#Debt Exposure of Mutual Funds to NBFCs

[investyadnya]

Revival in Bank Credit to NBFCs in February 2021

Revival in Bank Credit to NBFCs in February 2021

Introduction: Bank credit to NBFCs has picked up for the first time during FY21 in February, indicating a positive impact of RBI’s liquidity measures and less risk aversion at banks. Recovery in lending by Banks to NBFCs is a good signal for both sectors. This process of lending loans by Banking to NBFCs is also called Shadow Banking. Key Role of NBFCs in improving Credit Growth through…

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#bank credit to NBFCs in February #Debt Exposure of Mutual Funds to NBFCs #Fall in Debt Exposure of Mutual Fund to NBFCs #Improving Exposure of Banks #Investment into Corporate Bonds of NBFCs #Key Drivers of Pick up in NBFC Lending #Key Role of NBFCs in improving Credit Growth through Different Lending Models: #Outstanding Investments in Commercial Papers of NBFCs #Recovery in Bank Credit to NBFC #Revival in Bank Credit to NBFCs in February 2021

[moneycafe]

Mutual funds increase exposure to NBFC debt papers

Mutual funds increase exposure to NBFC debt papers

  Debt mutual funds are gradually increasing their exposure to non-banking finance companies (NBFCs) amid visible signs of recovery, pent-up demand for credit with unlocking of the economy and less-than-expected asset-quality concerns after the second wave of the Covid-19 pandemic. According to latest data, the overall exposure of mutual funds (MFs) in NBFC debt papers increased to ₹1.54-lakh…

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[quantumamc]

Things To Tick Off Before You Invest In Debt Mutual Fund

Investors should keep in mind the following tenets while investing in Debt funds

1.   Debt Funds/ Bond Funds are NOT wealth generating products. Do not expect and try to earn fabulous returns from this product. They are meant to provide returns around what you earn similar in bank deposits subject to market risks and in some cases have better taxability over fixed deposits

2.   Debt Funds can be considered as an alternate option to your existing debt/fixed income investments – Do know that you already have enough money lying in bank savings, deposits, company PF, PPF, endowment insurance.. These are all fixed income investments and Debt mutual funds then should only act as a substitute/alternate to the other investment options depending on liquidity, maturity, and return expectation. Therefore, many would find that they actually don’t need any more fixed income exposure and may need to allocate more to equities.

3.   Debt Funds are NOT Bank Fixed Deposits. Even Fixed Maturity Plans are NOT Bank Fixed Deposits. The returns from a Debt Fund are not guaranteed under any circumstance, including in FMPs, as investors have now found out.

4.   Debt Funds carry

o   Market risks: change in NAV due to change in the prices of the bonds it holds – : happens very frequently as market interest rates change based on changes in the macro environment. Longer tenor bonds are more sensitive to interest rate changes and bond funds which invest in those securities carry higher market risks.

o   Credit Risks: fall in NAV due to deteriorating financial/governance profile of the company in which the fund is invested resulting in credit rating downgrades resulting in higher bond yields and lower bond prices. If this results in a contagion, then bond prices of good companies also get impacted - Recent example – Dewan Housing scare resulting in rising yields of all NBFCs

o   Default Risks: fall in NAV due to non-payment of interest and/or principal by the corporate; Recent Eg- ILFS and its subsidiaries

o   Liquidity Risks: Inability of the fund to sell its investments and meet redemptions of investors due to poor market conditions. Recent eg: in an event of a credit crisis, the sentiment sours and demand for low quality credit papers drop. Thus funds may not be able to sell investments even if they sense trouble.

5.   Debt Funds may require longer time holding periods in order to play out a cycle and also to benefit from the long term capital gains taxation which kicks in after holding period of 3 years.

Debt funds can be classified under 4 broad categories – Liquid and Money Market, Short term, Dynamic/Long Term, Credit Risk Funds.

Liquid Funds –Liquid Funds/Money Market Funds are meant to invest your short term cash surplus. We see no reason whatsoever in taking credit risks and trying to earn higher returns in this segment of your allocation. Choose Liquid Funds which avoid credit risks.

