The Financial Stability Report of June 2017 highlighted the credit risks that mutual funds have been taking. Are these fears exaggerated or are the risks in control? Mint asked experts in the industry
Nilesh Shah, managing director, Kotak Mahindra AMC
Out of the total debt assets that mutual funds manage, just 0.10% are BBB-rated, 3.66% are in the A category and 1.46% are unrated. The rest lie in higher-rated scrips, including government securities. Non-banking finance companies, micro-finance companies and banks have much lower credit standards. Most funds have built their own credit research team to analyse credit, structure transactions with appropriate security and monitor credit. Many of the large non-performing assets troubling Indian banking system have not been able to raise debt or equity capital from mutual funds over last many years. Funds declare their portfolios transparently, so it has become easy for people to opine on credit without reading that they are secured by equity shares of a blue-chip company with more than adequate margin. Most lower and unrated papers are secured with appropriate security. In the current environment, mutual funds have increased their due diligence as well as monitoring.
