Securities and Exchange Board of India (Sebi) on Monday has asked all the fund houses to furnish the details of their investments into corporate bonds which has been downgraded by the rating agencies. This activity from the capital market regulator, comes in the wake after there has been downgrades by rating agencies and their impact on debt funds.
A senior official from the leading fund house on condition of anonymity said, “We have to inform the regulator on how many downgrades have taken place of the corporate bonds which are present in our portfolios. We had to submit all the details within a day to the regulator.” This is the third time in the recent days when regulator is asking about all the details for the debt funds.
In the last few days there has been growing concerns on downgrades by rating agencies and their overall impact on the performance of the debt schemes. In the last week of August, CARE Rating had suspended the rating of Amtek Auto as company did not furnish the information required by the rating agency for monitoring of the ratings. Later net asset value (NAV) of JP Morgan India Treasury Fund and JP Morgan India Short Term Income Fund went down. There was a sudden rush from investors to redeem their units, but fund house capped the redemptions at one percent of the total outstanding units.
According to the Value Research as on 31st August, JP Morgan India Treasury Fund and JP Morgan India Short Term Income Fund holds 5.87% and 10.78% respectively into the debt papers of Amtek Auto with a coupon of 10.25%.
Later Sebi has sought information from mutual fund houses on their exposure into Jindal Steel and Power (JSPL) after ICRA downgraded the ratings on the non-convertible debentures (NCD), commercial paper, term loans, fund-based and non-fund based limits of JSPL.
As on August 31st, mutual fund industry has exposure of over Rs 4,500 crore into the papers of JSPL. Several schemes from Franklin Templeton MF, LIC Nomura MF and JM Financial MF among others holds the papers of JSPL. However spokesperson from the Franklin Templeton India said, “At Franklin Templeton, we attempt to optimise the trade-off between safety, liquidity and returns within the investment objective and positioning of the individual product. Our approach to investing in fixed income goes beyond just macroeconomic parameters and is driven by a focus on stringent and well-defined processes, robust risk management and an active approach to identifying investment opportunities.”
Market participants feel that, regulator is being pro-active and this move will benefit the retail investors going forward.