Debt MFs see an output of Rs 5k-cr in Sep quarter in the high withdrawal of liquid credit risk funds

New Delhi, December 1 () Investment funds focused on investment in fixed income securities recorded an output of more than Rs 5 billion in July-September of this year, after recording an infusion of Rs 19.7 billion in the previous quarter, mainly due to a massive withdrawal of credit and liquid risk categories.

Although most of the individual categories that invest in fixed income securities or debt funds saw an increase in flows compared to the last quarter, the outflow of credit and liquid risk categories was significant enough to deny the Most positive flows in other categories.

According to the Mutual Funds Association in India (Amfi), mutual funds that invest in fixed-income securities experienced an outflow of Rs 5,061 million rupees in the three months ended September 30, 2019 compared to an entry of Rs 19,691 crore in the previous quarter

Despite the outflow, the asset base of the mutual debt funds increased marginally 1 percent to Rs 1.01 lakh crore at the end of September from Rs 1 lakh crore at the end of June.

A total of Rs 15,862 million rupees was withdrawn from liquid funds, while the withdrawal of credit risk funds was Rs 8,032 million rupees, a fifth consecutive quarter of negative flow.

Debt funds are considered to be less risky, and investors are comfortable being able to cover their risks by parking money earned with such effort on instruments that provide better returns than fixed bank deposits.

However, a series of multi-grade rebates and subsequent effects affected the flows in the debt market.

Credit risk funds (which invest in more risky debt securities) have been under tremendous pressure over the past year due to a series of rebates. The instances in which corporate bond papers with the highest rating have been downgraded directly to a default have thrown a key in it, Morningstar said.

As investors rushed to redeem their investments in debt funds, the asset base of the affected funds eroded sharply. In addition, the value of degraded instruments increased artificially as debt fund managers were forced to abandon their liquid investments to meet repayment requests, he added.

Although regulators have been trying to close the gaps and provide more transparency on how to deal with losses resulting from such rebates, the exodus of funds has increased every quarter over the past 15 months.

In addition, investors are now choosing to invest in bank and PSU funds and corporate bond funds, which have a high allocation to the highest rated bonds.

The corporate bond fund category recorded entries of around Rs 6,717 million rupees, while bank and PSU funds received flows worth Rs 10,749 million rupees during the quarter, the highest among the fixed income segment. On the other hand, investors pumped almost Rs 24,000 million in mutual capital funds during July-September 2019, an increase of 35 percent over the previous quarter, mainly due to the reversal of the FPI surcharge, the reduction of the rate of corporate taxes and the anticipation of more reforms. SP ANU

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