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Our Bureau

Kolkata, Dec. 9 Rating agency Crisil on Tuesday said a majority of the debt schemes have single industry concentration and that many small schemes have single company exposure, representing a high risk of losing money.

A concentrated portfolio increases the risk of investors losing a large chunk of their capital in the event of a single default. Crisil felt that debt funds with large and illiquid single company exposures could be affected by redemption pressure.

Crisil has defined portfolios where more than 25 per cent of AUM (assets under management) is exposed to a single industry or company as “significantly exposed”.

The rating agency said almost all debt schemes have significant exposure to at least one sector. Half of the schemes have significant exposure to the banking sector and 38 per cent have a significant concentration in the NBFC sector.

Of the 58 debt schemes that have AUM of Rs 1,000 crore and above, only two are “significantly exposed” to single companies.

However, of 802 schemes studied by Crisil, 249 have significant exposure in one company. While the larger schemes are well-diversified exposure, 30 per cent of the smaller schemes have significant single company exposure. .

Contrary to widespread perception, Crisil found that exposure of debt schemes to the real estate sector was relatively low. According to Mr Tanun Bhatia, Head of the financial sector rating at Crisil, only 5 per cent of debt mutual funds’ AUM consists of real estate sector debt. More importantly, not more than 3 per cent of debt mutual funds have significant exposures to the real estate sector.

Most debt funds, however, had not compromised on the quality in search of returns, and investors therefore “have little reason to fear defaults” eroding the value of their investments, Crisil said.

“Nevertheless, lack of adequate portfolio diversification does remain an issue”, said Crisil’s Chief Executive Officer, Ms Roopa Kudva.

Most funds have worked towards mitigating concentration risk by investing in highly rated credits as the rating distribution statistics indicate. Investments that are rated ‘AAA’ and ‘P1+’, the highest rating categories, constitute 82 per cent of the portfolios analysed by the study. ‘AA’ category represents another 6 per cent with decent ratings.

About 860 schemes, excluding gift schemes, were analysed by Crisil, covering 96 per cent asset under management of debt funds in the country.

More Stories on : Mutual Funds | Credit Rating

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