According to Crisil Fund Research, as many as 36 mutual fund (MF) schemes have greater than the Sebi-prescribed 10% investment in these bonds. Last week, the markets regulator got here out with a set of directives that may have the impact of decreasing urge for food for AT1 bonds amongst MFs.
These bonds, though debt devices, have loss-absorption options that consequence of their being handled as quasi-fairness. The write-off of those bonds issued by Yes Bank and Lakshmi Vilas Bank, following the RBI motion to guard depositors, had highlighted the danger that buyers face in them.
Sebi’s March 10 round caps investments by a fund home underneath all its schemes in bonds with particular options (primarily AT1 and AT2) to no more than 10% from one issuer. It additionally specifies that no MF scheme can maintain greater than 10% of its internet asset worth (NAV) of its debt portfolio in such bonds, and less than 5% of the NAV of the debt portfolio must be as a result of such bonds from one issuer.
According to the finance ministry memo, MFs maintain Rs 35,000 crore of the excellent AT1 bond issuances of about Rs 90,000 crore. While the finance ministry had requested Sebi to withdraw the revised valuation norms to deal with all perpetual bonds as 100-year devices, it stated that the 10% ceiling for MFs might be retained because the fund homes have sufficient headroom.
Crisil’s evaluation of February 2021 MF portfolios reveals that not one of the fund homes crosses the brink of 10% of such devices on the asset administration firm (AMC) stage. However, 36 schemes unfold throughout 13 fund homes breach the cap of 10% per scheme in securities.
“The regulator’s move to ‘grandfather’ limits previously held is a positive move. In the medium to long term, with the restrictions in place, it could reduce appetite among MFs for these securities, thus limiting the risk for investors,” stated Crisil Funds Research director Piyush Gupta.
“This is also prudent given the advent of hordes of individual investors into debt funds. They may not have the ability to understand MF portfolios and gauge risk, especially in such types of bonds — we saw how they were caught unawares by the recent write-offs,” he added.