The dampening of investor sentiment caused by the by wind-up of Franklin’s six debt schemes, combined with an expected slowdown in the economy, spilled-over onto equity schemes, as the latter saw a 47 per cent drop in flows in April despite markets seeing the sharpest run-up since 2009.
“The wind-up of schemes from the fund house, has had an overall impact on the sentiments of MF investors,” said Swarup Mohanty, chief executive officer, Mirae Asset Management Company.
Data showed that this was the sharpest monthly dip in equity flows seen in 12 months. In April, the flows shrank to Rs 6,212 core as against Rs 11,722 crore in the previous month.
“April was also the first full month after the lockdown. So, this also had an impact on the sentiment,” Mohanty added.
Debt categories continued to see redemptions. Credit risk funds saw a bulk of the outflows at Rs 19,238 crore, registering the worst month for the category in 13 months. Compared to the previous month, the outflows in credit risk funds saw a 3.4-times jump.
The category has witnessed outflows following the IL&FS crisis in 2018, but the redemptions have accelerated after Franklin MF’s wind-up of its credit-oriented schemes. At the beginning of the last financial year (as April, 2019), credit risk funds had close to Rs 80,000 crore of asset base, which has now shrunk to Rs 35,222 crore; a reduction of 55 per cent.
Medium duration funds also saw Rs 6,363 crore of net outflows in April.
“Risk-aversion towards credit-oriented categories has continued. The recent move of winding up of certain debt schemes, has led to risk perception among investors, impacting some of the other categories as well,” said Kaustubh Belapurkar, director (fund research) at Morningstar.
Among other debt categories, low duration funds saw outflows of Rs 6,841 crore, followed by Rs 3,4193 crore of net outlfows in ultra-short duration funds.
Industry participants say Reserve Bank of India’s move to open up Rs 50,000 crore liquidity window for debt MFs to contain redemption risks following Franklin episode, helped allay investor concerns to some extent and curbed panic redemptions.
“While debt schemes have seen outflows, redemptions have reduced compared to last month,” said a senior executive of a fund house.
On the equity front, gross flows more than halved, slipping to Rs 14,516 crore, from Rs 30,109 crore in March. However, contribution through systematic investment plans or SIPs stood at Rs 8,376 crore, accounting for a sizeable chunk of the gross equity flows. However, the monthly SIP contribution was down three per cent compared to March.
“Investors have been cautious and are waiting on the side-lines,” Belapurkar added.
MF advisors say that with lockdown disrupting businesses, clients are looking at holding back their MF allocations, to deal with the impact on their monthly incomes.
Among equity categories, mid-cap and multicap funds saw among the sharpest fall in flows. For mid-cap funds, the flows dipped by 59 per cent to Rs 497 crore. Multi-cap funds saw 45 per cent reduction in flows to Rs 1,240 crore. Flows in large-cap funds were 17 per cent lower at Rs 1,691 crore.
In March, the benchmark index Nifty was down 23.25 per cent. However, markets started to regain some ground in April amid hopes of drug discovery to treat Coronavirus and new cases peaking out. Nifty gained 14.68 per cent in April, clocking its best month since 2009.
For MF investors, April was a difficult month as Franklin MF announced its decision to wind-up six of its debt schemes on April 23. The move was aimed at preserving value for investors, as redemption pressures could have forced the MF to sell underlying debt securities at stressed valuations.
Lack of liquidity in debt markets due to curtailed market timings and risk-aversion amid Coronavirus pandemic, had dried up capacity of debt markets to absorb selling of debt securities.
Redemption pressures in March had led to net outflows of Rs 1.9 trillion from debt-oriented schemes, which was the worst-ever fiscal-closing for the MF industry.
In April, liquid funds saw some come back of flows after seeing Rs 1.1 trillion of outflows in March. Liquid funds saw net inflows of Rs 68,848 core in April.