Mutual Funds….A Mutually Worried Lot

Equity markets Collapsing has taken it’s toll on Mutual Funds too in many ways

  • Redemption Pressures are High forcing Equity Sales and Increased Borrowing at higher rates
  • No Takers and Markets for New Schemes
  • NAVs under relentless pressure on relentless selling
  • Access to Financing restricted as risks of counterparty exposure limits being breached and overleverage play up
  • Distinct possibility of rating downgrades on FMPs on growing concern of deterioration of credit quality of portfolios
  • Structual Flaws revealed in Liquid Funds and Fixed Maturity plans in that they are largely invested in longer term corporate paper while they have to provide for same day liquidity in case of redemptions  

Data released by the Association of Mutual Fund Industry (AMFI) shows that Assets Under Management (AUM) for all debt and equity funds had dropped by 3% to Rs 529122 crs as on September 30,2008….AUM as on October 31,2008 should be even lower

RBI has announced a liquidity window of Rs 20000 crs as risk aversion and counter party exposure had reduced the access to finance

Some Mutual Funds are limiting withdrawal amounts daily under the Fixed Maturity Plans,infuriating Clients in no small measure…there is talk of them even putting pressure on the government to allow a temporary freeze on withdrawals.

The CEO of a Leading MF,winner of several performance awards too, is said to be so upset at the massive loss that has come on the books because of forced selling of equities to fund redemptions that he wanted a way out of not showing such a loss so as the NAV is not impacted….This is not posssible unless the loss is transferred to the AMC…and this is not posssible as auditors who certify the NAV daily will not allow this 

The Mutual Funds Industry is bound to see a big Churn in Funds and Fund Managers…most of them have simply not performed

 

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