The Securities and Exchange Board of India (Sebi) on Monday asked all fund houses to furnish details of their investments in corporate bonds that have been downgraded by rating agencies. The move comes in the wake of a series of downgrades by rating agencies with mutual funds coming under the scanner for failing to make adequate disclosures about their debt exposure to investors.
A senior official told FE on the condition of anonymity: “We were asked to inform the regulator about how many downgrades have taken place of corporate bonds present in our portfolio. We were asked to submit all details within a day to Sebi.” This is the third time in the recent days that Sebi has sought to know details relating to debt funds. A series of downgrades over the last few days has raised concerns about their overall impact on performance of debt schemes.
In the last week of August, CARE suspended the rating of Amtek Auto as the company failed to furnish information required to monitor the ratings. Consequently, two of JPMorgan Asset Management’s fixed-income schemes sank sharply. JPMorgan India Short Term Income Fund lost 3.38% in just one day while JPMorgan India Treasury Fund fell 1.73%.
There was a sudden rush from investors to redeem their units, but the fund house capped its redemptions at 1% of the total outstanding units.
According to Value Research, as on August 31, JPMorgan India Treasury Fund and JPMorgan India Short Term Income Fund hold 5.87% and 10.78%, respectively, in the debt papers of Amtek Auto with a coupon of 10.25%. Later, Sebi sought information from MF houses on their exposure to Jindal Steel and Power (JSPL) after Icra downgraded the ratings on non-convertible debentures, commercial papers, term loans and fund-based and non-fund based limits of the company.
As on August 31, the MF industry has an exposure of over R4,500 crore to JSPL. Several schemes of Franklin Templeton MF, LIC Nomura MF and JM Financial MF, among others, also have exposure to JSPL papers.
A spokesperson of Franklin Templeton India said: “At Franklin Templeton, we attempt to optimise the tradeoff between safety, liquidity and returns within the investment objective and positioning of the individual product. Our approach to investing in fixed income goes beyond just macroeconomic parameters and is driven by a focus on stringent and well-defined processes, robust risk management and an active approach to identifying investment opportunities.”
Genesis of the problem
* In the last week of August, CARE suspended the rating of Amtek Auto as the company failed to furnish information required to monitor the ratings. Consequently, two of JPMorgan Asset Management’s fixed-income schemes sank sharply. JPMorgan India Short Term Income Fund lost 3.38% in just one day while JPMorgan India Treasury Fund fell 1.73%
* There was a sudden rush from investors to redeem their units, but the fund house capped its redemptions at 1% of the total outstanding units
* Later, Sebi sought information from MF houses on their exposure to JSPL after Icra downgraded the ratings on its papers. As on August 31, the mutual fund industry has an exposure of Rs 4,500 cr to JSPL
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