Mutual funds lap up perpetual bonds for higher yields

Exposure of debt schemes to these bonds jumps 8-fold in past 1 year

Mutual funds (MFs) are lapping up perpetual bonds issued by public sector banks (PSBs), with the amount invested in such bonds rising nearly eight times in the past year. The assets of debt schemes in these bonds, also known as additional tier-1 bonds, have risen to about Rs 16,000 crore from Rs 2,000 crore a year ago, estimates from Value Research suggest.
 
PSBs are issuing these instruments in an effort to shore up their tier-1 capital, to comply with the Basel-III norms. These bonds offer a higher yield of 9-12 per cent, and are being added to their portfolios