Sudden and unexpected winding up of 6
high risks debt funds by Franklin India AMC not only weakened the confidence of
investors but also raised many questions about investment decision of mutual
fund industry. When we advise our clients to invest in mutual fund the major
point we highlight is the professional management and process driven investment
decisions. But now the question is where the professional management and
process?
Many experts believe that this is
Franklin’s problem only but I don't think it is limited to Franklin India only. It is possible that Franklin India might have
taken very high risk compared to others but we should also not forget that
even liquid funds have given negative returns in past. The mutual fund investors
have lost more than one lakh crore in debt schemes in last 2-3 years. Right
from the IL&FS to Yes Bank, Vodafone the problem is not showing sign of any relief. RBI’s move to give liquidity of Rs. 50,000 crore to meet
the redemption pressure is not the solution but a temporary relief.
When investor puts his hard earned money
in liquid or short term funds, he wants more of safety and little bit over
savings bank and fixed deposits interest. But if such schemes give negative
returns then it is difficult to hold the investors. I am really shocked when
show that Franklin India Ultra Short Term Bond Fund invested in 5 and 10 year
maturity paper. My understanding was ultra short term funds can invest only in
3 to 6 months maturity papers. As per SEBI scheme characteristic “ Ultra Short
Duration fund can invest in debt and money market instruments such that
Macaulay duration of the portfolio is 3 -6 months. Then how come a scheme can invest in Pvt. Ltd. Cos. and for duration of 5 to 10 years. This needs to be
investigated and justice should be done to lakhs of investors who have suffered
loss in so called safe schemes.
I urge SEBI that Liquid, Ultra Short,
Money Market, Floating Rate, Low Duration and Short term funds should be
allowed to invest in quality papers only. Same criteria to be set for hybrid
funds such as MIP and Equity Savings Fund. The investors in this category are
low risk takers and lower quality paper in debt should not to be allowed in
this category as well.
In debt funds the role of research
organisation like ICRA and CRISIL is of utmost important as everything starts
from there only. SEBI should review their role and assess the quality of
research report they are giving. I don't know but have a feeling that is
research reports are managed by the corporate? Is this also possible that some debt
deals happen under the table? SEBI should go deep into this otherwise investors
will shift their hard earned money to insurance and banks.
AMC and Fund Managers role also needs
to be investigated. The process of investment decisions should be made public. They
should also be answerable for every default. Quarterly review of the
default needs to be done by expert panel of SEBI. AMC and fund managers to be
penalized and the loss needs to be recovered from them if they are found
guilty.
Most of investors and distributors
look at the ratings given by Value research, Money Control and Morning star etc.
and take the investment decision. I agree that distributors should also look at
the portfolio before advising but ratings of this sites influence the decision
of recommending and investing. They should be brought under the scrutiny
of law so that they also give star ratings after due diligence.
I firmly believe that loss in debt is
permanent but in equity you can recover the loss if you have bought good stock
or fund. The debt investment according to me is more risky than equity
investment. SEBI needs to take this seriously and come out with strict
guidelines to protect the investor’s interest. Damage due to lock down is not
known, better SEBI awake early.
