After the Supreme Court of India rejected the AGR plea of telecom companies, Franklin Templeton Mutual Fund (MF) on January 16, 2020 wrote off their exposure to Vodafone India, resulting into a 4-6 per cent single-day fall in the NAV of some of its flagship debt funds.
The very next day 3 more Asset Management Companies (AMCs), viz. UTI MF, Nippon MF (previously Reliance MF) and Aditya Birla Sun Life (ABSL) MF also followed suit and the markdowns resulted into up to 10 per cent one-day fall (most in UTI Credit Risk Fund) on January 17, 2020.
While big players make informed decision and would have taken steps to safeguard their interests, retail investors are the ones who have taken the hit most as the markdown decisions were taken by the AMCs without informing the investors.
As retail investors suffer every time after their trusted bond funds suffer sharp losses-be it in the case of IF&SL fiasco or crisis in Dewan Housing Finance Corp or in Altico Capital India-they are a worried lot today.
Most retail investors invest in mutual fund (MF) schemes through MF distributors, so it’s the distributor community who face the ire of affected investors.
As investors are not organised, distributors decide to start questioning the AMCs on their behalf as a trustee of the retail investors’ money.
The members of All Mutual Fund Distributors Welfare Association (AMDwA) on January 21, 2020 visited the offices of Franklin Templeton MF, UTI MF, Nippon MF and ABSL MF in Delhi and submitted letters containing the list of tough and uncomfortable questions they face from the worried and agitated investors, and sought answers from the respective AMCs. Some members of AMDwA also visited the offices of AMCs in Noida and Faridabad to hand over the letters.
The letters contained questions like:
- Have the management abilities of AMCs undergone a drastic downgrade change?
- Why are most schemes of the AMCs-Equity, Debt, Asset Allocation or Hybrid-not performing as they were doing in the past and even underperforming in comparison to their benchmarks?
- Why proper due diligence was not done before investing the money of investors and why so many papers in large proportion were held in the schemes like Vodafone/Altico?
- If the loans were given to companies on personal guarantee or against collateral security? What actions were taken to recover money?
- Are there any more debt papers held in various portfolios on the verge of becoming stressed and if yes, what steps have been taken to prevent further losses to investors?
- When was the intimation of default/markdown of papers in portfolios sent to corporate/HNI and retail investors?
- How much redemption was received within 7 days prior to markdown/default intimation in the respective schemes?
- How much money of equity and hybrid schemes is invested in equities of the companies that faced default/markdown?
According to AMDwA, even if the AMC doesn’t want to answer, but after facing the uncomfortable questions, the fund managers would stay alert and hopefully they won’t repeat such mistakes.