Over to Investors Now!

The unfolding of events in the mutual fund industry over the last couple of years has proved that debts are not as boring as they are considered to be. In a span of two years, the debt market has seen all – credit crisis, liquidity crisis and redemption pressure. It all started with the default of Infrastructure Leasing and Financial Services, which was the best-rated paper just a few months before its default. This opened the floodgates – mutual fund investments in the papers of Dewan Housing Finance, Yes Bank, Essel Group companies and Vodafone went bad in succession. The biggest shock was yet to come in the form of closure of six debt funds by one of the oldest and well-reputed mutual fund house in India, Franklin Templeton India.

All these events led to a change in the perception of common investors about the safety of debt funds. Keeping such events in mind, capital market regulator SEBI issued a circular last week that should help in checking the repetition of such catastrophes. It makes it mandatory for AMCs to undertake at least 10 per cent of their total secondary market trades by value in corporate bonds through the ‘request for quote’ platform of stock exchanges. This will help boost liquidity of the secondary market bond transactions and lead to better price discovery.

The second important change that has been announced is that now debt funds must disclose their portfolios every 15 days. In addition to this, debt funds also need to disclose the ongoing yield on their underlying holdings. Adding those extra layers of disclosure will go a long way in helping investors to take informed decisions about their debt investments. For example, the yield disclosure of individual papers will give investors a sense of how risky a paper held by the fund is. Also he can check this every 15 days. Now the onus is on the investor to keep a close eye on his debt funds and take necessary action whenever he feels that the fund does not suit his risk appetite. 

SHASHIKANT