Mutual funds ‘exposure in corporate bonds pose no risk, says RBI

MUMBAI: The recent episodes involving rating downgrades of some corporate bonds and consequent imposition of certain restrictions on redemptions by some mutual fund companies does not pose a big risk to the system, Reserve Bank of India’s latest financial stability report has highlighted.

RBI in its report pointed out that the proportion of such Mutual Funds having more than the average level of exposure to corporate bonds is small.

JP Morgan Mutual Fund, had recently faced redemption issues after Amtek Auto defaulted on its debentures which the fund house was holding in two of its schemes. According to RBI, the assets under management (AUM ) of debt oriented schemes exposed to corporate bonds downgraded during last six months formed only about 1.6% of their total AUM as on September 30, 2015.

“The highest level of proportion of exposure to downgraded bond is about 9 % for one asset management company ( AMC) and for the rest of the AMCs the exposure of their debt oriented funds to downgraded bonds was in the range of 1 to 3%”, RBI said in its report. “Thus, such exposure levels are not expected to assume systemic proportions, unless the rate of credit downgrades or corporate defaults increase unexpectedly.”