 Short Term Bond Funds - Has higher market risks than Liquid And Money Market funds. This segment generally considered as an alternate option to 1-3 year fixed deposits. So, evaluate between them depending on the pointers mentioned above, especially on the extent of credit risks the fund carries in its portfolio.

Fixed Maturity Plans (FMPs) also tend to be in the 1-3 year category. But FMPs are close ended and investors at most time have to remain fully invested till maturity. FMP portfolios tend to be concentrated and hence should also be closely evaluated on the credit risks, as the recent event has outlined.

Long Term/ Dynamic Bond Fund - Can have very high market risks and is the segment where investors tend to grapple most on the distinction between the aspect of fixed income and volatility in the NAV and returns. Bond Funds often have periods of low and/or negative returns which investors are not prepared for and hence we mention that investors may need to hold it for a longer period for the interest rate cycle to play out. Investing in a Dynamic Bond Fund, which allows the fund manager flexibility to manage the interest rate risk is a better option. We would also recommend to choose Dynamic Bond Funds which take lower credit risks and have a liquid portfolio.

 Credit Risk Funds – We genuinely believe that retail investors should stay away or if at all allocate a very small portion of their investment in this category. The Indian bond market at the current state of its development in this category still remains illiquid and mispriced. This product is only for sophisticated and High Net worth investors. So, if while investing in bond funds for generating fixed income, you are not prepared to absorb any of these risks, then you are better off investing in safe bank deposits.

Quantum Liquid Fund prioritizes safety and liquidity over returns as its investment objective. Quantum Liquid Fund does not invest in any Private Corporate Debt instruments thus minimizing the credit risk. The Returns of the Quantum Liquid Fund may be lower than peers but it also takes lesser risks. Quantum Dynamic Bond Fund takes market risks but runs a liquid portfolio by investing only in government securities, state government securities and AAA/A1+ PSU instruments. We disclose our portfolios of Quantum Liquid Fund and Quantum Dynamic Bond Fund on a monthly basis enhancing transparency. Investors are encouraged to visit the page and peruse the portfolios.

 Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

#liquid fund #debt fund #mutual fund #bonds. #investment #portfolio

[swedna]

After witnessing a fall in the gross non-performing assets (NPAs) ratio in March 2019 — the first time in seven years — Indian banks’ GNPA ratio is set to rise again, as a slowing economy and shrinking credit make the share of bad debt in the loan book larger, according to the half-yearly Financial Stability Report (FSR), released by the Reserve Bank of India (RBI) on Friday.

The system has, however, become better in terms of resilience since since March, the reference point used by the last FSR, thanks to the recapitalisation by the government and measures taken by the central bank, the latest report said, adding that the collapse of any large housing finance company won’t pose as big a risk as it had six months ago.

The gross NPA ratio of banks may increase from 9.3 per cent in September 2019 to 9.9 per cent by September 2020 “primarily due to changes in the macroeconomic scenario, a marginal increase in slippages, and the denominator effect of declining credit growth”, it said.

The report is prepared by the sub-committee of the Financial Stability and Development Council (FSDC) and is released by the RBI. Earlier this week, the Trend and Progress Report had said “further improvements in the banking sector hinge around a reversal in macroeconomic conditions”.

Risks posed by geopolitical uncertainties remain an overhang for the overall financial system. Exports might suffer, but the current account deficit would remain under control, the report said. “Reviving the twin engines of consumption and investment while being vigilant about spillovers from global financial markets remains a critical challenge,” the FSR said.

Aggregate demand slackened in the second quarter of 2019-20, further extending the growth deceleration. Writing the foreword of the report, RBI Governor Shaktikanta Das said the challenge was to “ensure transmission of monetary policy impulses to the advantage of real economies and not to aid build-up of froth in financial markets. We need to be mindful of the ‘cobra effect’ ”.

