Last week, the unthinkable happened for debt fund investors. Most of the 165 mutual fund schemes across 24 asset management companies (AMCs) that were exposed to debt issued by DHFL group as of 30 April had to write down the value of their holdings by 75%. As a result, the value of several of these schemes fell sharply, with one of them, DHFL Pramerica Medium Term Fund, falling by more than half, 52.99%.
Investors fleeing debt funds for the safety of fixed deposits (FDs) due to ongoing market worries may be overreacting. The total assets under management (AUM) of debt funds is ₹13.24 trillion, about 51% of the total mutual fund industry AUM of₹25.93 trillion. The debt fund AUM figure will go up if we include the debt portfolio of hybrid funds (which hold equity and debt). Mint estimates that mutual fund exposure to NBFCs and HFCs is ₹3.12 trillion (as of 30 April), down 17.6% from₹3.79 trillion in September 2018. Only a few of these NBFCs and HFCs are facing difficulty making debt repayments. NBFCs include marquee names such as HDB Financial Services (a unit of HDFC Bank) and Bajaj Finance Ltd which are not in poor financial health.
Small debt funds have taken the maximum hit from the debt crisis. Large funds have also had exposure to some of the troubled groups, but their sheer size cushioned the impact to a large extent. For example, the size of some of Franklin Templeton Asset Management (India) Pvt. Ltd schemes shielded them from heavy losses though they had exposure to the Essel group. Individual debt papers, typically, have a ticket size of around ₹5 crore; this means that a scheme needs to be at least ₹100 crore in size to keep exposure to one particular paper low.
Though there are debt problems in some of India's corporate groups which can cause further losses in debt funds, investors can minimize these risks by picking large funds which are not seeing significant depletion. In addition, they can monitor portfolios in terms of credit quality and diversification or pick categories like overnight funds that are structured to minimize risk.
Ref
https://www.livemint.com/mutual-fund/mf-news/don-t-shun-debt-funds-but-choose-carefully-1560356131088.html
Investors fleeing debt funds for the safety of fixed deposits (FDs) due to ongoing market worries may be overreacting. The total assets under management (AUM) of debt funds is ₹13.24 trillion, about 51% of the total mutual fund industry AUM of₹25.93 trillion. The debt fund AUM figure will go up if we include the debt portfolio of hybrid funds (which hold equity and debt). Mint estimates that mutual fund exposure to NBFCs and HFCs is ₹3.12 trillion (as of 30 April), down 17.6% from₹3.79 trillion in September 2018. Only a few of these NBFCs and HFCs are facing difficulty making debt repayments. NBFCs include marquee names such as HDB Financial Services (a unit of HDFC Bank) and Bajaj Finance Ltd which are not in poor financial health.
Small debt funds have taken the maximum hit from the debt crisis. Large funds have also had exposure to some of the troubled groups, but their sheer size cushioned the impact to a large extent. For example, the size of some of Franklin Templeton Asset Management (India) Pvt. Ltd schemes shielded them from heavy losses though they had exposure to the Essel group. Individual debt papers, typically, have a ticket size of around ₹5 crore; this means that a scheme needs to be at least ₹100 crore in size to keep exposure to one particular paper low.
Though there are debt problems in some of India's corporate groups which can cause further losses in debt funds, investors can minimize these risks by picking large funds which are not seeing significant depletion. In addition, they can monitor portfolios in terms of credit quality and diversification or pick categories like overnight funds that are structured to minimize risk.
Ref
https://www.livemint.com/mutual-fund/mf-news/don-t-shun-debt-funds-but-choose-carefully-1560356131088.html
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