'No fund house crosses SEBI's exposure limits on AT1, AT2 bonds'

NEW DELHI: India's fund houses do not cross the threshold set by SEBI directive on restricting their exposure to additional AT1 and AT2 bonds, a Crisil analysis of February 2021 MF portfolios showed. Recently, SEBI restricted the exposure of mutual funds (MFs) to additional Tier I and II (AT1 and AT2) bonds.

The move has been termed as a risk mitigation measure to reduce portfolio risk in debt MF portfolios and comes after write-offs hit investors in such bonds issued by two banks in the past year.

The analysis of February 2021 MF portfolios shows that none of the fund houses crosses the threshold of 10 per cent of such instruments at the asset management company (AMC) level.

However, 36 schemes spread across 13 fund houses breach the cap of 10 per cent per scheme in securities. The latest directive caps investments by a mutual fund house under all its schemes in bonds with special features to not more than 10 per cent from one issuer.

It also specifies that no MF scheme can hold more than 10 per cent of its net asset value (NAV) of its debt portfolio in such bonds, and not more than 5 per cent of the NAV of the debt portfolio should be due to such bonds from one issuer.

Besides, the analysis found that banking and public sector undertaking (PSU) fund category has the highest number of schemes (seven) exceeding the 10 per cent cap in such securities. This category is followed by the credit risk fund (five), medium duration fund (four), medium to long duration funds (four), and dynamic bond fund (three) categories.

"The regulator's move to 'grandfather' limits previously held is a positive move. In the medium to long term, with the restrictions in place, it could reduce appetite among MFs for these securities, thus limiting the risk for investors," said Piyush Gupta, Director, Crisil Funds Research. "This is also prudent given the advent of hordes of individual investors in to debt funds. They may not have the ability to understand MF portfolios and gauge risk, especially in such type of bonds - we saw how they were caught unaware by the recent write-offs." (IANS)

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