Slowdown, credit squeeze to increase NPA, but banks more resilient now: RBICobra effect refers to the situation when a solution to a problem makes the problem worse. On its part, the RBI has endeavoured to provide a responsive and proactive monetary policy in an economic environment wherein sources of vulnerabilities are continuously interacting, Das said, reemphasising the importance of good corporate governance across the board, which, according to the governor, “is the most significant factor that can lift the efficiency of our economy to its full potential”. While the banking sector shows signs of stabilisation, PSBs should improve their performance and should build buffers against disproportionate operational risk losses, while “private sector banking space also needs to focus on aspects of corporate governance,” the governor said.

The market is becoming more discerning on prudential concerns around NBFCs, which continue to show signs of restructuring of their underlying business models, according to the RBI governor.

Credit growth of banks was 8.7 per cent year-on-year in September, while deposits grew 10.2 per cent. This is the first time since Q2FY17 that credit growth fell short of deposit growth, the report observed. Credit fell ‘across the board’ for commercial sector. However, private sector banks registered credit growth of 16.5 per cent.

While the GNPA ratio remained unchanged at 9.3 per cent between March and September 2019, the provision coverage ratio (PCR) of the banking system rose to 61.5 per cent in September 2019 from 60.5 per cent in March 2019 “implying increased resilience of the banking sector”, the report said.

Bilateral exposures between entities in the financial system witnessed marginal decline. Private sector banks saw the highest YoY growth in their payables to the financial system, while insurance companies recorded the highest YoY growth in their receivables from the financial system. The size of the inter-bank market continued to shrink with inter-bank assets amounting to less than 4 per cent of the total banking sector assets as at end-September 2019, the report said. This reduction, along with better capitalisation of public sector banks reduced the contagion risk under various scenario compared with March 2019.

Still, banks may have the capital adequacy ratio below the minimum regulatory level of 9 per cent by September 2020 without considering any further planned recapitalisation, the report said. If the macroeconomic conditions deteriorate, five banks might record the capital adequacy ratio of below 9 per cent under a severe stress scenario.

However, the report said 49 of the 52 banks would remain resilient for meeting day-to-day liquidity requirements in case of sudden and unexpected withdrawals of around 10 per cent of the deposits and utilisation of 75 per cent of the credit lines.

The RBI’s latest systemic risk survey (SRS) showed that all the major risk groups, such as global risks, risk perceptions on macroeconomic conditions, financial market risks and institutional positions were perceived as medium risks affecting the financial system. But the “perception of domestic growth risk, fiscal risk, corporate sector risk and banks’ asset quality risk increased between the earlier survey (April 2019) and the current survey.”

The survey participants felt that resolution of the legacy bad assets under the IBC was essential to enable the banking system to support the aspirations of economic growth.

According to another set of survey of 13 banks with regard to assets that were initially assigned to be resolved through the prudential framework (as of June 30), an inter-creditor agreement is yet to be signed for exposures amounting to Rs 33,610 crore while the same has been signed with respect to aggregate exposures of Rs 96,075 crore. However, resolution plan has been implemented only with respect to one borrower with a reported exposure of Rs 1,617 crore.

Mutual funds were the largest net providers of funds to the financial system. Their gross receivables were around Rs 9.40 trillion, or around 37.8 per cent of their average assets under management (AUM) as on September 2019, and their gross payables were around Rs 57,355 crore as at end-September 2019. The top-three recipients of their funds were banks followed by NBFCs and HFCs.

#NPAs

[askgopal]

Can we bank on Banking and PSU funds?!..

Debt fund investors in the recent times have been in a shock, with many regular debt funds registering poor returns, in some cases, even reporting negative returns in between. The turmoil in the debt funds is not without a reason. Some of the erstwhile good quality, highly rated companies which were held as debt securities in the debt funds, were downgraded severely or reduced to default status owing to bad fundamentals, sending the entire industry into a tail spin.

The contagion started with the IL&FS group and went beyond the NBFC and HFC space, with Dewan housing being the latest example of companies facing troubled times with mounting debt. With many NBFCs grappling with liquidity crisis, the entire cycle of debt and servicing the debt, has gone for a toss, with companies like Dewan housing not being able to repay the debt as well as the interest accruals, putting many mutual funds in a tight spot. Such bonds held by debt funds are now facing an uncertain future, in no less magnitude.

