Franklin Templeton to voluntarily wind up six of their debt funds - HDFC Securities

Mr. Deepak Jasani - Head of Research, HDFC Securities

The decision by Franklin Templeton to voluntarily wind up six of their debt funds has shaken up the debt mutual fund industry. This coming after a series of NAV write-downs / segregation by various fund houses due to downgrades/defaults by investee companies will not do any good for the risk-on sentiments of retail & HNI investors. This episode once again highlights the weakness in the secondary debt markets in India as they tend to get illiquid by small bouts of micro and macro negative news. Despite the categorization by SEBI, a lot of debt schemes take on risks that are not reflected in their scheme riskometer or their category names. Fund managers with a view to generate higher return tend to take higher risks in the portion of other investments permitted in even safe low risk categories. Investors would also do well to desist from chasing just returns without having regards to the risk taken by the respective schemes. AMFI on its part should educate investors on this aspect (how to assess this risk). On a higher level, faster legal resolutions / recoveries will help in development of buying out of stressed assets and improving the depth and liquidity in secondary debt markets. One hopes that this is a one-off case and we will not see more such cases even though the economy is yet to come out of this difficult phase.

Source : Equity Bulls

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