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The first introduction of a mutual fund in India occurred in 1963, when the Government of India launched the Unit Trust of India (UTI). Mutual funds are broadly categorised into three segments: equity funds, hybrid funds, and debt funds.
Key figures:
| Holding Period | Units redeemed in FY22 | Units redeemed in FY23 |
|---|---|---|
| 0 – 1 years | 56.83% | 50.11% |
| 1 – 2 years | 15.14% | 23.04% |
| 2 – 3 years | 5.03% | 9.81% |
| 3 – 5 years | 20.41% | 13.96% |
| More than 5 years | 2.59% | 3.09% |
Categories of financial risk mentioned in the context of mutual funds include market risk, liquidity risk, credit risk, investment risk, business risk and others.
In April 2020, Franklin Templeton India unexpectedly wound up six credit funds with assets of close to $4 billion, citing a lack of liquidity amid the coronavirus pandemic. These funds had large exposure to higher-yielding, lower-rated credit securities. The Securities and Exchange Board of India (SEBI) conducted a probe into this sudden closure and found “serious lapses and violations”.
As a result, in June 2021, SEBI barred Franklin Templeton Mutual Fund from launching any new debt schemes for two years. The regulator also ordered the fund house to refund investment and advisory fees, along with interest, of more than 5 billion rupees, and fined the global giant another 50 million rupees. Franklin Templeton said it strongly disagreed with SEBI’s order and planned to appeal. The closure sparked panic withdrawals and court cases by distraught investors.
In 2019, the debt schemes of Reliance Mutual Fund faced a liquidity crisis due to exposure to troubled companies like Dewan Housing Finance Corporation (DHFL). This led to severe redemptions and forced asset sales, significantly affecting investors.
The IL&FS crisis in 2018 had a significant impact on the mutual fund industry. Defaults by IL&FS led to downgrades and defaults on its debt obligations, causing distress in the financial markets and significant markdowns in the Net Asset Values (NAVs) of affected schemes. This triggered liquidity concerns, regulatory responses and shifts towards higher-quality assets and improved risk management practices.
Several mutual funds, including those managed by JP Morgan Asset Management India, faced issues due to exposure to Amtek Auto (which defaulted in 2015). Some managers had to suspend redemptions and manage liquidity tightly.
In 2018, Aditya Birla Sun Life Mutual Fund faced redemption pressures in some of its debt schemes due to exposure to entities like the Essel Group companies; reports indicated considerable exposure across several schemes.
The DHFL defaults affected the Indian mutual fund industry and highlighted issues around creditworthiness and liquidity. Downgrades and write-offs impacted NAVs, prompting regulatory scrutiny and reforms on issuer exposure and risk management.
UTI faced a significant crisis in 2001, primarily due to large-scale redemption pressures and mismanagement—exacerbated by market events like the Ketan Parekh scam. The government intervened, restructured UTI and later bifurcated it into separate entities to protect investors and stabilise the situation.
DHFL defaulted on its debt obligations in 2019, which led to governance concerns and impacted mutual funds that held DHFL securities. Several fund houses had to mark down values and face liquidity pressures as a result.
In 2019, Yes Bank faced severe stress and was placed under an RBI moratorium in March 2020. This affected mutual funds with exposure to Yes Bank’s securities, necessitating write-downs and impacting investor confidence.
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(Section placeholder — the Wikipedia article lists notable acquisitions in the mutual fund industry.)
Article source: Mutual funds in India — Wikipedia.