Mutual Funds Asset-AUM shifted to strong borrowers to reduce risk in debt schemes

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(Commercial Representative) Mumbai, Ta. 28 April 2020, Tuesday

Franklin Templeton Mutual Fund's recent 6 Debt Scheme has been summed up due to liquidity crises and major redemption pressures. Is.

According to a report by Morgan Stanley dated April 27, 2020, debt-to-debt levels in non-banking finance companies and housing finance companies have been raised by mutual funds from July-August 2018 to avoid risk of asset under management (AUM) decline, risk and regulation. Percentage has been reduced and also in real estate finance companies, promoter financing etc. by 90%. The debt of mutual funds has been brought down to 1.5 per cent of AUM.

Mutual funds had large debt investments in non-banking finance companies (NBFCs), especially during the first half of FY15 to FY19. The financial year 2015 saw a rapid growth in the debt AUM of mutual funds. The first half of fiscal year 2019 saw a stagnation. It has been declining from August 2019 to March 2020 on an annual basis.

Morgan Stanley believes that mutual fund investments in NBFCs and housing finance companies will be at greater risk of a decline. Borrowings on the basis of 25 NBFCs / HFCs, based on funds, have declined from 18 per cent in September 2018 to 12 per cent in December 2019. However, among the units facing shortage of funds, the decline has been sharply reduced from 28 per cent to 6 per cent.

The potential funding risk in the NBFC segment is the rapid withdrawal of debt investments by mutual funds. Morgan Stanley estimates that NBFCs, HFCs with a strong parent of mutual funds, have a debt investment of more than 80 per cent and maturity over the next 12 months. The percentage of lenders who are facing a shortage of funding is five per cent for mutual debt investments to NBFCs and HFCs. In which the pressure of redemption is likely to be seen, which is five per cent of the mutual fund debt AUM.

The debt mutual fund industry benefited from a sharp increase in financial savings after demonetisation in the December 2016 quarter, and the industry's AUM grew by 50 per cent year-on-year. However, the IL&FS crisis began in September 2018 and resulted in many other corporate defaults.

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