Mumbai: Investors may grow more cautious of buying money market funds after IL&FS Financial Services Ltd. defaulted on its short-term borrowings, according to ICRA Ltd, the Indian unit of Moody’s Investors Service.

IL&FS Financial Services couldn’t repay some of its commercial papers on due date, though the company later settled the debt on August 31, an exchange filing showed on Thursday. The default is likely to drive risk aversion among investors who have been piling into the commercial paper market as rising bond yields make long-term debt unattractive.

“In the near term, expect investors to look at the mutual fund scheme fact sheet more closely before taking investment decisions," said Karthik Srinivasan, the Mumbai-based group head of financial sector ratings at ICRA Ltd., the local unit of Moody’s. “While there would be more caution, we are not expecting commercial paper rates to rise or markets to dry up."

Issuance of commercial papers rose almost 50% from the previous year to a record 4.9 trillion in three months to June 30, according to data compiled by ICRA. IL&FS Financial Services won’t be able to issue commercial papers until February 28, as the Reserve Bank of India’s rules ban delinquent issuers from accessing the market for six months from the day of default, the filing showed.

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