Debt mutual funds raise exposure to G-secs by 30% over the past year

Topics G-Secs | fund managers

Spurred by fears of corporate defaults and a drop in issuance of certificate of deposits (CDs) by banks, debt mutual funds have raised their exposure to government securities (G-secs) by 30 per cent over the past year. The exposure to G-secs has increased by Rs 94,215 crore, or 31 per cent, in one year to Rs 3 trillion at the end of August, data provided by markets regulator Securities and Exchange Board of India (Sebi) shows. Experts say several debt funds still prefer to invest in ‘liquid’ securities as they have seen several defaults and downgrades of debt papers sin.....
Spurred by fears of corporate defaults and a drop in issuance of certificate of deposits (CDs) by banks, debt mutual funds have raised their exposure to government securities (G-secs) by 30 per cent over the past year.

The exposure to G-secs has increased by Rs 94,215 crore, or 31 per cent, in one year to Rs 3 trillion at the end of August, data provided by markets regulator Securities and Exchange Board of India (Sebi) shows.

Experts say several debt funds still prefer to invest in ‘liquid’ securities as they have seen several defaults and downgrades of debt papers since 2018.

“The start of non-banking financial company (NBFC) crises in 2018 and subsequent defaults have triggered a flight to safety. Even now, fund houses are afraid of investing in debt papers rated below AA-plus,” said a fund manager on the condition of anonymity.

Out of Rs 3 trillion in G-secs, papers maturing over one year accounted for Rs 2.30 trillion, and Rs 27,997 crore in papers maturing in less than 90 days. Even the allocation towards public sector bonds/debt increased to Rs 2.40 trillion in August from Rs 2.20 trillion last year.

Mahendra Jajoo, chief investment officer (fixed income) at Mirae Asset AMC, says increase in allocation towards G-secs is because of some factors like minimum holding of liquid assets by debt funds and lower exposure towards bank CDs.

“Earlier, debt funds used to invest in bank CDs, but now there are not many papers issued by them as they are themselves flush with ample liquidity. Also, since the IL&FS crisis, the credit market has dried up, so funds are investing in government securities,” he said.

The data from Sebi also shows that debt funds increased their allocation to commercial papers (CPs) and corporate debt (CDs) of non-banking finance companies (NBFCs) in August, compared to last year.

As of August, fund managers hold Rs 75,243 crore in CPs of NBFCs as against Rs 49,090 crore last year. Towards NBFC CDs, the exposure was Rs 86,104 crore in August 2020, which rose to Rs 92,377.85 crore this year.

Fund managers say that even in NBFC papers, they are investing only in ‘AAA’-rated and ‘AA’ plus papers. As of August, debt funds have deployed Rs 17.84 trillion in overall debt instruments, compared with Rs 15.33 trillion last year.

With expectations of an increase in interest rates, fund managers are investing in short to medium-term debt papers.

“In the current juncture, we believe a combination of liquid to money market funds to benefit from the increase in interest rates in the coming months; along with an allocation to short-term debt funds and/or dynamic bond funds with low credit risks should remain as the core fixed income allocation,” said Pankaj Pathak, fund manager - fixed income, at Quantum Mutual Fund.

Key stories on business-standard.com are available to premium subscribers only.

Already a premium subscriber?

Subscribe to get an across device (Website, Mobile Web, Iphone, Ipad, and Android Phone applications) access to Premium content, Breaking News alerts, Industry Newsletters, Stock and Corporate news alerts, access to Archives and a lot more.


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel
Read More on

G-SECS

FUND MANAGERS

MARKETS

NEWS


Most Read

Markets

Companies

Opinion

Latest News

Todays Paper

News you can use