Fixed income markets in India have evolved steadily over the past decade. At end of 2017, income funds (including semi-, mid- and long-duration) comprised 82% of the assets under management (AUM) of open-ended AUM of debt mutual funds (excluding liquid funds), while credit or accrual funds comprised 18%. Share of credit funds in this pie was in mid-single digits 5 years ago. While the overall AUM under fixed-income products of mutual funds may still appear small in comparison to bank deposits (which are five times larger), it has grown at a CAGR of nearly 21% in the last 5 years, according to Association of Mutual Funds of India.
Historically, the Indian bond market has been concentrated in the high-grade segment comprising AAA corporates and a few high-quality AA+ issuers. Even as deepening in the bond markets has been gradual, market breadth has been steadily widening in recent years. This has been reflected in the growing issuance volumes in mid- to lower-end rating categories, that is, AA and AA– to A–.