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Funds rush for ratings to impress investors

Priya Nadkarni  |  Mumbai 

Roopa Kudva

Last week, ICICI Prudential Asset Management Company got 35 of its Fixed Maturity Plans rated by Crisil.

In the past few months, many fund houses have approached Crisil to either reaffirm the existing ratings or get their new launches rated.

“This phenomenon began only a few months ago. Fund houses are aggressively approaching us to get the credit quality of their papers rated,” said Roopa Kudva, managing director and chief executive officer, Crisil.

So, why this rush for ratings? This is because fund houses, which are facing a perception problem, want investors to feel comfortable with the quality of the underlying papers in their schemes.

In the last couple of months, many fund houses faced redemption pressures in their debt schemes, especially in FMPs, liquid and liquid-plus funds.

Earlier, many fund houses preferred to delay the rating process as long as possible. “We did not want to get our funds rated for as long as possible. Once you got a fund rated, it would be tough to borrow money from banks if there was a downgrade. Also, corporate investors would rush to withdraw money,” said a debt fund manager with a smaller fund house, who got one of their funds rated recently, at the behest of the marketing team.

Do ratings matter?
Investment experts feel that while ratings can help convince institutional investors, it may not make much difference to the retail investor. “Retail investors do not understand these ratings in the first place. So, there is no question of them looking at ratings before investing,” said Gul Tekchandani, investment analyst.

According to Sanjay Santhanam, director, sales and marketing, Canara Robeco MF, the main reason for rating the scheme is to increase the comfort level of banks who want to invest in these funds.

“In case of a downgrade, there are queries from a few people. But if they are comfortable with the portfolio, then there are no issues,” added Santhanam. Canara Robeco’s liquid plus scheme was recently downgraded on December 4.

With questions being raised about the quality of papers in FMPs, liquid and liquid-plus funds, Crisil has recently issued a release where they have sought more disclosures from the fund houses. “We need more disclosures in fixed maturity plans. We believe the regulator is working on it,” added Kudva.

First Published: Thu, December 11 2008. 00:00 IST