97% of debt MFs are of high credit quality: ICRA

Most of the debt and liquid mutual fund schemes maintain a high credit quality, rating agency ICRA has said. Over 97% of the schemes continue to qualify comfortably for the highest rating levels within their respective maturity categories, while the balance qualify for the next rating level, an analysis by the agency showed. ICRA has ratings outstanding on 93 Liquid/Debt Mutual Fund (MF) schemes across 24 Asset Management Companies (AMCs) till date.

"So far in  FY12, the credit ratings of ICRA-rated schemes remained stable with no rating revisions with the schemes maintaining very high proportion of their investments in instruments with high credit quality," ICRA said.

ICRA said the fund managers were playing it safe this year. "Overall, during year-to-date FY12 the fund managers continued to prefer investments in relatively higher credit quality short tenure papers. ICRA expects the credit profile of its rated debt funds to remain stable, with its rated funds continued significant exposure to banking sector and financial services companies with high credit rating, while staying clear of entities in vulnerable sector."

MF Industry debt AUM registered a 10% increase in the 12 month period ended Dec 31, 2011, driven by increase in assets under management (AUMs) of liquid funds and fixed maturity plans (FMPs), the agency said. The overall industry AUM witnessed a moderate decline during the period, marked by a steep fall in equity AUM, driven by volatility of returns in the equity market. In line with the overall industry trend, the AUM of ICRA-rated debt schemes witnessed a 14% increase y-o-y as on Nov 30, 20112 and accounted for nearly 37% of the industry debt AUM as on that date.

As per AMFI data, the growth in the industry’s debt AUM has been fuelled by high net worth individuals (HNIs) who now account for 25% (as on Sep-11) of the investments into debt schemes as compared to about 19% in September 2010.

While the proportion of Corporate Investments and retail participation across debt Mutual fund schemes have remained fairly stable at 62% and 5% respectively for the twelve-month period ended Sep 30, 2011, banks have pared their investments in debt mutual funds in line with the regulatory requirement that mandated banks to curtail their exposure to debt mutual funds to 10% of their previous year’s networth by Dec 31, 2011. Thus, the fund houses will have to increase their focus on mobilising funds from the retail segment to grow the overall industry AUM.

With volatility of returns across equity funds over the last few quarters, the debt category has emerged as a preferred investment option aided by higher returns amid a rising interest rate scenario.