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<ul><li>On April 28, <keyword id="35210" type="ORGANIZATION" weightage="20" keywordseo="sebi">SEBI</keyword> released a circular asking mutual fund companies to provide 20% of salary in <keyword id="44804" type="COUNTRY" weightage="20" keywordseo="MF">MF</keyword> units to key employees. </li><li>The move came after the <keyword id="74229" type="PERSON" weightage="20" keywordseo="Franklin-Templeton">Franklin Templeton</keyword> fiasco to align the interest of the key employees with that of investors. </li><li>The heads of several mutual fund companies are disappointed as the new rule by SEBI translates 20% of their salary into mutual fund units. </li></ul>On April 28, 2021, SEBI informed the asset management companies (AMC) to provide a minimum of 20% salary/perks/bonus/non-cash compensation of key employees in the form of a mutual fund unit. The idea was to align the interest of the key employees with that of investors. A mutual fund unit is a portion of one’s investment from the pool of funds set by the mutual fund company. The move came after the Franklin Templeton <a href="https://economictimes.indiatimes.com/mf/analysis/how-franklin-fiasco-happened-and-what-we-learnt-from-it/articleshow/82210625.cms">fiasco </a>wherein the fund house one day suddenly closed six debt mutual fund schemes overnight citing poor liquidity condition in debt markets due to the pandemic-induced crisis. This led to panic among investors who were unable to access their investment thereon. The new mandate by the market’s regulator is applicable for key employees including chief executive officer (CEO), chief investment officer (CIO), chief risk officer (CRO), chief information security officer (CISO), chief operation officer (COO), fund manager, compliance officer, sales head, investor relation officer (IRO), heads of other departments and dealers of the AMC. Direct reportees to the CEO (excluding personal assistant/secretary), fund management team and research team are also included in this list. “After the Franklin Templeton incident, there is no enthuthiasm among newcomers to join the industry. Basically, it is no more an attractive career opportunity with so many regulations in place. These professionals would prefer working in a private equity, PMS (portfolio management services), AIF (alternative investment funds), fintech company which has less regulatory complications. With this, top talents will have one more reason to not choose the mutual fund industry as a career option,” said the chief executive of one of the top mutual fund companies on condition of anonymity. There is complete misalignment of mandatory investment for employees with varied risk appetite and investment time horizon, he added. “The circular on skin in the game, while a good idea in spirit, is going to be extremely problematic in implementation. This circular applies to not just senior employees but junior research staff, dealers, and support function heads. These people don’t earn the kind of money CEOs and CIOs do,” said Radhika Gupta, managing director and CEO of <keyword id="222564" type="COMPANY" weightage="20" keywordseo="Edelweiss-Mutual-Fund">Edelweiss Mutual Fund</keyword> in <a href="https://twitter.com/iradhikagupta/status/1387433870623055880?lang=en">a tweet </a>on April 28, the day SEBI released this circular. “It is forcing them to lock 20% of their income for 3 years. It mandates how much one saves. For a guy earning ₹15-20 lakh [in a year], imagine how difficult it is to put away ₹3-4 lakh [per annum]. We are constraining employee cash flows. Just because I run a mid-cap fund doesn’t mean this is my risk appetite. And a liquid fund manager has to park money in liquid funds for 3 years,” she added. In simpler terms, why would a 30-year-old fixed income fund manager invest a significant portion of his salary in a debt scheme. The objective of a debt fund is to grow wealth in a stable manner with typically lower returns and low risk compared to equity funds. Further, the fund houses have addressed these concerns to SEBI through Association of <keyword id="6357979" type="UNKNOWN" weightage="20" keywordseo="mutual-funds">Mutual Funds</keyword> in India (AMFI). It expects some sort of relief from the regulator in terms of reducing the percentage of salary to be given in MF units and cutting some junior level employees from the initiative. Considering this, SEBI has deferred the implementation of the new compensation norms by three months to October 1, 2021. The new rules were supposed to come into effect from July 1, 2021. SEE ALSO: <a href="https://www.businessinsider.in/cryptocurrency/news/cryptocurrencies-exchanges-can-run-into-trouble-with-investors/articleshow/84205889.cms">Cryptocurrencies aren't all diamonds and roses — lawsuits from people who lost big are piling up with exchanges</a> <a href="https://www.businessinsider.in/business/auto/news/simple-energy-new-electric-scooter-promises-240km-range-on-a-70-minute-charge/articleshow/84164967.cms">This new electric scooter promises 240KM range on a 70-minute charge, could be priced under ₹1,20,000</a>

Getting a senior level job in a mutual fund company may not be so attractive after SEBI rule of giving 20% salary in MF units

