MFS use inter-scheme transfers to pay investors

nMUMBAI:MUTUAL funds (MFS) sold debt paper in credit risk funds to their other schemes to repay investors amid the panic withdrawals of last month, data showed.

Total assets under management (AUM) of India’s credit risk funds plunged 35% from ₹48,576 crore on 24 April to ₹31,357 crore on 15 May—a drop of ₹17,219 crore in just three weeks—after Franklin Templeton shuttered six credit risk funds. However, none of the mutual funds, barring Nippon India, borrowed from banks to repay investors. Most of them identified and transferred some of the illiquid debt paper from credit risk funds to other funds within the same asset management company (AMC).

Investors in credit risk funds redeemed units worth ₹19,238.98 crore in April, of which around one-third was met by selling bonds to other schemes of the same fund house, according to data from Pulse Labs. HDFC Mutual Fund transferred securities worth ₹2,250 crore to other schemes, ICICI Prudential AMC ₹1,600 crore, Kotak Mahindra AMC ₹580 crore, Aditya Birla Sun Life Mutual Fund ₹800 crore, SBI Mutual Fund ₹195 crore and Nippon Life India AMC ₹340 crore.

SBI Mutual Fund in a statement to Mint said, “These transactions are based on market prices provided by valuation agencies and within the investment mandates of the purchasing schemes.” Aditya Birla Sun Life Mutual Fund said, “Credit funds facing redemption is an industrywide scenario. Majority of the transfers were of liquid AAA papers and the balance was of short term AA papers.”