Investors trip on ratings downgrades

Sebi's attempt to plug loopholes may help investors deal with sudden changes in credit ratings

In the past couple of years, debt fund investors have found themselves in sudden and deep trouble when credit rating agencies (CRAs) have made abrupt multi-notch downgrades of companies. Investors in Franklin Templeton Mutual Fund’s debt funds, for example, saw a sharp erosion in the net asset values (NAVs) due to the fund house’s exposure to Jindal Steel and Power (JSPL)’s bonds. The bonds of JSPL saw sharp downgrades in less than two weeks’ — from AA- to BB+, and then, to D. Many investors, worried about the schemes’ future performance, chose to exit. There have been many other fund