New Delhi, Jan 26 () Franklin Templeton Mutual Fund, which recently marked down its investment in the securities issued by Vodafone Idea to zero, has said its board has approved the creation of segregated portfolios (or side pockets) to hold these securities in six of its schemes.
 The move will help prevent the distressed assets from damaging the returns generated from more liquid and better-performing assets.
 The board of trustees of Franklin Templeton MF has approved the creation of segregated portfolios in six schemes -- Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.
 "With effect from January 24, various securities issued by Vodafone Idea in the schemes will be segregated from the total portfolio," the fund house said in a statement.
 The decision has been taken in order to protect the value for existing unitholders in these schemes, it added.
 Earlier, rating agencies had downgraded the non-convertible debentures (NCDs) of Vodafone Idea to below investment grade.
 On January 16, Franklin Templeton, which had an exposure of over Rs 2,000 crore to Vodafone Idea in six of its schemes, had marked down its investment in the securities issued by the telecom player to zero.
 "We would like to reiterate that this fair valuation only reflects the realisable price of the relevant securities on the date of valuation and does not indicate any reduction or write-off of the amount repayable by Vodafone Idea. We continue to engage with the company in the best interest of our investors," the fund house had said.
 The fund house had markdown the schemes on the same day when the Supreme Court rejected the telecom player's review plea related to over Rs 40,000 crore in AGR related dues to the government.
 This markdown led to a drop of 4 to 7 per cent in the schemes' net asset values (NAVs) that were exposed to the debt instruments of Vodafone Idea.
 Overall, the mutual fund industry had an exposure of more than Rs 3,300 crore to Vodafone Idea.
 In December 2018, regulator Sebi had permitted mutual funds to create segregated portfolios or side pocketing with respect to debt and money market instruments. In case of a credit event that is a credit downgrade, like below investment grade and similar, segregated portfolio may be created.
 Creation of segregated portfolios is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio. SP ABM
ABM

Franklin Templeton MF sidepockets exposure to Vodafone Idea

New Delhi, Apr 24 () In an unprecedented move, Franklin Templeton Mutual Fund has voluntarily decided to wind up its six debt schemes citing redemption pressure and lack of liquidity in bond markets due to coronavirus pandemic. This is the first instance when a fund house is shutting its schemes because of coronavirus related situation. These six funds are -- Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund. "There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the COVID-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same. At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions," Franklin Templeton MF said in a late evening statement on Thursday. The statement further noted that "an event has occurred, which requires these schemes to be wound up and that this is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances". Market participants are concerned that the current situation may also impact other debt schemes. Markets regulator Securities and Exchange Board of India (Sebi) on Thursday eased the valuation policies for debt mutual funds and asked them not to term a paper as default if the delay in payment of interest or extension in maturity is mainly due to coronavirus pandemic related lockdown. SP DRRDRR

