Data backs RBI Governor’s claims; outflows from credit-risk funds in July lowest so far this fiscal

RBI had announced the opening of a Rs 50,000 crore special liquidity facility for mutual funds in April.

After the Reserve Bank of India (RBI) Governor Shaktikanta Das last week claimed that the situation in the Mutual Fund industry has stabilised, data from the Association of Mutual Funds in India (AMFI), published yesterday, has now backed his claim. Open-ended debt oriented schemes saw inflows of Rs 91,391 crore in the month of July with outflows in the credit-risk schemes dropping to the lowest so far this fiscal year to just Rs 669 crore. Debt mutual funds have been in a tight spot after the Franklin Templeton saga that saw the fund house shut six of its debt fund schemes.

“Abundant liquidity has supported other segments of financial markets too. In particular, MFs have stabilised since the Franklin Templeton episode,” Shaktikanta Das said last week. In the aftermath of Franklin Templeton’s decision to close six debt fund schemes, the central bank doubled down on improving liquidity in the secondary markets through TLTRO and other measures. RBI had even announced the opening of a Rs 50,000 crore special liquidity facility for mutual funds in April. All open-ended debt fund schemes, except credit risk funds saw net inflows in the month of July.

“Essentially the pro-active steps taken by the market regulator Securities and Exchange Board of India (SEBI) and the Reserve Bank of India in providing that liquidity window at that particular time ensured that unfounded fears are calmed,” AMFI’s Chief Executive, N S Venkatesh told Financial Express Online. The market regulator had relaxed valuation norms on money and debt market instruments held by mutual funds. Venkatesh added that the improvement in debt mutual funds is also aided by the tightening of risk management process by asset management companies, which has helped in bringing confidence back in the system after the Franklin Templeton crisis.

In July, AMFI data showed that as debt mutual funds improved investors took away money from equity mutual funds. The net outflows recorded in the equity mutual funds is for the first time in four years. “The outflows from equity are quite negligible and it may stabilise over the next few months. While we may see the current trend continuing to prevail in the shorter term, the course may be steadied on the availability of more macro data in the coming months,” said Dr. Joseph Thomas, Head of Research – Emkay Wealth Management. His views are seconded by AMFI’s N S Venkatesh who said that there is some profit booking as equity markets have run up quite a bit.