In a sharp indictment of the recent developments in the Mutual Fund industry, founder of Quantum Asset Management, Ajit Dayal says, the events that the industry is living through are not “black swan” events at all, but instead “black crow” episodes, where imprudent investment decisions in debt funds have led to serious damage in the debt fund category and the resultant losses, don’t come as a surprise.Earlier this month, mutual fund house Franklin Templeton announced that they would wind up six of their debt funds that had credit risk.Dayal believes the precedent was set in 2008 post the global financial crisis where a special window was set up for troubled funds, much like the liquidity window that the RBI has set up post the Franklin episode.He said that while mutual funds remain a strong investment tool for households, there is a crying need for better checks and balances in terms of where debt fund managers are choosing to invest and whether there is excessive exposure to risky/low-grade corporate debt.The next few months will be a test of whether retail investors continue to repose faith in MFs as an investment option. Dayal believes the time is now to put in place more serious consequences for irresponsible investment calls, including that SEBI cancels the licence of fund houses where funds are driven down to the point of lining up for a bailout.