COVID-19 impact: Franklin Templeton MF shuts six schemes

<ul><li><keyword id="74229" type="PERSON" weightage="20" keywordseo="Franklin-Templeton">Franklin Templeton</keyword>, one of the largest and oldest asset management companies (AMC) in India, has shut down <keyword id="9112284" type="UNKNOWN" weightage="20" keywordseo="six-debt-funds">six debt funds</keyword> because of a severe liquidity crunch caused by the <keyword id="8714274" type="UNKNOWN" weightage="20" keywordseo="coronavirus-crisis">Coronavirus crisis</keyword>.</li><li>Investors of these six funds will have to wait for Franklin Templeton to realize money from the assets, before they can get their money back.</li><li>At the moment, Franklin Templeton has not given any timeline in this regard. It is likely that more information will only come when market conditions improve.</li></ul>Franklin Templeton India, one of the largest and oldest asset management companies (AMC), decided to close down six debt funds, blaming the liquidity crunch caused by the <keyword id="1754604" type="PERSON" weightage="20" keywordseo="coronavirus">Coronavirus</keyword> crisis. In total, these six debt funds are estimated to have locked in ₹30,800 crore of investor wealth. “There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the COVID-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same,” Franklin Templeton India said in a<a href="https://www.businessinsider.in/business/news/covid-19-impact-franklin-templeton-mf-shuts-six-schemes/articleshow/75342209.cms"> statement</a> on April 23. “At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions,” the AMC further added. As Franklin did not have enough cash to meet the redemptions, it had to shut down these debt funds. Sensex tumbled by more than 500 points today (April 24), however personal finance expert Gaurav Mashruwala suggests that the “markets did not react” to the Franklin Templeton news. “Look at the past couple of days – 500-1,000 points up and down has been happening. Are we expecting markets to maintain status quo for days and weeks and months? It’s not possible,” Gaurav Mashruwala, a certified financial planner told Business Insider. According to him, people should not panic. “If you look at the overall equity market, which (has fallen) from 42,000 to 31,000. At 25% (crash) we are not as anxious. But a fund house with 1.4% funds says there is high risk, there is a concern,” he added. ‘This is not the end of the world’ Mashruwala says that advisors should have conveyed the right message to investors all along -- that mutual funds come with a certain risk. “An almost similar incident happened in 2013, but the only difference is that then the economy was running . Right now, we are in a situation where the economy is not moving. People like you and me should accept the reality, we shouldn’t be complacent. Put the facts out, but the approach I’m taking is this is not the end of the world”, he said while urging people to be responsible. ‘Avoid knee-jerk reactions, don’t redeem funds’ Urging people to avoid knee-jerk reactions, Mashruwala said people should not redeem additional funds. “Avoid knee-jerk reactions, don’t redeem funds. Consult your advisor next week and then take your next steps. We have to take a balanced approach,” he said. But what does debt fund closure mean for you as an investor? Will you get your money back? How long will you have to wait? We try to answer all your questions. Which debt funds have been shut down by Franklin Templeton? These are the six funds which have been shut down: <ul><li>Franklin India Low Duration Fund</li><li>Franklin India Dynamic Accrual Fund</li><li>Franklin India Credit Risk Fund</li><li>Franklin India Short Term Income Plan</li><li>Franklin India Ultra Short Bond Fund</li><li>Franklin India Income Opportunities Fund</li></ul>The total assets under management (AUM) in these funds are around ₹30,800 crore. Why did Franklin shut down these funds? The Covid-19 pandemic has brought businesses to a standstill. With the economy virtually shut down and several companies staring at liquidation, investors fear that they will lose their money. In such a scenario, many investors have decided to redeem their investments. Since the economy is shut down, there is a severe liquidity crunch in the market, deepening the crisis. Franklin Templeton relied on a ₹5,000 crore credit line from banks, but this might not have been enough to meet the redemption pressure. Due to this, Franklin had to shut down these six funds. Its remaining funds are unaffected by this decision. Does this mean I will not be able to sell my investment in these funds? Yes. Franklin has shut down these schemes. As such, no transactions will happen now. If you have invested money in these funds, you will not be able to redeem it for the time being. What happens to the money I invested in these schemes? Your money is under a lockdown, so to say. Franklin will try to sell the assets (bonds of companies) it has purchased. As and when Franklin realizes money from these assets, it will repay you and other unit holders in the proportion of your investment. Will I lose any money I invested in these schemes? The amount of money you receive will depend on how much Franklin realizes from the asset sale. You could end up losing a part of your returns, or in the worst-case scenario, you could end up losing some of the principal too. Franklin will first repay the lenders and then investors, which could result in a longer wait for you. This also increases the chances of a loss, but this is not certain yet. How long will I have to wait to get my money back? It is difficult to say anything at the moment. A lot depends on the market conditions and whether Franklin is able to sell the assets. Should I redeem other mutual funds and move the money into a bank fixed deposit? This depends on three factors: Risk factor: There is always a risk factor associated with mutual fund schemes. Generally, higher the risk, higher is the return. Your risk capacity: This is about the amount of risk that you are ready to take. If your risk capacity is low, you will want to stick with low-risk and overnight funds – these funds have a maturity of one day and thus, they are highly liquid. Your monetary requirements: Whether you need the cash right now or in the immediate future. Mashruwala urged investors to consult their advisors before making a decision. See also: <a href="http://businessinsider.in/business/news/covid-19-impact-franklin-templeton-mf-shuts-six-schemes/articleshow/75342209.cms">COVID-19 impact: Franklin Templeton MF shuts six schemes</a> <a href="https://www.businessinsider.in/careers/news/200000-job-openings-posted-in-the-last-four-weeks-and-80000-of-them-are-entry-level-positions/articleshow/75246451.cms">200,000 job openings posted in the last four weeks — and 80,000 of them are entry level positions</a> <a href="https://www.businessinsider.in/business/news/without-rbis-help-rupee-value-might-slump-to-80-per-dollar-says-report/articleshow/75273796.cms">Without RBI’s help, Rupee value might slump to 80 per dollar says report</a>

A personal finance expert answers the most troubling questions about Franklin Templeton mutual funds

