The continuous outflows in debt funds have, in turn, hit the deployment of mutual funds in the debt instruments.
Deployment of funds by debt mutual funds in FY19 (up to January 2019) has undergone a shift, in terms of increased allocations to instruments such as CPs and reduced investments in corporate debt paper, certificates of deposit, PSU bonds/debt, and government securities.
A report from CARE Ratings reveals that a gradual decline in investments was witnessed in corporate debt paper, including floating rate bonds, and non-convertible debentures.
The share of these instruments in total funds deployed by debt mutual funds, reduced from 38 percent in March 2018 to 32 percent in January 2019, while the total exposure to these instruments stood at Rs 4.53 lakh crore in January 2019.
Fund managers are cautiously investing in debt papers after companies like IL&FS and DHFL faced a liquidity crunch.
The sharp fall in shares of some Zee companies added to the debt funds’ woes as they were backing the securities in which many debt funds had invested in.
Liquid funds, saw outflows of Rs 1.49 lakh crore in December while income funds registered outflows of Rs 3,407 crore.
The outflows led to the overall assets under management slip to Rs 22.86 lakh crore in December from Rs 24.03 lakh crore in the previous month.
Of the total funds deployed by debt mutual funds, 29 percent was deployed in commercial papers (CPs).
As of January 19, debt schemes invested Rs 4.19 lakh crore in CPs, compared with Rs 3.06 lakh crore deployed in March 2018, registering a growth of Rs 1.13 lakh crore. The share of certificates of deposit dropped from 12 percent in March 2018 to 10 percent in January 2019.
Commercial paper is a money market instrument issued normally for a tenure of 90 days. It is a short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn’t require any guarantee.
Certificates of deposit is an interest-bearing, short-term debt instrument issued by banks.
The report further indicated that investments in other asset types almost doubled from 8 percent in March 2018 to 15 percent in January 2019. This segment includes treasury bills, other money market investments, equity-linked debentures/notes, asset-backed securities and bank FD.
Exposure to NBFCs
Overall exposure of mutual funds to NBFCs (non-banking finance companies) stood at Rs 2.34 lakh crore in January 2019, a drop of Rs 31,000 crore since July 2018.
While the amount has reduced, the percentage share also dropped from 19 percent in July 2018, to 16.4 percent in January 2019.
After the liquidity crisis triggered in the NBFC space, MFs reduced almost one-fourth of their investments from CPs.
The percentage share of funds deployed in CPs of NBFCs was at the lowest in January 2019, since the past 11 months.
Debt schemes held Rs 1.16 lakh crore funds in CPs of NBFCs, as of January 2019.
However, deployment of funds in corporate debt paper of NBFCs shows a different trend wherein October 2018 onwards the exposure to NBFCs rose and reached Rs 1.18 lakh crore in January 2019.
Exposure to CPs and corporate debt paper is at par, compared with July 2018 levels where CPs had about 50 percent higher investments compared with corporate debt papers, as of January 2019.Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.