Credit Risk on WebNotes

Credit Risk on WebNoteshttps://v2.webnotes.in/tags/credit-risk/Recent content in Credit Risk on WebNotesHugoen-INSat, 16 May 2026 00:00:00 +0000Franklin Templeton winding-up of 2020https://v2.webnotes.in/franklin-templeton-winding-up-2020/Sat, 16 May 2026 00:00:00 +0000https://v2.webnotes.in/franklin-templeton-winding-up-2020/<p>The <strong>Franklin Templeton winding-up of 2020</strong> refers to the decision by Franklin Templeton Asset Management (India) Private Limited, on 23 April 2020, to wind up six open-ended debt <a href="https://v2.webnotes.in/mutual-fund/">mutual fund</a> schemes with combined assets under management of approximately Rs 28,000 crore and over 3 lakh investor folios. The closure was attributed to severe liquidity stress in the Indian corporate bond market following the COVID-19 pandemic and the subsequent national lockdown, compounded by pre-existing credit stress in the underlying portfolios from the 2018 IL&FS and 2019 DHFL credit events. The Franklin Templeton episode is the largest involuntary closure of open-ended mutual fund schemes in Indian mutual fund history and produced significant judicial proceedings up to the Supreme Court, sustained SEBI enforcement action, and a substantial package of post-event regulatory reforms that reshaped the Indian debt mutual fund framework.</p>Credit quality bucketisation in debt mutual fundshttps://v2.webnotes.in/credit-quality-debt-mutual-fund/Tue, 12 May 2026 00:00:00 +0000https://v2.webnotes.in/credit-quality-debt-mutual-fund/<p><strong>Credit quality bucketisation</strong> in a debt mutual fund refers to the percentage distribution of the portfolio across credit rating categories, from the highest quality (AAA-rated government securities and top-rated corporate bonds) down to below-investment-grade (BB and lower) instruments. It is a mandatory disclosure in Indian debt fund factsheets and is the primary tool for assessing default risk and potential for credit-driven NAV shocks.</p> <p>Credit quality sits alongside <a href="https://v2.webnotes.in/macaulay-duration-debt-fund">Macaulay duration</a> , <a href="https://v2.webnotes.in/modified-duration-debt-fund">modified duration</a> , and <a href="https://v2.webnotes.in/ytm-debt-mutual-fund">yield to maturity (YTM)</a> as the four key risk metrics for Indian debt funds.</p>Franklin Templeton six-scheme winding-up (April 2020)https://v2.webnotes.in/franklin-templeton-winding-up-2020-detailed/Tue, 12 May 2026 00:00:00 +0000https://v2.webnotes.in/franklin-templeton-winding-up-2020-detailed/<p>The <strong>Franklin Templeton six-scheme winding-up</strong> of 23 April 2020 was the abrupt and unilateral closure of six fixed-income open-end mutual fund schemes by Franklin Templeton Asset Management (India) Private Limited, trapping approximately Rs 25,000 crore (then approximately USD 3.3 billion) of investor assets at the outset. The closure, announced without prior public notice or investor consent, constituted the largest simultaneous wind-up of open-end mutual fund schemes in Indian history. It set off protracted legal proceedings before the Supreme Court of India, a landmark enforcement action by the <a href="https://v2.webnotes.in/sebi-investment-management-department/">Securities and Exchange Board of India</a> , and fundamental regulatory changes that reshaped the liquidity and governance framework applicable to all debt mutual funds in the country.</p>IL&FS default impact on debt funds (2018)https://v2.webnotes.in/ilfs-default-debt-funds-2018/Tue, 12 May 2026 00:00:00 +0000https://v2.webnotes.in/ilfs-default-debt-funds-2018/<p>The <strong>IL&FS default of September 2018</strong> marked the most consequential single credit event in the Indian debt mutual fund market in the decade preceding the COVID-19 crisis. When Infrastructure Leasing and Financial Services Limited (IL&FS) and its subsidiaries began defaulting on short-term commercial paper and non-convertible debenture obligations in September 2018, mutual funds holding these instruments suffered immediate net asset value (NAV) write-downs, interbank and capital market credit flowed sharply away from non-banking financial companies (NBFCs), and the <a href="https://v2.webnotes.in/sebi-investment-management-department/">Securities and Exchange Board of India</a> was compelled to introduce a suite of emergency and structural regulatory measures. The episode revealed deep weaknesses in credit risk assessment, concentration management, and valuation practices within Indian fixed-income mutual funds and accelerated reforms that reshaped the industry for years.