Domestic MFs must disclose more on FMP portfolio: Crisil

MUMBAI: DomestiC mutual funds (MFs) need to make more disclosures about the portfolios of their fixed-maturity plans (FMPs) to enhance investor confidence in such schemes, according to Crisil FundServices. This observation comes at a time when there has been a huge redemption from many FMPs because of concerns over the creditworthiness of many of the securities in them.

���If the disclosure levels in FMPs were similar to those of open-ended funds, investors would be fully aware of the credit ratings of the underlying investments,��� said Krishnan Sitaraman, head of Crisil FundServices, a fund evaluation and risk solutions provider to the industry. ���In this scenario, potentially redemption could have been lower if the strong credit quality as seen above was maintained across FMPs,��� he added.

FMPs are close-ended debt-based funds, which invest in fixed-income instruments such as government securities, money market instruments and corporate bonds. These plans, which constitute a quarter of the assets under management (AUM) in the mutual fund industry, have the biggest contributor to the assets of the industry in 2007.

As the industry grew, money invested through FMPs found its way into papers of several companies that were below investment grade or are considered risky. It is said the pressure to offer higher indicative yields compared with competition drove mutual funds into putting money in riskier papers.

Now, there are concerns that, in a deteriorating business environment, some companies could default, though there are no reported cases of default so far. Industry watchers note that even a single large default would severally dent the credibility of FMPs.

���If the credit quality of FMPs��� investments is strong, then investors have much to gain by holding these investments to maturity. In this situation, it is actually premature redemption, which could lead to sub-optimal returns,��� Crisil said.