Debt Market Crisis and Its impact on Debt Mutual Funds
Recent Trends in Indian Financial System: Paradigms and Praxis, 2019
3 Pages Posted: 3 Apr 2019
Date Written: March 8, 2019
Indian Mutual Funds are managing assets worth Rs. 24.12 trillion (Jan 2019). 29% of these assets are in debt schemes. 54% of these debt fund investments are individual investor monies. Indian debt market is under severe pressure in recent times and this is cascading into mutual funds segment. Higher exposure to debt securities of Non-banking Finance Companies (NBFC), defaults by IL&FS and its associate companies, trouble at DHFL and Zee groups and depletion of collateral value of loans given to company promoters because of the downslide in the equity market etc. are some reasons forcing debt schemes to mark-to-market their exposure. Individual investors who perceived debt mutual funds to be “as safe as fixed deposits” are now experiencing brief negative returns. Market regulator Securities and Exchange Board of India (SEBI) introduced a series of regulations including re-categorization of schemes, side-pocketing etc. to strengthen the market.
This paper examines the recent trends and issues surrounding the debt mutual funds. A survey is done to understand the individual investor perception towards debt mutual funds and statistical findings are presented. Findings from this research can help the mutual fund industry and the market regulator in building debt fund products.
Keywords: Debt fund, debt schemes, mutual fund, debt mutual funds, SEBI, side pocketing, credit risk
JEL Classification: G11, G14, G23, G18
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