Mumbai, Feb 4 () Markets regulator Sebi has sought a reply from Franklin Templeton after the fund house's markdown of its investment in second-largest telecom firm Vodafone Idea Ltd (VIL) that led to an erosion of investor wealth. However, Sebi Chairman Ajay Tyagi parried questions on whether such a move is illegal or if it hurts the broader cause of protection of investors' interests. Following the Supreme Court ruling on the adjusted gross revenue (AGR) matter, which resulted in a due of Rs 53,000 crore on the telco, the fund house had marked down its investment value to zero, resulting in a correction of up to 7 per cent in net asset value for six of its schemes. Franklin Templeton has the highest exposure to the telco at Rs 2,074 crore out of the total Rs 4,500 crore, which VIL owes to the MF industry as a whole. Tyagi said it is a fund house's own call to take a view on the asset value of an investment and added that industry body Association of Mutual Funds of India (Amfi) has suggested a formula only in case of downgraded debt, which does not apply to VIL. "Why they did it, we had asked them. I don't remember what has happened to that," Tyagi told reporters on the sidelines of an NSE event here. When asked if it is the right thing to do from an investor interest protection perspective, he said, "I don't remember what is their (Franklin Templeton's) comment. We had asked for the comment." Similarly, to a question of whether such a move was illegal, he expressed an inability to comment immediately as the reply received from Franklin Templeton will have to be studied. In his speech, Tyagi gave out a list of work that is yet to be done with regard to the agenda on corporate bond development in the immediate term. This includes setting up of the credit enhancement fund announced last year and operationalising credit default swaps. From the medium-term perspective, Tyagi said the idea of unification of markets need to be implemented that was first announced in the Budget 2015. He said that while a lot of work needs to be done to make the corporate bond market popular in India, it is not so that we are bad as compared to peers, and pointed out to data on market liquidity. He also said that till now, more than 78 commercial paper issuances amounting to over Rs 3,58,000 crore have been listed on stock exchanges, following the framework for listing of commercial paper again to bring in transparency. A mobile application for retail investors to invest in government securities has seen 15,000 bids leading to the raising of Rs 280 crore since launch, Tyagi said. The budgetary announcement on creating new smart cities, along with the virtual rewriting of the rules for raising money will also help in the development of the municipal bond market, Tyagi said. He also said Sebi has had a meeting with the National Housing Bank, the Secretary of the Urban development ministry and a few municipal corporations in this regard. AA HRS

Sebi seeks reply from Franklin Templeton after markdown of investment in Vodafone Idea

New Delhi, May 20 () Franklin Templeton Trustee Services has appointed Kotak Mahindra Bank to work together with Franklin Templeton Asset Management (India) to assist the trustees in monetising portfolios of the six schemes that are being wound up. Kotak Mahindra Bank, through its debt capital markets team, will work closely with the Franklin Templeton Trustees, to assist with all portfolio actions in these six schemes that are being wound up, Franklin Templeton Mutual Fund said in a statement. Trustees of Franklin Templeton MF said that Kotak Mahindra Bank, a highly reputed firm with strong corporate governance practices and deep financial market experience, will, wherever required, act as their agent and provide its independent advice and assistance to the trustees through the entire process. The appointment will provide the trustees with the added experience and ability to monetise assets at the earliest possible time. "Franklin Templeton is committed to ensuring an orderly and equitable exit for all investors at the earliest possible time, and we will partner with the board of trustees and Kotak Mahindra Bank to ensure an efficient wind-up of these schemes, while preserving maximum value for our investors," said Sanjay Sapre, president of Franklin Templeton India. Sujata Guhathakurta, president (debt capital markets) at Kotak Mahindra Bank, said the bank is looking forward to working closely with the trustees and the asset management company (AMC) to assist them in wind-up of these schemes. Last month, the fund house had closed six of its debt funds, citing redemption pressures and lack of liquidity in the bond markets. These schemes, together having an estimate amount of over Rs 25,000 crore assets under management, were Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund. SP HRS

Franklin Templeton appoints Kotak Mahindra Bank to assist in monetising assets of 6 wind-up schemes

