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Investor Funds Worth $3.73 Bln Stuck as Indian Mutual Fund Stops Scheme Redemption

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Indian money - Sputnik International
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New Delhi (Sputnik): India’s banking regulator, the Reserve Bank of India, recently took over a private sector bank, Yes Bank, owing to financial irregularities. Suspending the bank's management, the RBI has put its own in place.

In what could have serious repercussions for India's financial markets, the major Indian mutual fund house Franklin Templeton has stopped redemption in six of its schemes due to liquidity issues on the back of the COVID-19 crisis, putting investments worth at least $3.73 billion at stake. There will be no transactions in the schemes with effect starting Friday, 24 March.

“There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the Covid-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same. At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions”, said Franklin Templeton Mutual Fund.

The funds that have been wound up are: Franklin India Low Duration Fund, Franklin India Ultra Short Fund, Franklin India Short Term Income Fund, Franklin India Credit Risk Fund, Franklin India Dynamic Accrual Fund, and Franklin India Income Opportunities Fund. The assets under management in all these funds are close to $3.73 billion, as per industry sources.

Due to the COVID-19 pandemic uncertainty, India's equity markets have fallen from a high of over 41,000 levels at February-end to a low of 27,000 levels at March-end, only to recover somewhat to the current levels of over 31,000.

Meanwhile, the equity market regulator Securities and Exchange Board of India (SEBI) has tried to ring-fence the valuation of a debt mutual fund if a default happens due to the COVID-19 pandemic.

“If  the valuation  agencies are of the view that the delay in payment of interest/principal or extension of  maturity of  a  security  by  the  issuer has  arisen  solely  due  to  COVID-19 pandemic, lockdown  creating   temporary   operational   challenges   in   servicing   debt, then valuation  agencies may  not  consider  the  same as  a  default for the  purpose  of valuation of money market or debt securities held by mutual funds”, SEBI said in an official statement late Thursday.

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