of March, several debt schemes had reported negative cash balances, as they were forced to borrow from banks to meet high redemption pressure. Selling securities in the market became difficult because of illiquidity amid the lockdown. In March, debt schemes saw outflows of Rs 1.9 trillion, most for the last month of any financial year.