New Delhi, Feb 18 () Two mutual fund houses, UTI MF and Nippon India MF, have side-pocketed their exposures to Vodafone Idea in a bid to prevent the distressed assets from damaging the returns generated from more liquid and better-performing assets. The move comes following a rating downgrade of Vodafone Idea debt by CARE Ratings to 'BB-', which is below the investment grade. In a statement, UTI AMC said its board of trustees approved the creation of segregated portfolio in five schemes -- UTI Credit Risk Fund, UTI Bond Fund, UTI Regular Savings Fund, UTI Dynamic Bond Fund and UTI Medium Term Fund. "With effect from February 17, 2020, securities of Vodafone Idea Ltd will be segregated from total portfolio," it added. These five schemes have exposure of Rs 186 crore in debt instruments issued by Vodafone Idea. Nippon India MF, separately, said it has decided to create segregated portfolio of securities (or side pockets) of Vodafone Idea held in three schemes -- Nippon India Strategic Debt Fund, Nippon India Credit Risk Fund and Nippon India Hybrid Bond Fund -- from Monday (February 17) to protect the interest of the investors. The fund house has an exposure of a little over Rs 227 crore to Vodafone Idea debt across these three schemes. "In light of no further relief and the Supreme Court's reiteration of the requirement to make the payment imminently, the company's operations are likely to become unviable unless there is significant equity infusion," Nippon India said in a note to investors. "The promoters of VIL (Vodafone Idea Ltd) have hinted that they will be unable to continue the operations of the company on a going-concern basis unless there is meaningful relief on the AGR dues," it added. Last month, Franklin Templeton MF side-pocketed exposure to the telecom player after rating agencies had downgraded the non-convertible debentures of Vodafone Idea to below investment grade. Prior to that, Franklin Templeton MF, which had an exposure of over Rs 2,000 crore to Vodafone Idea in six of its schemes, had marked down its investment in the securities issued by the telecom player to zero. The fund house had markdown the schemes on the same day when the Supreme Court rejected the telecom player's review plea related to over Rs 40,000 crore in adjusted gross revenue (AGR)-related dues to the government. In December 2018, regulator Sebi had permitted mutual funds to create segregated portfolios, or side-pocketing, with respect to debt and money market instruments. In case of a credit event that is a credit downgrade, like below investment grade and similar, segregated portfolio may be created. Creation of segregated portfolios is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio. SP HRS

UTI MF, Nippon India MF side-pocket exposure to Vodafone Idea

Mumbai, Apr 30 () The Reserve Bank of India on Thursday extended regulatory benefits to all banks including those deploying their own resources to extend liquidity support to the mutual funds under the Special Liquidity Facility for Mutual Funds (SLF-MF) scheme. Earlier in the week, the Reserve Bank had announced Rs 50,000-crore SLF-MF scheme to bailout the mutual funds facing redemption pressure. The scheme was announced in the backdrop of Franklin Templeton Mutual Fund deciding to shut several schemes. "Based on requests received from banks, it has now been decided that the regulatory benefits announced under the SLF-MF scheme will be extended to all banks, irrespective of whether they avail funding from the Reserve Bank or deploy their own resources under the ...scheme," Reserve Bank of India said in a release. The RBI further said banks meeting the liquidity requirements of MFs by extending loans and undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial paper (CPs), debentures and certificates of deposit (CDs) held by MFs, will be eligible to claim all the regulatory benefits available under the scheme. The banks claiming the regulatory benefits would be required to submit a weekly statement containing consolidated information on entity-wise and instrument-wise loans and advances extended or investment made to eligible entities to Financial Markets Operations Department and to Department of Supervision on every Monday till the closure of the scheme, the RBI said. The Rs 50,000 crore liquidity window came days after, the Franklin Templeton Mutual Fund, which has been operating in India for 25 years, decided to shut down Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund. Last time, RBI had opened a special borrowing window of Rs 25,000 crore for banks to help meet the cash requirements of mutual funds in July 2013. Post the collapse of Lehman Brothers, RBI, in October, 2008, had provided a similar additional liquidity support exclusively for mutual fund industry. The central bank also stressed it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability. Under the Special Liquidity Facility for Mutual Funds (SLF-MF), the RBI will conduct repo operations of 90 days tenor at the fixed repo rate. NKD CS DRRDRR

