COVID-19 BELEAGUERED ASSET MANAGEMENT INDUSTRY?

Indian investors woke up with these business headlines on April 24, 2020:  “Franklin Templeton fund closure Highlights: ‘ Investor currently in state of fear and shock”  “A chase for high yields landed Franklin Templeton in a lockdown”  “Franklin Templeton’s .1 billion fund freeze shows lingering credit pain” The above news item compelled us to go through the Indian arm of the US fund group’s Official statement of April 23, 2020, which says “In light of the severe market dislocation and illiquidity caused by the COVID-19 pandemic, this decision has been taken in order to protect value for investors via a managed sale of the portfolio. It is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances.” It was a statement from one of the world's largest independent specialized global investment fund house which is having fund size of about $ 1.5 trillion as on February 2020 and this situation raises some immediate questions in investors mind. Is investor’s money with mutual funds is not safe or the capital security of money is gone? Will this impact even the equity funds of Franklin Templeton? Can this be happen to other segments of mutual funds in India? But before moving towards the answers of above raised concerns, we should understand Mutual Funds and Assets Management Industry first.

Industry Overview

A mutual fund is operated by an investment firm called Asset Management Company that raises money from investors and then invests in a group of assets like equities, bonds, gold or real estate. The mutual fund portfolio manager invests in accordance with a stated set of objectives . Asset management is about managing clients investment and providing them with strategies and expertise that would allow them to achieve their goals and secure the financial future. An individual or institution is likely to approach an AMC when there investments income is substantial. While investing in an AMC, basically one is investing in a fund (“Mutual Fund”) managed by the AMC. Assets manager closely follow the financial markets therefore they are able to offer highly quality advise and superior risk return on investment. The returns of the funds are linked to the market and therefore hinges on how the funds is perform. For managing the pools of funds AMC charge a fee called a fund management fee. It is a prime source of revenue generation for the AMC. Globally, the asset management industry plays a crucial role in the financial services industry, acting as a means to channel investor capital into the economy’s growth machinery. Asset management companies are playing a seminal role in economic growth as they provides a link between investors seeking appropriate savings vehicles and the financing needs of the real economy.

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Corporate Capital Ventures Joined: June 30th, 2020