[SmartCat]

Originally Posted by graaja

What could be the effect of this situation on Banking and PSU funds? As these hold almost all of their holdings in AAA and GSecs, are these safe for now? Or should I switch out from these to overnight funds?

Credit risk in Banking & PSU fund is low, but there is still liquidity risk. If majority of investors try to withdraw from these funds at the same time, these funds can be frozen too.

However, in the United States, the central bank is buying up all the corporate bonds so that the financial system does not collapse. It is quite possible that RBI steps in directly, or asks Indian banks to buy corporate bonds. They did it in 2008-09 apparently.

Franklin Templeton fund closure: Will RBI step in to save MFs from likely redemption pressure?
https://www.moneycontrol.com/news/bu...e-5184571.html

Originally Posted by hothatchaway

While Gilt funds may offer capital protection they still carry interest rate risk. High probability of interest rates dipping further negatively affecting existing bonds.

Big correction: If interest rate falls, gilt funds NAV will shoot up. And vice versa. Bonds and interest rates have an inverse relationship

What is the relationship between interest rates and bond prices?
https://www.ig.com/en/trading-strate...-prices-190730

Originally Posted by adithya.kp

I read somewhere in the net. (The author was not sure). He was saying fund houses can/may use the money in overnight fund to fund the redemption. Do you see that a possibility? As you know ,the fund houses can borrow only up to 20% of the scheme for redemption.

The second part is correct - fund houses can borrow up to 20% of the scheme funds for redemption. However, many funds have used up this facility. Fund houses cannot borrow from overnight funds for redemption, but they have to pay back the overnight funds the next day. However, RBI/Banks are likely to step in and help the investors.

[adithya.kp]

I agree the duration is 1 day. But what if they themselves borrow from their own overnight fund for redemption and then dont/cant pay back?. (Assuming they already hit 20% external borrowing limit). Isn't that a remote possibility?. Just wanted to rule it out.

Originally Posted by SmartCat

....The second part is correct - fund houses can borrow up to 20% of the scheme funds for redemption. However, many funds have used up this facility. Fund houses cannot borrow from overnight funds for redemption, but they have to pay back the overnight funds the next day. However, RBI/Banks are likely to step in and help the investors.

[hothatchaway]

Originally Posted by adithya.kp

I agree the duration is 1 day. But what if they themselves borrow from their own overnight fund for redemption and then dont/cant pay back?. (Assuming they already hit 20% external borrowing limit). Isn't that a remote possibility?. Just wanted to rule it out.

If it comes to that then AMCs will do what FT has already done ie stop all redemptions.

I doubt overnight funds can be "borrowed" from, these invest in repurchase or reverse repos and TREPS which are collateralized securities with overnight maturity. This is unlike other short term papers where the fund is holding unsecured and tradeable commercial papers which they may sell to meet redemption obligations.

[Ithaca]

Could any learned member advise the fallout of Franklin India news about winding up six funds.

The six schemes, namely, 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 cumulatively manage assets worth ₹26,000 crore.

the fund house will also try to sell the securities in the market, but will not resort to distress sale.

Source ET Article

The trustee or the people authorized will continue to realize or dispose-off the assets of the schemes. The sale proceeds after the discharge of all liabilities and expenses will be paid to the unitholders in proportion to their respective interests in the assets of schemes.

Source CNBC TV18

What happens to the money stuck in those funds.
Will the subscribers receive their entire funds - cost values - invested in those schemes or will they have to take a loss. Thanks in advance.

[graaja]

Originally Posted by SmartCat

Credit risk in Banking & PSU fund is low, but there is still liquidity risk. If majority of investors try to withdraw from these funds at the same time, these funds can be frozen too.
...

Originally Posted by hothatchaway

More than the quality of the underlying securities, it is the redemption pressure that the funds are facing, forcing them to dump their holdings, starting with the quality ones as they are the easiest to sell. PSU bond funds should be "safer" since institutions are unlikely to park their liquid money in these.

Thank you for the information. So, I believe if I do not have immediate liquidity requirements (say upto 2 years), then I do not have to worry about these funds?

I will park any funds required within a 2 year period in overnight funds and let the rest of the debt portfolio remain in Gilt and Banking & PSU funds.

Thanks a lot, once again for the clarifications.

[saket77]

Originally Posted by Ithaca

Could any learned member advise the fallout of Franklin India news.

What happens to the money stuck in those funds.
Will the subscribers receive their entire funds - cost values - invested in those schemes or will they have to take a loss. Thanks in advance.

Discussed in last few posts. Basically buying and selling freezes. Franklin will return the money to investors in a staggered manner in parts. The timeline is not provided. They may sell the underlying assets when they feel price is right or may decide to hold it till maturity. So, theoretically, the payback to investors may extend till the time of maturity of the underlying bonds in the portfolio which may be anything between 90 days to three years. Investors may have the money before maturity if RBI steps in or if there is sufficient liquidity in the bond market.