RBI extends regulatory benefits under SLF-MF scheme to all banks

New Delhi, Apr 27 () Experts on Monday termed the RBI's move to open a special liquidity facility of Rs 50,000 crore for the mutual fund sector as "brilliant", saying it will improve investor confidence and reduce stress in the corporate debt market. The Reserve Bank of India's decision comes days after Franklin Templeton Mutual Fund decided to close six debt schemes with assets under management of more than Rs 25,000 crore. With a view to easing liquidity pressures on mutual funds, the RBI decided to open a special liquidity facility of Rs 50,000 crore. At the same time, the RBI highlighted that the stress, however, is confined to the high-risk debt mutual fund (MF) segment at this stage; the larger industry remains liquid. Mutual fund industry body Amfi Chairman Nilesh Shah said it is a good confidence building measure to ensure continued confidence of investors on the industry as also normal functioning of the markets. Nimesh Shah, MD and CEO at ICICI Prudential AMC, said that as a pre-emptive step, the RBI through its announcement of special liquidity facility for mutual funds has aimed to reduce the stress in the corporate bond segment. "...This is a welcome and positive step which will improve investor sentiments. We believe that a deflationary environment where prices come down across asset classes makes debt an interesting asset class to invest in today," he added. Given the incident about winding up of six debt oriented schemes of Franklin Templeton MF, there was much anxiousness and concern among investors, specially retail clients. "Brilliant move by RBI to bring confidence to mutual fund investors and also will help to calm down the corporate debt market," ITI Mutual Fund CEO and CIO George Heber Joseph said. Ankur Maheshwari, CEO, Equirus Wealth, said the RBI's decision will provide comfort to mutual fund investors and preserve financial stability. "Also, while banks had sufficient liquidity already, this is a reassuring step that the regulator is ready to support the markets as and when required," he added. Under the Special Liquidity Facility for Mutual Funds (SLF-MF), the RBI will conduct repo operations of 90 days tenor at the fixed repo rate. The scheme will be available from Monday itself till May 11, 2020, or up to utilisation of the allocated amount, whichever is earlier. The RBI further said funds availed under the SLF-MF should be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, and undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers, debentures and certificates of deposit held by MFs. "We would need to understand the definition of investment grade debt instruments. Good quality debt instruments were already getting funding, therefore what all grades of debt instruments are included will determine the actual impact on liquidity into MF system," said Omkeshwar Singh, who is head RankMF at Samco. Kaustubh Belapurkar, Director – Manager Research, Morningstar India said the liquidity window will certainly help improve investor confidence. Mutual funds have ample AAA rated exposures which can be used for this purpose. "But it will be interesting to see, if banks are willing to lend lower down the credit curve if it comes to that. Liquidity is constrained in the debt markets,especially lower down the credit spectrum," he added. He, further, said that debt funds have witnessed redemptions, but most have a significant amount of liquid securities to meet redemptions. This has been in play since March, given the pessimism around the economy slowing down due to the lockdown. Amit Jain, Co-Founder and CEO Ashika Wealth Advisors said liquidity window is a positive sentiment in short term, however in the long run, performance of underlying industry and business model will determine the future liquidity in corporate bond market "Also, we feel, once the lockdown opens we may observe high redemption pressure by Indian corporates from these debt instruments, to fund their day to day operations," he added. The announcement comes days after Franklin Templeton Mutual Fund, which has been operating in India for 25 years, decided to shut down its six schemes citing redemption pressures and lack of liquidity in the bond markets. The Amfi chairman believes that the mutual fund industry continues to be on sound footing both on portfolio quality as also on the liquidity front despite an isolated incident in these challenging times. Barring four fund houses that have collectively taken loan of Rs 4,427.68 crore, as of April 23, 2020, which is a small percentage of the RBI announcement and also overall MF Industry AUMs, none of the other 40 mutual fund houses has any borrowings, thereby indicating sound liquidity, he added. SP MR

RBI MF liquidity window to improve investor confidence, calm down corp debt mkt: Experts

In the race to acquire the fund management business of <a href="http://www.businessinsider.in/searchresult.cms?query=Goldman+Sachs+Group+">Goldman Sachs Group</a> Inc in India, <a href="http://www.businessinsider.in/searchresult.cms?query=Reliance+Mutual+Fund+">Reliance Mutual Fund</a> and <keyword id="45123" type="CITY" weightage="100" keywordseo="HDFC">HDFC</keyword> Mutual Fund are trying hard. 
 
According to a person familiar with the development, both the suitors are in the final round of negotiations and hope to clinch the deal. “However, it depends on who is more aggressive," said one of them. The deal is likely to be announced shortly,” he said. 
 
The Goldman’s MF business has assets of about Rs 7,132 crore. 
 
Let’s take a look at the profile of both the suitors! 
 <keyword id="106417" type="ORGANIZATION" weightage="100" keywordseo="Reliance-Mutual-Fund">Reliance Mutual Fund</keyword>, which had assets under management of Rs 1.53 lakh crore on September 30, is likely to bid aggressively as it looks to bridge the gap with number two <a href="http://www.businessinsider.in/searchresult.cms?query=ICICI+Mutual+Fund+">ICICI Mutual Fund</a> that manages about Rs 1.65 lakh crore. 
 
On the other hand, HDFC Mutual Fund is looking at consolidating its number one position with assets of Rs 1.71 lakh crore. 
 
"The deal is expected to be valued at about 3-4% of AUM (<a href="http://www.businessinsider.in/searchresult.cms?query=ICICI+Mutual+Fund+">assets under management</a>). With an AUM of Rs 7,132 crore, the transaction value should be around Rs 250 crore," said another person who is aware about the development. 
 
Besides adding Rs 7,132 crore of AUM, a deal would also help the acquirer gain a foothold in the <a href="http://www.businessinsider.in/searchresult.cms?query=exchange-traded+fund+%28ETF%29+business+">exchange-traded fund (ETF) business</a> that is growing in popularity with local investors, mirroring global trends. 
 
