Debt, hybrid mutual funds see large outflows in April
The financial market is undergoing a major liquidity crisis in Non-Banking Financial Company (NBFC) sector. This net outflow in debt fund is due to intense credit issue floating in the market.
Reason for Huge outflow in Debt Mutual Funds:
On 23rd April 2020, Franklin Templeton Mutual Fund discontinued 6 of its Debt mutual funds. They stated the reason for discontinuing six of its debt mutual funds to be the illiquid situation floating in debt market due to the unusual wake of COVID-19. They mentioned this step took by the company is for the safeguarding the interest of customers and to protect their money invested with us.
Franklin Templeton Mutual Fund abruptly discontinued the trade of Systematic transfer plan (STP) and Systematic withdrawal plan (SWP) and some of their debt schemes. This created panic among all the potential investors of this category. The decision took by Franklin Templeton Mutual Fund is adversely affecting the entire debt mutual fund category.
Outflow observed in different schemes:
The highest outflow observed is in the Credit risk fund amounting to ₹19,238.98 crore in April 2020. The second highest outflow is observed in Low duration fund of total ₹9,841.07 crore for the same time period. Further various schemes observed outflows viz. Ultra Short Duration fund, Money market fund, Short Duration fund of total ₹3,419.32 crore, ₹1,210.35 crore, ₹2,309.05 crore respectively. There are few more firms which observed unforeseen outflows.
Schemes which stood strong despite of crisis:
Liquid fund did not observe any outflow. On the contrary, it observed inflow of ₹68,848.01 crore in April 2020. Further various schemes which observed inflows viz. Long Duration fund, Banking and PSU fund, and Gilt fund of total ₹301.94 crore, ₹6,561.20 crore, and ₹2,515.61 crore respectively.
Scenario of Hybrid Funds:
Hybrid funds refers to funds which invest in both equity & debt. These funds are also critically damaged. Arbitrage fund in the category of hybrid funds is the only fund which observed Inflow of total ₹6,587.05 crore in April 2020. Funds viz. Equity saving, Multi Asset allocation, Dynamic Asset allocation/Balanced Advantage, Balanced Hybrid Fund/Aggressive Hybrid Fund, and Conservative Hybrid Fund in the category of hybrid fund observed a huge outflow in April 2020.
Views on this unexpected scenario:
The decision taken by Franklin Templeton Mutual Fund devastated the entire financial market. In this time of crisis, an ordinary investor will genuinely think to safeguard his\her money and no other option is left with them besides grabbing their money back into the pocket.