Debt MFs vulnerable to large-investor exits: Financial Stability Report

Report says pullouts from funds could be concerted in times of stress

The Reserve Bank of India’s (RBI’s) Financial Stability Report (FSR) has highlighted that debt mutual funds (MFs) remain susceptible to exits from large-ticket investors, even as regulations have placed caps on single-investor holding in schemes to avoid concentration.

“Existing regulations specify single-investor concentration norms for diversifying the investor base. However, when the investor profile is dominated by risk-averse investors, as is the case in money market/debt MFs, there is a strong possibility of a few corporations distributing their surplus to over four-five fund houses, and hence, exits during times of stress could still be concerted,” RBI observed in its 21st issue