ETFs have been witnessing sustained growth in markets such as the US in the past decade. 
 But for India, the ETF market is relatively new. <keyword id="6361649" type="CITY" weightage="100" keywordseo="Goldman-Sachs">Goldman Sachs</keyword> Mutual Fund, which has 13 schemes, is primarily focused on the ETF segment. It has seven equity-oriented ETFs, one liquid ETF, one gold ETF, one international ETF, two equity schemes and an open-ended debt scheme. About 95% of its assets are in ETFs. 
 
Goldman Sachs Mutual Fund was awarded a central government mandate last year to sell the Central Public Sector Enterprise ETF. The government sold a part of its stake in state-run companies through an ETF for the first time, raising Rs 4,000 crore by disposing of shares in 10 state-controlled companies. 
 
Goldman Sachs entered the Indian mutual fund industry in 2011 by acquiring Benchmark Mutual Fund for Rs 120 crore. 
 "The (likely) exit of Goldman Sachs from the asset management business conclusively proves that the foreign <keyword id="109711" type="POSITION" weightage="40" keywordseo="Fund-manager">fund manager</keyword>s are finding it difficult to make inroads into the Indian investors' mind space," said a fund manager with a leading foreign fund. 
 He said: "In the last few years, we have witnessed the exit of Fidelity, PineBridge, <keyword id="48670" type="CITY" weightage="100" keywordseo="Morgan-Stanley">Morgan Stanley</keyword>, ING among others." 
 
Foreign firms are finding it difficult to compete against local companies such as HDFC, ICICI, Reliance, Birla and UTI, except for outfits such as Blackrock and Franklin Templeton. 
 
Dhirendra Kumar, founder and CEO of Value Research, is of the view that foreign fund managers find it difficult to navigate India's investment landscape. Value Research is an independent mutual fund research house. 
 
In 2014, PineBridge Mutual Fund sold its domestic mutual fund schemes to Kotak Mahindra AMC, Morgan Stanley sold its domestic MF business to HDFC AMC and ING MF was acquired by Birla Sun Life AMC. In 2012, L&amp;T Finance acquired Fidelity's mutual fund business in India. 
 
(Image: Indiatimes)

Who will buy Goldman’s MF business in India?  Reliance Mutual Fund or HDFC

New Delhi, Mar 9 () Two more mutual fund houses, Franklin Templeton MF and Baroda MF, have decided to side-pocket their exposures to Yes Bank bonds following the rating downgrade of troubled private lender's debt instruments.This takes the total number of fund houses side-pocketing or segregating their exposures to Yes Bank bonds to five.Three fund houses -- UTI MF, Nippon India MF and PGIM India MF -- on Friday announced to side-pocket or segregate their exposures to bonds of the private sector lender.The move is aimed at preventing the distressed assets from damaging the returns generated from more liquid and better-performing assets.The development comes after the downgrade of debt instruments of Yes Bank to ''D'', which is below investment grade, by rating agency Icra. Yes Bank on Thursday was put under a moratorium, with the RBI capping deposit withdrawals at Rs 50,000 per account for a month and superseding its board.In a statement, Franklin Templeton MF, which had an exposure of Rs 294 crore to Yes Bank debt, has created segregated portfolios in four of its schemes.The four schemes are Franklin India Debt Hybrid Fund, Franklin India Dynamic Accrual Fund, Franklin India ShortTerm Income Plan and Franklin India Credit Risk Fund.Pursuant to the downgrade of rating of debt instruments of Yes Bank to default category by Icra on March 6, Baroda MF, in a separate statement, said it has proposed to create a segregated portfolio in respect of its two schemes -- Baroda Treasury Advantage Fund and Baroda Credit Risk Fund -- of the private lender with effect from Friday, subject to approval from the board of directors of Baroda Trustee India Pvt Ltd.Overall, mutual fund houses had an exposure to the tune of more than Rs 2,800 crore to Yes Bank bonds at January-end.The RBI, in a notification, on Thursday said the financial position of Yes Bank has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors, and withdrawal of deposits.The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank, it added.The central bank has appointed former CFO of public sector lender State Bank of India Prashant Kumar as an administrator.In December 2018, regulator Sebi had permitted mutual funds to create segregated portfolios, or side-pocketing, with respect to debt and money market instruments. In case of a credit event that is a credit downgrade, like below investment grade and similar, segregated portfolio may be created.Creation of segregated portfolios is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio. SPBAL

