Twitteratis are trending #Mutualfundsahinahihai amidst Franklin Templeton debt funds closure. Last month, the funds had closed down six of its scheme including Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund. These schemes had and a combined Assets Under Management (AUM) of worth Rs 26,000 crore. The fund house attributed the closure of these funds to preserve the values which were getting eroded due to high redemption pressure and lack of liquidity due to COVID-19 impact on markets.

Franklin Templeton
Franklin Templeton

Twitterati argued that Mutual funds managers are still getting pay hikes even during the Covid-19 crisis and the investors' especially small investors are losing their money. Some even recommended to pull out money from Mutual funds and invest in other savings schemes like Bank Deposits and Fixed Deposits. The fears of investors who have parked their money into Franklin Templeton debt funds is now spilling over with trends like Mutualfundsahinahihai on Twitter. But are Mutual Funds safe to invest or it's just too risky for small investors? Let's find out.

Multi-fold benefits of MF

Firstly, any investor should keep one thing in mind is that there is no investment option without any risk associated with it. Investments in Mutual funds come with multiple benefits including a diversified portfolio for risk management, funds for everyone, high liquidity, cost-efficiency, financial discipline, and tax exemptions. The faith shown by investors for MF has significantly increased in the last 10 years. For instance, AUMs have jumped from Rs 4.05 trillion as of November 30, 2008, to Rs 24.03 trillion as of November 30, 2018, a whopping 6x growth in ten years. These funds have given handsome returns to the investors ranging from 10-25% of CAGR.

mutual funds
You can save tax upto Rs. 46,350 per year by investing in ELSS funds.Flickr

Then why some MFs fail?

The recent example is Franklin Templeton that has closed down its six schemes due to high redemption and COVID-19 crisis, which are extraordinary cases. Some other reasons for the failure of MFs are high annual expense ratios, load charges, lack of controls, bad investments, and return dilution. These are some of the reasons why it is advised to diversify your investments to reduce the risks.

Please seek advise from your fund manager/broker before any investment.