So what should the investors do?

Investors, in the recent years, have been investing in debt funds as an alternative to traditional fixed/bank deposits. The main attractions being easy liquidity and attractive returns compared to the FDs. Of late, the falling interest rate has been major source of attraction for debt funds on two counts. One, the falling interest rate scenario is bad for FDs. Second, the falling interest rate scenario is very good for the debt funds, which will see the value of bond prices soaring through the portfolio returns. But then, this crisis in the debt markets have impacted the returns of some of the debt funds.

Investors who have already invested in the debt funds need not panic as the industry is robust enough to tide over this crisis. For the new investors, this isn't the right time to get into plain bond funds, particularly the general or credit risk funds. They can instead look at another debt fund category, which is called "Banking and PSU" fund. The major risk in the general funds is the exposure to corporate debt, many of which are facing significant and enhanced credit risk in the current scenario because of tight liquidity. The credit risk is not done yet as many companies still face the prospects of being downgraded owing to bad financials.

That particular risk, which is called credit risk, is completely eliminated in the "Banking and PSU" funds, which primarily invest in high quality Bank and PSU debt papers which are absolutely high on credit rank and are zero credit risk free. Most of the banks are high quality and the PSUs, which have the comfort of govt backing is a big plus for such funds. Also that these papers are highly liquid in the secondary markets, providing enough cushion to the fund managers while managing the funds, unlike the general funds which are facing turmoil.

Given the downward spiraling interest rate scenario in the economy through series of rate cuts by RBI, Banking & PSU funds are also expected to deliver above average returns, which can comfortably beat the returns given by the FDs. With the debt markets becoming highly volatile and fluctuating, investors are best advised to consult a good financial advisor while making investments in these funds. With the falling interest rate and lack of credible investment alternatives, debt funds, particularly the Banking and PSU funds can be excellent choice within the debt category.  

V GOPALAKRISHNAN

[vgopalakrishnan]

Can we bank on Banking and PSU funds?!..

Debt fund investors in the recent times have been in a shock, with many regular debt funds registering poor returns, in some cases, even reporting negative returns in between. The turmoil in the debt funds is not without a reason. Some of the erstwhile good quality, highly rated companies which were held as debt securities in the debt funds, were downgraded severely or reduced to default status owing to bad fundamentals, sending the entire industry into a tail spin.

The contagion started with the IL&FS group and went beyond the NBFC and HFL space, with Dewan housing being the latest example of companies facing troubled times with mounting debt. With many NBFCs grappling with liquidity crisis, the entire cycle of debt and servicing the debt, has gone for a toss, with companies like Dewan housing not being able to repay the debt as well as the interest accruals, putting many mutual funds in a tight spot. Such bonds held by debt funds are now facing an uncertain future, in no less magnitude.

So what should the investors do?

Investors, in the recent years, have been investing in debt funds as an alternative to traditional fixed/bank deposits. The main attractions being easy liquidity and attractive returns compared to the FDs. Of late, the falling interest rate has been major source of attraction for debt funds on two counts. One, the falling interest rate scenario is bad for FDs. Second, the falling interest rate scenario is very good for the debt funds, which will see the value of bond prices soaring through the portfolio returns. But then, this crisis in the debt markets have impacted the returns of some of the debt funds.

Investors who have already invested in the debt funds need not panic as the industry is robust enough to tide over this crisis. For the new investors, this isn't the right time to get into plain bond funds, particularly the general or credit risk funds. They can instead look at another debt fund category, which is called "Banking and PSU" fund. The major risk in the general funds is the exposure to corporate debt, many of which are facing significant and enhanced credit risk in the current scenario because of tight liquidity. The credit risk is not done yet as many companies still face the prospects of being downgraded owing to bad financials.

That particular risk, which is called credit risk, is completely eliminated in the "Banking and PSU" funds, which primarily invest in high quality Bank and PSU debt papers which are absolutely high on credit rank and are zero credit risk free. Most of the banks are high quality and the PSUs, which have the comfort of govt backing is a big plus for such funds. Also that these papers are highly liquid in the secondary markets, providing enough cushion to the fund managers while managing the funds, unlike the general funds which are facing turmoil.

