Fund managers are finding it a challenge to comply with a SEBI
diktat which requires them to reduce debt funds exposure to a single sector to
30%. Fund houses have complied with this rule in all open end debt schemes like
dynamic, short term and income funds.
However, fund managers are finding it difficult to offload their
holdings in older FMPs to bring portfolio exposure to one sector below 30%.
Fund managers say that there is a possibility that they could end up buying
securities which offer lower yields which in turn could hamper the performance
of their funds. “It is posing a challenge. To reduce exposure you have to find
paper which offer the same yield and maturity which is a challenge,” said a
fixed income head of a domestic fund house.
“They have to sell the paper at 10% - 11% and buy paper of
public finance institutions at a discount. So there’s a loss of 1% - 2%. FMPs
are sold at committed yields. Mostly big fund houses are yet to comply. It is
difficult to find alternative paper having similar yield, tenor and maturity,”
said a CEO of a mid-sized fund house.
The regulator had given one year’s time to AMCs to comply with
this diktat. Due to the difficulties faced by fund managers in offloading their
existing paper in FMPs, SEBI has given an extension to comply with its rule
till March 2014.
Industry officials say that much of the exposure in close end
FMPs is towards real estate, NBFCs and manufacturing sectors.
“The industry has complied with SEBI's rule. However, old FMPs
are yet to reduce their sector exposure because of the nature of these schemes.
Earlier fund houses were invested based on ratings of paper. Now we are
building our portfolios by looking at rating as wells as sectors. The problem
is with certificate of deposits which do not enjoy liquidity,” said Debasish Mallick, Managing Director
& CEO of IDBI Asset Management.
In its circular issued in September 2012 SEBI said, “Mutual Funds shall ensure that total exposure of debt schemes of mutual funds in a particular sector (excluding investments in Bank CDs, CBLO, G-Secs, T-Bills and AAA rated securities issued by Public Financial Institutions (PFIs) and Public 3 Sector Banks (PSUs)) shall not exceed 30% of the net assets of the scheme.”
Fund managers say that after PSUs, NBFCs were the largest issuers of debt paper in the one to three year tenor market and it was natural for fund managers to have large exposure to the financial sector.
“While analyzing the portfolio details of close ended debt schemes during February, 2012, it was observed in few instances that some fund houses were having high exposure to a particular sector i.e. financial services sector. A sample of 204 Fixed Maturity Plan (FMP) schemes revealed that 179 schemes were having exposure of more than 80% in NBFCs, HFCs and Banks under the financial services sector,” stated the SEBI circular.
