Investors should remain invested in Mutual Funds to gain profit over long term: AMFI

Following the announcement of winding up of six credit risk fixed income schemes by one of the asset management companies (AMC), Association of Mutual Funds in India (AMFI), the mutual fund industry body, today assured investors that majority of Fixed Income Mutual Funds AUM is invested in superior credit quality securities and schemes have appropriate liquidity to ensure normal operations.

AMFI strongly recommends that investors continue to focus on their investment goals, consult their financial advisor and not get side-tracked by an isolated event in a few schemes of one fund company. The action taken by the particular AMC is limited to the six specific credit risk fixed income schemes managed by the said AMC due to the illiquidity of their portfolios. The assets under management (AUM) of these six schemes constitute less than 1.4% of the Indian Mutual Fund Industry’s aggregate AUM as on March 31, 2020.

Fixed income schemes of most mutual funds have superior credit quality as confirmed by ratings of independent credit rating agencies and continue to remain fairly liquid even in these challenging times.

SEBI regulations allow mutual funds schemes to borrow up to 20% of their assets to meet liquidity needs for redemption / dividend pay-out. While AMFI is in the process of collecting the data, many Mutual funds have informed that they don't have any outstanding borrowing. Liquidity, Maturity profile and Credit quality for Debt Funds is appropriate for day-to-day operations to continue uninterruptedly. We expect fixed income funds across entire Mutual Fund Industry to continue their normal operation without any material impact.

Mr. Nilesh Shah, Chairman, AMFI, commented, “Banking liquidity in excess of Rs 700,000 crore, Long Term Repo Operations ( LTRO ) conducted by the RBI , expectations of further rate cuts and Operation Twist by the RBI is likely to keep bond market liquid and normally functioning in current challenging times”.

“The Mutual Fund industry remains fully committed to investor interests and there is no need for them to panic and redeem their investments. The industry continues to remain robust like in 2008 sub-prime crisis or 2013 taper tantrum crisis.” Mr Shah added.

Mr N S Venkatesh, Chief Executive, AMFI, said “The Mutual Fund industry has seen many cycles and its professional fixed income fund managers have managed crises efficiently over the years. Investors continue to repose trust in the industry and over the last 5 years the Indian MF Industry AAUMs have doubled from Rs. 11.88 lakh crores as on March 31, 2015 to Rs. 24.70 lakh crores of AAUM as on March 31, 2020.”

" Most credit risk funds have pretty good credit quality and sufficient liquidity in today’s challenging times and continue to remain an attractive investment option for investors, Mr Venkatesh said.