MF Recap of 2020 – SEBI Circulars, Guidelines for Mutual Funds

March 2020

The following events collectively created liquidity crunch and redemption pressures in the industry in the first few months of the year.

Redemption Pressure in Initial Months

• Foreign portfolio investors (FPIs) had pulled out a record Rs 1.2 lakh crores from India in March 2020.
• Debt mutual funds witnessed record outflows of Rs 1.94 lakh crores in March 2020. On the other hand, equity funds saw a significant dip in inflows in April 2020 to Rs 6,212.96 crores. It fell almost 50% from March 2020.
• Credit-risk funds saw record outflows of Rs 19,238 crores, in April 2020. While this category saw redemption pressure for quite some time before the pandemic hit, the rising number of cases rising just added some more spice to the fire.

Yes Bank and Vodafone Idea Crisis Spilling Over in Mutual Funds

While Vodafone Idea was hit due to the AGR ruling, Yes Bank was stuck with large scale defaults. The mutual fund exposure to these companies came to the surface in the early part of 2020.  Debt mutual funds had an exposure of more than Rs 3,000 crores to Vodafone Idea and around Rs 2,800 crores to Yes Bank at the beginning of the year. Most of them were written off.

April 2020

The Franklin Fiasco and Liquidity Crunch

Liquidity shortage in the industry became evident when Franklin  Templeton mutual fund closed six of its mutual funds effective April 23. 

Franklin’s six shut schemes had lost around Rs 16,800 crores worth AUMs between August 31, 2018, and March 31, 2020, and a little more than Rs 4,000 crores in the first few days of April 2020.

As on December 18, 2020, the six Franklin schemes received cash flows of Rs 11,907 crores from pre-payments, maturities and coupon payments since they wound up in April this year.

Read more on Groww: Franklin India: Shuts Down 6 Credit Risk Funds

RBI Extends Support to Mutual Funds

The Reserve Bank of India announced a new package, also known as Special Liquidity Facility- Mutual Funds (SLF-MF), to provide the mutual fund industry with Rs 50,000 crore to ease the liquidity pressure in the industry.

Read more on Groww: RBI Extends Liquidity Support of Rs 50,000 Crores for Mutual Funds

September 2020

Change in Multi-Cap Funds Asset Allocation

In September, Sebi increased the minimum threshold of equity investment for multi-cap funds to 75% from 65%. Sebi said 25% has to be spent in buying small-cap, mid-cap and large-cap stocks each. 

Read more on Groww: SEBI Issues New Guidelines for the Multi-cap Mutual Fund Category

Same Day NAV Applicability

In a circular dated September 17, Sebi said that the same day net asset value (NAV) is applicable on your mutual fund investments only if your money reaches the fund house on the same day. This change was earlier applicable from January 1, 2021, but has now been pushed to February 1.

Read more on Groww:  Mutual Fund Buying Rules Changed – Same Day NAV Applicable

October 2020

Restoration of the pre-covid cut-off time for mutual fund transactions

Sebi restored the cut-off timings to 1.30 p.m. and 3.00 p.m. for liquid funds and all other mutual funds respectively in October 2020 at different intervals respectively. They were changed earlier in April because of the lockdown.

Read More: Cut-Off Timing Applicable on Groww

November 2020

Sebi introduced a new category of equity funds: Flexi-Cap Mutual Fund. Flexi cap funds will be equity schemes that invest across various market capitalisations (large-caps, mid-caps, and small-caps). The minimum investment in equity needs to be 65% of the scheme’s total assets. 

Read more on Groww: SEBI Introduces Flexi-cap Category in Mutual Funds: All You Need to Know