Given the downward spiraling interest rate scenario in the economy through series of rate cuts by RBI, Banking & PSU funds are also expected to deliver above average returns, which can comfortably beat the returns given by the FDs. With the debt markets becoming highly volatile and fluctuating, investors are best advised to consult a good financial advisor while making investments in these funds. With the falling interest rate and lack of credible investment alternatives, debt funds, particularly the Banking and PSU funds can be excellent choice within the debt category.  

V GOPALAKRISHNAN

[peppernephew7-blog]

Financial sector unnerved by DHFL's payment default

Nomura analysts said the Reserve Bank of India and the government would need to segregate the potential solvency issue at DHFL from liquidity issues at other larger wholesale NBFCs and HFCs.

The latest default on interest payments by Dewan Housing Finance Corporation (DHFL) can accentuate contagion risk in the Indian financial sector as banks, pension and mutual funds, and insurance companies have an exposure of around Rs 1 trillion to the company, warn analysts.

It is crucial, they say, the company sell its assets in time and the government steps in to prevent the DHFL contagion spreading to other financial firms.

“This default could also accentuate contagion risk in the financial sector (in the backdrop of IL&FS’ default last year), leading to higher costs and polarisation of funds to better-rated NBFCs - those with liquid balance sheets will also be better off,” global financial firm CLSA said in a note on Thursday.

Nomura analysts said the Reserve Bank of India and the government would need to segregate the potential solvency issue at DHFL from liquidity issues at other larger wholesale non-banking financial companies (NBFCs) and housing finance companies (HFCs).

“A possible solution could be to provide a liquidity line to solvent NBFCs/HFCs so that the DHFL issue does not lead to a contagion,” they said in a statement.

The fear of a contagion was highlighted by CARE Ratings on Wednesday when it said there had been a deterioration in the liquidity profile of DHFL, with cash and liquid investments decreasing within a month from Rs 4,668 crore (including reserve requirement) as on March this year to Rs 2,775 crore on April 30.

DHFL is expecting a negative cumulative mismatch of around Rs 4,180 crore between June and August in its cash inflows and outflows, CARE said.

Indian banks will have to take a significant haircut and make provisions as they gave loans worth Rs 50,000 crore by way of loans and bonds to DHFL.

Besides, life insurers, including Life Insurance Corporation (LIC), and pension funds have an exposure of another Rs 30,000 crore to the company.

Dewan Housing also raised deposits of Rs 10,000 crore, or 10 per cent of its total liability, from retail investors. It raised another Rs 10,000 crore from mutual funds and via external commercial borrowings.

“Mutual funds, with an exposure of Rs 5,000 crore, or 0.4 per cent of debt AUM, will be the first to take mark-to-market (MTM) hits of as much as 75 per cent.

"Banks will also face similar MTM risks on bond books, but for loans they will follow 90 days past overdue for NPLs (non-performing loan) and time-based provisioning that starts from 15 per cent,” CLSA said.

Analysts said timely sale of DHFL assets would be the key to its survival.

The group has already sold its stake in affordable housing finance company Aadhar, which would bring in Rs 2,700 crore, and plans a three-way split of the company into retail book, corporate book & SRA-financing (slum redevelopment) book and then sell portfolios.

On June 4, DHFL missed interest payments on its NCDs amounting to Rs 960 crore raised in June last year.

According to the trust deed, the company has seven working days to make the payment before it is termed as default.

The company has said it would start repayment from next week.

