All you need to know about mutual funds last week

Updated : January 20, 2020 06:23 AM IST

Franklin Mutual Fund has taken a 100 percent markdown on its exposure to debt securities of Vodafone Idea Ltd. (VIL).

JM Mutual Fund has announced Dhaval Vussonji's appointment as an independent director and Dipti Neelakantan's appointment as an associate director of JM Financial Trustee Company Private Limited.

Franklin Mutual Fund has taken a 100 percent markdown on its exposure to debt securities of Vodafone Idea Ltd. (VIL). This move is pursuant to uncertainty around VIL’s ability to honour it’s near term debt obligations ahead of the Supreme Court ruling on AGR dues. FT has restricted further purchases in the schemes to below Rs 2 lakh per day.

By doing so FT has created the following two incentives for investors:

1. Marking VIL debt to zero is in effect a gate to prevent existing investors to sell as selling now would mean realizing complete loss in VIL debt and not participating in any subsequent recovery. This is justified because if FT doesn’t write down then the smart money would have sold at higher prices and those who do not sell would have been left holding the can when the write-down eventually happened. If the exits were to be high then they would only be able to liquidate non-VIL paper and the fund may have gone into passive non-compliance. Other fund houses who have not written down will/should see selling except the close-ended ones—and that would be the smart money exiting those schemes.

2. By marking VIL debt to zero investors have an incentive to buy VIL debt at zero cost through the fund and still participate in any future recovery. That you can only invest up to Rs 2 lakh per day is not a meaningful restriction for most retail investors. So marking VIL debt to zero becomes a selling point for the fund for new money.

So while we think taking the full write-down was a good idea, they should have restricted all new buys into the fund.

The Association of Mutual Funds in India (AMFI) has put forth a wishlist to the finance ministry for the Union Budget 2020-21. Some of the key proposals include:

Switches within Mutual Fund Schemes be exempted from Capital Gains Tax.
Introduce Debt Linked Savings Scheme (DLSS) with tax benefits under Sec. 80 C, subject to a lock-in period of five years
Definition of Equity Oriented Funds (EOF) be revised to include Equity Oriented “Fund of Funds”
Rate of TDS for NRIs on STCG from Debt Schemes be reduced from 30% to 15%, in line with Equity Schemes.
Mutual Funds be notified as ‘Specified Long-Term Assets’ qualifying for Tax exemption on reinvestment of Long-Term Capital Gains under Sec. 54 EC.

Tax Saving ELSS funds featured in the top 5 most bought fund on Kuvera this week. Visit our ELSS Help Center to learn everything you need to know to save taxes while investing in Mutual Funds. You can find ELSS funds on Kuvera here.

Movers and shakers

1. Union Mutual Fund has announced that Anshul Mishra, co-fund manager of Union Long Term Equity Fund andUnion Largecap Fund and key personnel of Union Asset Management Company Private Limited, has resigned from the AMC. Vinay Paharia will take on sole managerial responsibility of the schemes.

2. JM Mutual Fund has announced Dhaval Vussonji's appointment as an independent director and Dipti Neelakantan's appointment as an associate director of JM Financial Trustee Company Private Limited.

Quote of the weekJohn Dewey: No man's credit is as good as his money.

Gaurav Rastogi is the CEO of Kuvera.in: India’s first completely free direct mutual fund investing platform.

Read his columns here.

All you need to know about mutual funds last week

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