When the RBI changed its stance on interest rates on 8 February, debt funds went into a tailspin. In two days, some long-term debt funds fell by 2-3%, wiping out the gains made in the past 2-3 months. But the interest rate risk is nothing compared to the risk of default.
Last week, debt funds and liquid scheme of Taurus Mutual Fund fell 7-12% in a day following the downgrading of the troubled Ballarpur Industries Ltd (Bilt) by India Ratings and Research. Four debt schemes of Taurus MF had nearly Rs. 110 crore invested in commercial paper issued by Bilt.
The hardest hits were Taurus Dynamic Income Fund and Taurus Ultra Short Term Bond Fund. Bilt was the top holding in both funds. Though Sebi has a 10% cap on exposure to a single issuer, there is a leeway of up to 12% with the approval of trustees. "It seems this is what Taurus has done to increase exposure," says Manoj Nagpal, CEO, Outlook Asia Capital.
