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In light of the closure of Franklin debt funds, we asked these three fund managers if debt funds are still safe and to enlighten us on the situation at their respective AMCs. Here's their message to investors.
Rahul Goswami, CIO, Fixed Income, ICICI Prudential Mutual Fund
"At ICICI Prudential Mutual Fund, safety, liquidity and returns have remained the guiding philosophy for all the fixed-income funds, with utmost importance given to delivering risk-adjusted returns to investors. We believe that the recent development of Franklin Templeton winding up six of its debt schemes is an isolated event.
We are among the largest fixed-income managers in India, with total assets under management of $24 billion across various fixed income funds; of this, more than 80 per cent of exposure is in AAA rated papers. As an AMC, we have an unmatched track record of having never encountered any delay in our interest payments or defaults in any of our funds. Our fixed-income schemes did not have any exposure to names which have been under stress over the past two years.
We believe that a deflationary environment where prices come down across asset classes makes debt an interesting asset class to invest in. High banking liquidity in excess of Rs 7,00,000 crore, long-term repo operations (LTRO) and expectations of further rate cuts could provide the necessary tailwind in the current environment."
Amit Tripathi, CIO - Fixed Income Investments, Nippon India Mutual Fund
"The popularity of mutual funds in the fixed-income space amongst retail and HNI investors has been pillared on three fundamentals: transparency, liquidity and returns. 'Anytime liquidity', one of these pillars, has been put under scanner due to the winding-up decision taken by one fund house for six of its open-end fixed-income schemes.
'Never again' should be the only approach to bring back investor confidence. Irrespective of what it takes, the industry should focus on higher fund-management discipline, asset liquidity through the cycle, refraining from me-too strategies across distinct fund categories, and much higher levels of investor education.
Discerning strategies on duration and credit should be duly highlighted, and some of these strategies involving more patient capital (lock-ins, higher ticket sizes, complete understanding of potential risk-return) may eventually have to move to the closed-end and/or AIF platform.
In the meantime, mutual funds will regain their due place as a simple, transparent, liquid, and efficient savings avenue for investors for their various goals."
Lakshmi Iyer, CIO (Debt), Kotak Mutual Fund
"The Franklin episode has made investors jittery for the entire credit category, leading to huge outflows across credit funds in the industry, including ours. However, it is pertinent to note here that at Kotak, the liquidity generated out of secondary-market sales to fund such redemptions was entirely through sale of non-AAA assets. Additionally, not a single rupee was borrowed to fund those outflows. This should give investors some relevant insights into our portfolio quality across the rating spectrum.
There is a tendency for investors to paint the entire category with the same brush! This aggravates panic and leads to pain on one's portfolio. Hence, we would urge investors to be mindful of asset quality and portfolio liquidity while undertaking investments, as also redemptions. A more informed view than a decision taken in panic would be a better way to realise full potential in any asset class. Time and again we have seen various instances in the past that could validate this point."
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