Investors, led by institutions, who had put their money in debt-based mutual fund schemes, sold in a frenzy last month. Many of the institutions sold to meet their working capital requirements.
This led to a fear among high networth individuals (HNIs) that mutual funds would default. As a result, they started to pull out their money and this has created a huge dent in the average asset sunder management (AAUM) of debt funds.
Among the top six categories that lost the most, five were debt-based schemes. Of the total fall in AAUM of over Rs 97,000 crore, equity diversified funds occupied the top spot, losing AUM worth Rs 29,172.96 crore.
Given that the Bombay Stock Exchange’s Sensex fell 23 per cent, the fall in equity funds was expected. However, what was not expected was the erosion in debt-based mutual funds.
The five categories lost Rs 55,203 crore in all — liquid plus-institutional (Rs 19,116 crore), ultra short-term-institutional (Rs 12,498.70 crore), speciality-fixed maturity plans (FMPs) (Rs 10,718.84 crore), medium-term (Rs 7,465.86 crore) and liquid plus-regular (Rs 5,404.44 crore).
With these figures, the AAUM of the mutual fund industry has fallen sharply from Rs 5.29 lakh crore to Rs 4.31 lakh crore in just a month.
With banks charging exorbitant rates from companies in the last couple of months, institutions were the earliest to pull out their money from debt funds to meet their working capital requirements.
Once institutional money began to move out, there was panic among HNIs. “When investors heard that AUMs were falling sharply, they thought there could be defaults and rushed to withdraw,” said Ramkumar K, senior vice president and head - fixed income, Sundaram BNP Paribas.
Many institutions, which withdrew from mutual funds, parked the money in fixed deposits in banks. “Many went to banks as they were offered rates on a par with FMPs or even higher. It also helped some garner cheaper funds for banks,” said Murthy Nagarajan, head-fixed income, Mirae Asset Management.
“Most of the redemptions were met by selling assets or reserve cash with fund houses. The measures taken by the Reserve Bank of India (RBI) in October only infused about Rs 8,000 crore whereas redemptions were at Rs 55,000 crore,” said Mohit Verma, chief investment officer-debt, JM Mutual Fund.
Fund managers said the scenario has begun to change in November. Institutions have started coming back to liquid and liquid-plus schemes. “But, it will be some time before we see assets under management similar to what we saw before October,” added Verma.
