Credit Risk Fund category continued to witness redemption during April 2020 as well, more so after six of Franklin Templeton India’s funds in debt category were shut. All AMCs had a tough time in managing the redemption – Rs.19,239 cr of redemption came during the month of April on the AUM of Rs.55,380 cr at the end of March 2020, a decline of almost 35%.
Hybrid Funds by nature invest some amount of their portfolio into bonds. Few AMCs smartly used the window of ‘Inter-Scheme Transfer’ and transferred some of the illiquid debt paper from Credit Risk Funds to other funds within the same Asset Management Company (AMC).
Now the question arises…. Can they do this?
The answer is yes. ‘Inter-scheme transfers’ are not illegal and can be questioned only if the transfer price is unfair to investors in either of the schemes. However, it may not be prudent for investors who never intended to take credit risk when they actually invested in hybrid funds.
We understand that several of them have been forced to take this unpopular call, given current liquidity in low rated bonds. Here are the details of AMCs and their schemes that have undertaken such transaction:
a) HDFC MF transferred ~4% of assets to HDFC Hybrid Debt Fund, 3.3% to HDFC Hybrid Equity and 0.6% to HDFC Short Duration Fund. Most of the inter-scheme transfers are A/AA rated papers.
b) ICICI MF transferred 5.1% of assets to ICICI Pru Equity & Debt Fund, 3.4% to ICICI Pru BAF and 2% to Multi Asset Fund. Here also most of papers are either A or AA rated.
c) Kotak MF transferred 2.1% of assets to Kotak Banking & PSU Fund which belongs to a PSU bank paper (AA rated) and 1.9% to Kotak Savings Fund having top names like Tata, Reliance and Godrej.
d) Aditya Birla MF transferred 7.4% of its asset to Short Term Fund, 3.2% to BAF, 2% to Low Duration and 1.2% to Regular Savings Fund. However, all most all papers are AAA rated and carries much lower risk, in our view.
e) DSP MF transferred 2.9% of its assets to DSP Equity & Bond Fund which are of AA/AAA rated.
f) Nippon India MF transferred 3.0% of assets to Low Duration Fund and 2.7% to its Equity Hybrid Fund. However, all papers belong to A rating and carries slightly higher risk.
g) SBI MF has transferred only ~0.5% of its assets to SBI Hybrid Equity Fund which is a small and are AA rated paper.