Image used for representation purpose only

Photograph: Rupak De Chowdhuri/Reuters

Source: https://www.rediff.com/business/report/financial-sector-unnerved-by-dhfls-payment-default/20190607.htm

[flyingbizdeals]

Mutual funds reduce exposure to NBFCs by half in two years

Mutual funds reduce exposure to NBFCs by half in two years

Debt mutual funds have cut their exposure to India’s Non banking Finance Companies ( NBFCs) to almost half from a two year ago period, as underlying asset quality concerns and shaky repayment abilities, drove fund managers to sectors perceived as less risky, industry data from by Securities and Exchange Board of India (Sebi) showed. In the past one year, the NBFC sector has faced severe asset…

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#budget #budget news #money #money news

[supervidyavinay]

By Suresh Sadagopan The going has been tough for debt mutual funds since the IL&FS debacle in mid 2018. This triggered a crisis of confidence and it affected NBFCs and Housing Finance Companies (HFC) in the financial sector. Banks were reeling under the NPA problem already and they had virtually stopped lending to NBFC/ HFC and real estate sector as also to many other businesses with higher risk like MSMEs and other corporates which had cash flow problems/ mismatches. Financial entities and businesses were facing problems while trying to raise loans/ capital and their cash flow problems which impacted their ability to pay back past loans.Such tightening, cashflow problems of the businesses and other issues caused some defaults like it happened with DHFL, Vodafone, Zee Group etc. Many other names have cropped up due to the subdued economic situation, the caution of the banks in view of their high NPAs and the stress they themselves were going through and the problems. This affected retail and institutional investors alike and risk aversion started manifesting.The situation hence was difficult at the start of 2020. Then the corona crisis struck and all hell broke loose. A tough situation got worse as a lockdown was announced and the ability of companies to continue their business was hit badly. On top of that a moratorium was announced, which meant that borrowers need not pay the monthly instalments for some time and can defer it. All this produced panic in the debt markets and many papers turned illiquid. So the exit path was closed for those holding those illiquid papers. And Franklin Templeton had to shutter six of their schemes due to this.There has been a lot of coverage ( mostly adverse ) on debt MFs in the past two years. In this piece, I would like to examine if debt mutual funds are still a good option for investors to consider.About Debt MFsLet us first look at the fundamental premise. Debt MF schemes of various hues invest across durations, credit ratings and ownership profiles. In that sense, Debt MFs taken as a whole, represent the entire debt markets. What happens in the debt markets are bound to impact Debt MFs as well.If there is a liquidity crisis or a credit event, it will impact the debt market as well as Debt MFs, which is a participant in the debt markets. However, depending on which segment of the debt market or which paper gets affected, a set of schemes exposed to that segment/ papers will be impacted.In such unusual times, debt market turbulence can be expected even going forward. That needs to be managed well. Advantages of Debt MFsDebt MFs are great vehicles to manage that. Let us examine the advantages that they offer.Fund Manager oversightA fund manager and his team is always managing the fund as per its mandate and closely monitoring the underlying investments. They are well qualified and are retained to oversee investments on an ongoing basis. They are experts who take necessary actions in the schemes they manage. This ensures that the underlying investments are good as they take appropriate & timely actions in the schemes under their watch.DiversificationDebt fund schemes typically have between 10 to 40 underlying papers, which are chosen as per the fund mandate. Hence, one gets advantage of such excellent diversification even if the amount invested is small. Even in the event of a default or any other trouble, the exposure is a miniscule percentage, to the extent of the holding in those papers only. This is in stark contrast to a direct hit an investor would suffer, if one is holding the exposed paper.Funds across the spectrumDebt funds straddle the entire spectrum of duration, credit play, different management strategies, sectors and themes etc. There are funds for investors who want to invest for the very short-term like overnight funds, liquid funds; there are medium and long-term funds; there are credit risk funds, dynamic bond and corporate bond funds; there are gilt funds, banking & PSU debt funds etc. Hence, an investor can precisely zero in on what s/he wants and invest in the precise category & fund they want to. LiquidityMany debt instruments may not be liquid by its very nature. However, they can be sold in secondary markets. But liquidity may not always be there. However, if one goes through the MF route, the investment is totally liquid. There could be a time period in which there can be an exit load. Beyond that it can be redeemed freely without any penalty.Price discoveryThe NAV is published in the case of debt MF, on a daily basis. Hence, one would know what the value of the investment one has done in a debt MF, at every point. When one cashes out, it will be redeemed on the day’s NAV and one would get the money in a couple of days. Price discovery may be difficult for papers held directly by retail investors as some of these papers don’t trade much. TaxationGains in debt MFs are subject to capital gains treatment, as against the income treatment for most other debt papers. For investments held for a period of up to 36 months, short-term capital gains treatment would apply, where the gains would be added to one’s income. For investments held beyond 36 months and sold, Long Term Capital gains treatment will apply. This leads to better tax adjusted returns, especially when it is beyond a thirty six months holding period.QuantumSome of the papers are available in quantities which a retail investor will not be able to invest like multiple of ten lakh rupees or more. Debt MFs help retail investors participate in opportunities that are otherwise out of bounds for them.Non availability to retail investorsSome papers are placed privately and are not available at a retail level at all. The interest rate also will be higher than what typically a retail investor may get. Again, a Mutual Fund would be able to buy these and a retail investor would be able to participate in these opportunities.Income setup Income can be set up from a debt MF through Systematic withdrawal. The withdrawal in a year needs to be less than what the fund would generate, to be able to sustain. This allows a person to set up the amount of income they need, in the frequency they need. This can be stopped, varied, restarted, withdrawn in a lumpsum manner etc. In the case of many debt instruments, either one has no flexibility in setting up the income they need, or cumulative and regular income cannot be set up at all.The allure of debt MFs has no way dimmed due to the recent happenings. They continue to be one of the best options in the hands of the retail investors. However, one should select the sub-categories and funds with caution as per the needs, invest in them & monitor them. If this is difficult, one should seek professional help.(Suresh Sadagopan is the founder of Ladder7 Financial Advisories, a financial planning firm based in Mumbai.) from Economic Times https://ift.tt/3fx2j8Q