Mutual funds continue to side-pocket exposures to Yes Bank bonds

New Delhi, Apr 29 () The Reserve Bank of India's liquidity support for mutual funds may struggle to be effective, as its success will hang on banks' appetite to take up the risks involved, amid low capital headroom and a likely increase in fresh non-performing loans, according to Fitch. The RBI's Rs 50,000 crore Special Liquidity Facility for Mutual Funds (SLF-MF) will provide 90-day repo funding to banks, to extend liquidity to - or purchase commercial paper and debt securities from - local mutual funds. The size of the SLF-MF appears broadly commensurate with the scale of the funds most at risk, Fitch notes. "The official support measures announced for mutual funds in India may struggle to be effective, as undercapitalised banks are unlikely to be tempted to extend liquidity to the sector without capital relief on the facilities," Fitch Ratings said in a statement. The facility's structure places the onus on banks to absorb the associated credit and capital risk, which may hinder their willingness to participate, it added. The move by the banking regulator followed the suspension of redemptions in six Franklin Templeton bond funds, with combined assets under management (AUM) of approximately USD 4.1 billion equivalent, on April 23, 2020, and outflows from other funds in March 2020. Fitch further said that "the success of the SLF-MF will hang on banks' appetite to take up the risks involved, against the system-wide backdrop of low capital headroom and a likely increase in fresh non-performing loans.". Indian open-end mutual funds saw aggregate outflows of almost 20 per cent in March. Within this, overnight funds, the most conservative variant in India, saw assets jump by almost 50 per cent, whereas most other fund types saw outflows. "Fitch believes funds classified as "Credit Risk Funds" are most at risk if redemptions continue (their AUM declined by 10 per cent in March), particularly where funds have exposure to less liquid securities, such as unlisted securities, and/or have demonstrably higher risk appetite through exposure to defaulted entities such as IL&amp;FS, Religare Finvest, and/or Dewan Housing," it said. Fitch said Mutual funds form a conduit between retail and institutional investors and financial markets. Most mutual funds assume liquidity risk, through offering investors the ability to redeem daily, while investing only a limited portion of their portfolios only in risk-free assets or cash. This liquidity mismatch is most acute in mutual funds investing in illiquid assets such as property. An interruption of, or reduction in, funding provided by mutual funds to major entities or sectors, due to outflows or redemption suspensions, can have material credit implications for entities more reliant on wholesale funding. JD DRRDRR

RBI's liquidity support for MFs may struggle to be effective: Fitch

Mumbai, Mar 6 () Asset management companies are staring at a Rs 3,345.48-crore hole in their books with their exposure to the equity and bonds of Yes Bank, which is under a 30-day moratorium, according to data from Morningstar. As of January 31, 2020, nearly two dozen mutual fund houses have exposure of close to Rs 526.42 crore to the stock, while 11 have invested Rs 2,819.06 crore in the bonds of the troubled private sector lender, as per the data. The Reserve Bank of India (RBI) on Thursday evening capped withdrawals at Rs 50,000 per depositor for a month and imposed strict limits on operations at the country's fourth-largest private lender that faced "regular outflow of liquidity" after an effort to raise new capital failed. As per the data, SBI Mutual Fund has the highest exposure of Rs 152.83 crore, followed by Rs 142.02 crore by HDFC Mutual Fund in the bank's equities, as at the end of January. Kotak Mutual Fund's exposure was Rs 62.60 crore, while Nippon India Mutual Fund invested Rs 61.21 crore in stocks of the bank. UTI Mutual Fund's exposure was Rs 33.18 crore in the stocks of the bank. Nippon India has the highest exposure of Rs 1,806.28 crore to debt issued by the bank. Earlier in the day, Nippon India Mutual Fund said it has marked down the value of its investments to zero in bonds issued by Yes Bank. In addition, the fund house has imposed a limit of Rs 2 lakh on fresh inflows into the impacted schemes till further notice, it said in a statement. Franklin Templeton and UTI Mutual Fund invested Rs 475.72 crore and Rs 336.67 crore, respectively, in bonds of the lender. Kotak MF's exposure to bonds was Rs 93.83 crore as on January 31, 2020. Mahindra Mutual Fund said it has nil exposure to Yes Bank. "Mahindra Credit Risk Yojana had a net exposure of 1.83 per cent in Yes Bank as of December 31, 2019. We had continued to pare down exposure in Yes Bank, due to the management's inability to demonstrate raising risk/ equity capital," the mutual fund house said in a statement. In February, the company fast-paced its exit from the residual exposure in the bank and have completely exited the same, it said. Quantum Mutual Fund's Fund Manager (Fixed Income) Pankaj Pathak said, "Quantum Liquid Fund prioritises safety and liquidity over returns and invests only in less than 91 day maturity instruments issued by government securities, treasury bills and top rated PSUs." HV HRS

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