Small debt funds face concentration risk

Small debt funds face concentration risk

Mumbai: Nearly a third of India’s small fixed income funds have parked more than a fourth of their assets in one company, posing a concentration risk to their portfolio, a study of 860 funds by rating agency CRISIL have showed.

Almost all debt schemes have significant exposure to at least one sector. However, 82% of the portfolios were invested in highest quality papers, the agency said in a note.

“Most debt funds have not compromised on credit quality in search of returns, and investors therefore have little reason to fear defaults eroding the value of their investments," said Roopa Kudva, managing director and chief executive, CRISIL.

“Nevertheless, lack of adequate portfolio diversification does remain an issue," Kudva added.

Half of the schemes under study have invested more than a fourth of their assets in the banking sector and 38% have similar exposure to the non-bank financial company sector.

“However, only 5% of debt funds assets were parked in the real estate sector. Also, not more than 3% of debt mutual funds have significant exposure to the sector," said Tarun Bhatia, head of financial sector ratings at CRISIL.