This credit risk mutual fund lost half of NAV; fund head still not excited about RBI liquidity offer

After the Franklin Templeton liquidity crisis came into light, the net asset value (NAV) of three BOI AXA credit risk funds fell by 50 per cent in a single day on Friday last week. The fund house wrote down its entire holding in Dewan Housing Finance Corp Ltd (DHFL) and Avantha Holdings. Also, it marked down its exposure to Dinram Holdings Private Ltd and Amantha Healthcare. Taking cognizance of the liquidity issue in the mutual fund industry, Reserve Bank of India (RBI) tried to calm the investors’ nerves by announcing a special liquidity facility for mutual funds worth Rs 50,000 crores. This step aimed to alleviate the fears and boost confidence among investors. However, despite a massive plunge in the NAV of BOI AXA credit risk funds, the fund house doesn’t seem to be keen on borrowing from RBI’s special liquidity facility. Alok Singh, Chief Investment Officer, BOI AXA Investment Managers Ltd explained to Financial Express Online why the fund’s net asset value declined by a whopping 50 per cent and why the fund house still doesn’t need to borrow from RBI’s SLF.

BOI AXA credit risk fund’s NAV fell by 50% in a single day. What are the possible reasons behind the fall?

We had adjusted the valuation of some of our securities to reflect the illiquidity in the market. As the markets have become quite illiquid and to find a buyer at the price at which we were holding was not possible. So, the NAV has to reflect the realisable value of assets and in that principal we adjusted the NAV and that’s why NAV got corrected.

After this huge plunge, will BOI AXA take RBI’s special liquidity facility?

We have liquidity and we are not in the borrowing mode. In a mutual fund liability, unlike a bank where the liabilities are long term, the liabilities are T+1 or maximum T+10 which means that the entire fund can be redeemed at one day notice and the liabilities in which investors have invested are the securities of various forms and tenure. Now, if supposedly, everyone asks for the money today, can you liquidate the security today and sell? The answer is: No. That’s how the NAV should keep on adjusting accordingly. As of now, I don’t see the need of borrowing

By when do you think BOI AXA credit risk fund’s wiped out NAV will be regained?

As of now, we have a decent amount of cash, depending upon if we get redemptions. At the time of speaking, we don’t see the need for borrowing. It all depends upon the market condition that how it shapes up. What RBI has enabled is a facility. Now there is another lag of it which is the bank. Mutual funds don’t get access directly from RBI. This means that banks will have to borrow and banks are willing to lend. As of now, specifically, we don’t have the requirement. With the things getting stabilised, markets getting credit properly and when we start getting bids in our papers, we will accordingly adjust. It is difficult to put up a timeline right now because we are still in a lockdown situation and because of which trading hours have been truncated and people are operating from homes.

How useful is the RBI’s step to stem the investor fears?

With the announcement today, RBI has reassured that they are aware and trying to do whatever they can do in the present form of regulations. So, it’s not that being a regulator, they are unaware or not willing to act. RBI has come out and recognised it as a problem. Therefore, the announcement by RBI is certainly reassuring and should help in stemming the investors fears.

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