Test results: More than Rs 1 trillion AUM of debt mutual funds under stress

A stress testing analysis was conducted by all asset management companies for March 2023, and the analysis revealed that 14 mutual funds were under stress, The Hindu Businessline (BL) has reported. Of the total AUM of Rs 10.95 trillion that was tested, Rs 1.08 trillion worth of assets were found to be stressed, the study revealed.

According to Sebi rules, asset management companies are obligated to conduct stress testing of all open-ended debt schemes (except overnight schemes) on a monthly basis. The test is conducted to evaluate the effect of various risk factors such as rate risk, credit risk, liquidity risk, and redemption risk.

The results of the stress test conducted in March were disclosed by the Reserve Bank of India (RBI); the results revealed that 24 out of 295 debt schemes were under some kind of credit, interest rate, and liquidity risk for the period of March 2023, the BL report said.

Interestingly, the same test was conducted on debt mutual funds between March 2022 and September 2022, but the test did not find any associated risks.

The government did away with the provision of long-term capital gains on income from debt mutual funds and other schemes that invest up to 35 per cent of their assets in equity shares of domestic companies. 

Before this change, the capital gains resulting from the transfer of mutual fund units other than equity-oriented funds held for over three years were considered long-term investments and attracted a tax of 20 per cent with indexation benefits.

The scrapping of the tax benefit resulted in a net outflow of Rs 81,015 crore in the March quarter, the BL report said.

RBI Governor Shaktikanta Das said that financial stability is of utmost importance, and all stakeholders in the financial systems must add towards preserving it at all times.