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In the Financial Stability Report published on July 24, the Reserve Bank of India (RBI) flagged the issue of concentration risk in debt mutual funds (MFs). Corporates and high networth individuals (HNIs) comprise more than 90 per cent of their assets under management (AUM), in contrast to equity funds, where their share stands at a more balanced 48 per cent. The predominance of corporate investors in debt funds creates certain risks.
Let us understand why debt funds become highly concentrated. “Large corporates have an AUM threshold, which means they only invest in a fund having a certain minimum size. As a
