Mutual fund exposure to corporate bonds stayed flat in past five years: Report

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reported Business Standard. Actively-managed debt funds were managing ₹6.73 lakh crore at the end of April 2019. Last month, their assets grew by 9 per cent to ₹7.3 trillion.

This happened while the overall industry assets under management (AUM) doubled during this period, according to the Association of Mutual Funds in India (Amfi) data. The AUM includes the assets of fixed-term plans and Bharat Bond ETFs, and excludes overnight, liquid, money market and gilt funds. The AUM of corporate bond-focused MF schemes, however, doesn't accurately reflect investors’ aversion to corporate paper.

Many of these schemes also invest in government securities (g-secs), state development loans (SDLs), and money market instruments, which continue to be favoured. Ananth Narayan, a member of the Securities and Exchange Board of India (Sebi), said at an event earlier this week that the drop in participation is largely due to a loss of investor confidence triggered by the IL&FS crisis and is hurting capital formation. “We’ve lost five years of capital formation in the debt markets because people lost trust in the ecosystem," he said Fund managers’ preference for sovereign bonds in the recent past has also impacted MFs’ corporate bond investments.

G-secs remain the go-to option for duration above five years, a preference accentuated by low spreads between g-secs and corporate bonds until recently. “Our g-sec position is largely driven by our belief that yields are bound to move lower. Thus, we prefer to add longer maturity papers in our funds.

G-secs turn out to be our preferred route as corporate bonds for longer maturity are few and illiquid. Moreover, we believe the fall in the yield curve will be driven by higher demand for g-secs. This