Mutual Funds trust sovereign the most for deploying debt funds

When it comes deploying their resources for long term debt products, the mutual funds bet the most on the government securities or the sovereign, an ASSOCHAM analysis has shown.

"Making extra bucks in the short term and safety through risk aversion in the long term is the name of the game for the mutual funds operating in the debt space, " the analysis done by the chamber based on the market data has pointed out.

For deploying of money in assets with maturity period of one year and above, the government securities are considered to be safest bet for the Mutual Funds (MFs). This segment alone contributes about 20 per cent of the total Asset Under Management (AUM) of the MFs, month after month.

 

But as far as the deployment of the MF resources in the financial products of three to six months maturity is concerned, the non-banking finance companies, (NBFCs), bank certificates of deposits are among the favourite avenues for the MFs.

Interestingly, even for the short term maturities of three months and up to six months, the treasuy bills of the government are quite popular for AUM deployment , if not the top most choice. For short durations the money, corporate bonds, commercial paper of NBFCs and bank deposits account for a sizeable portion of the fund deployment.

"The market for the debt instruments of the private corporate sector is yet to emerge in India, thus making the companies depend more on the term finances from the commercial banks," says the ASSOCHAM spokesman.

Illustratively, in August this year, the MFs had invested Rs 1.19 lakh crore in government securities with over one year maturity, accounting for over 21 per cent of the total AUM.

But for the shorter maturities, bulk of the money went into NBFCs and banks deposits, though the treasury bills occupied a significant place here as well. The T-bills accounted for over 12 per cent of the asset under management for the MFs even for shorter duration of up to 90 days.

"Debts are typically products which are sold among those seeking more security and less of growth. In the Indian context, the confidence factor is for the sovereigns for the long term," the ASSOCHAM paper noted.

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