In its quarterly estimates of household financial assets and liabilities, RBI has found that Indian households have been shifting their financial savings to mutual funds and insurance in the recent quarters.
RBI said that while both financial assets and liabilities of household remain bank-centric, there was some shift in favour of mutual funds and insurance in recent quarters. RBI further said that this information on movement in financial assets and liabilities of household can provide a better understanding of the dynamics of growth in the Indian economy.
On the recent credit events surrounding the debt funds, RBI said that debt funds should increase exposure to government bonds to increase funds’ liquidity. RBI said, “Given the dichotomy between economies of scale of a fund with large assets under management (AUM) and its adverse spillovers leading to macro-prudential concerns during stressed times, there’s need for a holistic approach, balancing the size and vulnerability, specifically with regard to open-ended debt funds. One particular way to address the same may be through stipulating that the ratio of government securities in incremental holding should increase as the size of a debt scheme increases.”
RBI further said that institutions and HNIs dominate the investor profile of open-ended debt mutual funds. This pattern of ownership makes these funds more susceptible to correlated withdrawals. Such withdrawals during stressed times lead to lack of tradeable counterparties due to risk aversion, which may result in large swings in prices further accentuating the trend, RBI added.