[SPARKled]

Thankfully I exited out of Franklin Ultra Short term fund the day Vodafone Idea rating went down. After Covid 19 has shown it's full effect, I firmly believe we are still not at the real bottom, a lot of good companies are also going to default on payments in the near future and so most debt funds will be a risky proposition in the short term.

[DigitalOne]

One thing I couldn't yet understand is whether Franklin India Ultra Short Bond Fund - Super Institutional Plan is also affected?

I got the notice mail listing "Franklin India Ultra Short Bond Fund (FIUBF)". I am not clear whether this is same as the "Super Institutional Plan".

I have investments in the Franklin India Ultra Short Bond Fund - Super Institutional Plan which I use it as 'feeder' for my Systematic Transfers plans.

Luckily I got out of FT Low Duration Fund after the Vodafone-Idea issue.

Also got out of HDFC Credit Risk fund in March.
----
Still heavily invested in Liquid and Low Duration funds of ICICI, HDFC, and ABSL. All are used as 'feeders' to STPs. Worried a bit

[vibbs]

Guys bit of a noob when it comes to Mutual funds.

The Franklin Templeton news has panicked me a bit. What does it talk about other funds? What will be the sustained effect of the coronavirus situation on Mutual funds? Does it make sense to get in some units at low value looking at the current scenario?


I have 2 funds that I have held on for quite some years now. JM Multicap fund and HDFC hybrid equity fund.

What to do with these?

[warrioraks]

Originally Posted by DigitalOne

Still heavily invested in Liquid and Low Duration funds of ICICI, HDFC, and ABSL. All are used as 'feeders' to STPs. Worried a bit

I used a similar approach until pre-Corona times where majority of my feeder funds were short term debt (liquid, overnight, etc etc).

Now I have spread them across a combination of Liquid and Arbitrage funds to manage the risk better (hopefully!). There is a definite plus side from tax perspective, because arbitrage funds are treated as equity.

[sansvk]

Originally Posted by vibbs

Guys bit of a noob when it comes to Mutual funds.

The Franklin Templeton news has panicked me a bit. What does it talk about other funds? What will be the sustained effect of the coronavirus situation on Mutual funds? Does it make sense to get in some units at low value looking at the current scenario?


I have 2 funds that I have held on for quite some years now. JM Multicap fund and HDFC hybrid equity fund.

What to do with these?

Lesson learnt is to not chase returns in debt funds, instead safety and tax efficiency should be the primary consideration.
For equity funds don't panic sell now, just wait it out.
Note: I am an investor in Franklin's ultra short term fund and HDFC hybrid equity.

[poloman]

If you have slightest of doubt in your mind...EXIT. I had significant exposure to Franklin utra short fund, but the harakiri they ended up doing with Voda papers opened my eyes. Switched the entire amount to HDFC FD. The same with my deposits in Yes bank. Broke and withdrew the entire amount with out battling an eyelid. Result I escaped from over 40% uncertainty in my portfolio. Just few pages back I had warned about impending doom in debt funds.

Moral of the story..Don't play with your money. Still if you want.. this is not the time.

[DigitalOne]

Originally Posted by DigitalOne

One thing I couldn't yet understand is whether Franklin India Ultra Short Bond Fund - Super Institutional Plan is also affected?

Quoting myself. Franklin India Ultra Short Bond Fund - Super InstitutionalPlan also affected . I guess the "retail plan" and " super institutional plan" are considered as the same fund.

Now STP outs from this fund will also not happen. Just have to wait it out.

[Sumeru97]

Originally Posted by Striker

1. Select a highly ranked large cap funds managed by a reputed and proven MF company / fund manager (ex. Axis Bluechip Fund managed by Shreyash Devalkar)
2. Time the market to make small lump-sum purchases on a weekly basis. Basically short burst purchases to capitalise the market volatility using the " principles of averaging down"
3. Continue the above trend to make consistent lump-sum investments for the next 2-3 months until the coronavirus sentiments are improved and market stabilizes
4. Stay invested for the next 3-5 years before planning for redemption (based on prevailing market conditions)

I am by no means an expert, but here are my thoughts.

Good strategy as you plan to invest over a period of time, rather than just one lump sum. We are in the middle of a true black swan event , and may not see such an investing opportunity next year.

1. I do not know much about active mutual funds, but I am sure you have done your research well and chosen the fund. I personally prefer to invest in shares and ETFs.
2. Very good strategy to make weekly lump sums to spread the risk
3. Maybe you can extend your weekly investments through August-September. My personal opinion is the market will further dip by August once the Q1 results are out. This current lock down looks likely to extend and demand would have died for many non-essentials. Expecting a lot of loan defaults and NPAs for banks and NBFCs.
4. 3-5 years is a good time horizon. You are going to be a rich guy, if you are not one already

[sandeepmohan]

Thinking of starting a couple of new SIP's and wanted feedback on the following funds.

Axis BluChip Fund (Growth)
SBI Focus Equity Fund (Growth)
DSP Mid Cap Fund

Looking at money control, the first two funds seems to have done well over a 5 year period. The DSP Mid Cap Fund is a bit all over the place.