{"id":35944,"date":"2020-07-22T15:02:14","date_gmt":"2020-07-22T09:32:14","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=35944"},"modified":"2021-08-11T15:09:47","modified_gmt":"2021-08-11T09:39:47","slug":"current-issues-in-mutual-funds-industry","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/current-issues-in-mutual-funds-industry\/","title":{"rendered":"Current Issues in Mutual Funds Industry"},"content":{"rendered":"

The economic slowdown due to the Covid-19 pandemic has had a severe impact on a number of industries. The Mutual Funds Industry is no different which has faced a lot of challenges, not only owing to the pandemic induced economic slowdown due to COVID 19<\/a> but also due to some specific events.<\/p>\n\n\n\n

What are the challenges for the growth of Mutual Funds Industry?<\/h2>\n\n\n\n

The Mutual Funds industry, despite registering a growth of 20%, has only two crore investors. This tells you that the industry is under-penetrated. Although technology has played a critical role in reaching out to a large audience, a lot of work is yet to be done.<\/p>\n\n\n\n

The footprints need to be expanded by opening branches in locations that are underserved. There is a need for investor education initiatives to continue, and the industry must maintain momentum. Equity is still the primary asset class<\/a> for the retail investor, but promoting debt mutual fund schemes<\/a> is equally essential. The promotion of such schemes can help in tackling the present-day challenge of the slow growth of this industry.<\/p>\n\n\n\n

Issues with respect to Debt Servicing and Liquidity<\/h2>\n\n\n\n

The Securities and Exchange Board of India recently allowed valuation agencies appointed by AMFI (Association of Mutual Funds in India) to not consider as default any delay in payment of interest\/principal or extension of the maturity of security by the issuer in case it has arisen only due to the Covid-19 pandemic induced lockdown or the RBI moratorium.<\/p>\n\n\n\n

It will reduce the immediate pressure to some extent in terms of devaluation of the instruments, but it could look like a quick fix or postponement of the default to a later stage without taking the steps for value preservation or value enhancement.<\/p>\n\n\n\n

Even prior to the lockdown, the issue related to liquidity was prevalent, and the RBI was sought for a solution. The present issues like liquidity concerns and issues relating to high-risk credit are not new. It has been there for the last few years. The Reserve Bank has announced a liquidity facility for mutual funds and has opened a 50,000 crore rupees window for high-risk debt mutual funds. The scheme was available from 27th<\/sup> April to 11th<\/sup> May, unless the allocated amount is used earlier.<\/p>\n\n\n\n

Here, the preferred mechanism to infuse liquidity is the repo window that operates under the Liquidity Adjustment Framework<\/a> as per which the Reserve Bank lends to banks for specific on lending to mutual funds. Such exposure to mutual funds shall be exempt from capital market<\/a> exposure limitations as per the current prudential regulations applicable to banks.<\/p>\n\n\n\n

What are some of the other issues faced by the Mutual Funds Industry?<\/h2>\n\n\n\n

 The Mutual Funds Industry still face certain issues in terms of-<\/strong><\/p>\n\n\n\n

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