</p>Illiquid asset workout in mutual fundshttps://v2.webnotes.in/illiquid-asset-mutual-fund-workout/Tue, 12 May 2026 00:00:00 +0000https://v2.webnotes.in/illiquid-asset-mutual-fund-workout/<p><strong>Illiquid asset workout</strong> in the context of Indian mutual funds refers to the process through which an AMC manages, restructures, and attempts to recover value from debt securities in a scheme’s portfolio that have become illiquid, defaulted, or severely distressed. Unlike equity holdings, which can be sold on an exchange even under stress (at a price), debt securities that are in default or have a credit event may have no willing buyers in the secondary market, requiring the AMC to engage directly with the issuer, work through resolution or insolvency proceedings, or accept partial recovery over an extended period.</p>JP Morgan India Amtek Auto incident (2015)https://v2.webnotes.in/jpm-amtek-auto-2015/Tue, 12 May 2026 00:00:00 +0000https://v2.webnotes.in/jpm-amtek-auto-2015/<p>The <strong>JP Morgan India Amtek Auto incident of August 2015</strong> was the first instance in Indian mutual fund history in which an asset management company unilaterally suspended redemptions from open-end debt schemes following a credit event. JP Morgan Asset Management (India) Private Limited restricted redemptions from its India Short Term Income Fund and India Treasury Fund after Amtek Auto Limited’s non-convertible debentures (NCDs) held in those schemes were downgraded to below-investment grade, triggering an immediate write-down of NAV and a liquidity crisis within the funds. The episode preceded the more systemic <a href="https://v2.webnotes.in/ilfs-default-debt-funds-2018/">IL&FS default of 2018</a> and <a href="https://v2.webnotes.in/franklin-templeton-winding-up-2020-detailed/">Franklin Templeton winding-up of 2020</a> but established many of the procedural and regulatory questions those later crises would reopen at far larger scale.</p>Segregated portfolio, Indian mutual fundshttps://v2.webnotes.in/segregated-portfolio-mutual-fund/Tue, 12 May 2026 00:00:00 +0000https://v2.webnotes.in/segregated-portfolio-mutual-fund/<p>A <strong>segregated portfolio</strong> in the context of Indian <a href="https://v2.webnotes.in/mutual-fund/">mutual fund</a> regulation is a sub-portfolio created within a debt scheme to isolate a distressed or defaulted security from the rest of the scheme’s assets. SEBI formally permitted and defined the segregated portfolio structure through circular SEBI/HO/IMD/DF2/CIR/P/2018/160 dated 28 December 2018, the same circular that introduced the <a href="https://v2.webnotes.in/side-pocketing-debt-mutual-funds/">side-pocketing framework for debt mutual funds</a> . The segregated portfolio is the structural vehicle through which side-pocketing is implemented: the “main portfolio” (also called the “continuing portfolio”) holds the performing assets, and the “segregated portfolio” holds the distressed security. Both portfolios are maintained as sub-sets of the same mutual fund scheme; they are not separate schemes.</p>Side-pocketing introduction in Indian mutual funds (2018)https://v2.webnotes.in/side-pocketing-introduction-2018/Tue, 12 May 2026 00:00:00 +0000https://v2.webnotes.in/side-pocketing-introduction-2018/<p><strong>Side-pocketing</strong>, formally termed “segregated portfolio” in Indian regulatory terminology, is a mechanism that allows a mutual fund scheme to separate debt or money market instruments affected by a credit event into a distinct sub-portfolio, ring-fencing the impaired assets from the main portfolio and protecting ongoing investors from dilution by redemption outflows. The mechanism was introduced in India by the <a href="https://v2.webnotes.in/sebi-investment-management-department/">Securities and Exchange Board of India</a> through Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/160, issued on 28 December 2018, directly in response to the valuation and fairness challenges exposed by the <a href="https://v2.webnotes.in/ilfs-default-debt-funds-2018/">IL&FS default of September 2018</a> . Side-pocketing had been debated in the Indian mutual fund industry for several years before the <a href="https://v2.webnotes.in/amfi-association-of-mutual-funds/">Association of Mutual Funds in India</a> recommended its adoption in the wake of the IL&FS crisis.</p>