#News #Economy #COVID19

[vsplusonline]

Ask us: On long-term investments — May 4, 2020

New Post has been published on https://apzweb.com/ask-us-on-long-term-investments-may-4-2020/

Ask us: On long-term investments — May 4, 2020

Long-term investment

Q. I am 31 years old and looking for some good investment options on a long-term basis for me and my husband. We can’t have a PPF account as we are NRIs right now. What is the best option for us?

Last week, I started investing in Bajaj Allianz Goal Assure on a monthly basis. Is this a good option?

A. We do not know about your time frame and goal and what plan under the Bajaj Allianz Goal Assure you have chosen. This is a ULIP. So, if your primary purpose is to build wealth, you have to make sure the fund is performing well. Ask your adviser/agent to send regular updates on the growth of your money. If you find the performance not up to the mark in five years compared with mutual funds, consider stopping SIPs then. Try not to invest in bundled insurance products unless you are sure you understand all the features and costs.

As for other investment options, your time frame is paramount in deciding the risk you can handle. Having invested in a ULIP, I am assuming that you are willing to take market risks. If you are an NRI outside U.S./Canada, you can consider some exposure to index funds or ETFs in India. There are funds on the bellwether indices such as the Nifty 50, Next 50 or Nifty 500. You can own a mix of these for the equity component of your portfolio. This should constitute a long-term portfolio for the next 5-10 years, with regular SIPs to average the cost.

For the debt component, for the next 1-1.5 years, the low interest rate notwithstanding, consider NRE deposits in large private or public banks. We may see smaller banks coming under pressure post COVID-19 and hence, you need to be careful with the choice of banks.

This is not a time to chase returns in deposits. Look for safety. Lock into shorter tenures (1-1.5 years and not more). If you have a demat account, you can also check with your broker if they offer government securities (called gilts) and you can invest in those for the long term.

Any top-rated PSU bonds (nothing other than PSU) maturing in 3-4 years, traded in the market, will also be the options if your broker will help you with the same.

If you are based out of the U.S./Canada, your investment options are quite restricted here. It would be better for you to seek the advice of a fee-based investment adviser who is also familiar with the U.S. security and tax laws.

Retiring from the Army

Q. I am retiring from the Indian armed forces at 35. I will get pension and some lump sum in the form of PF, gratuity and other dues. Where and how should I invest my money?

A. We are assuming that you will take up some employment and have some regular income or that your pension will be sufficient for regular expenses. In that case, you can invest this sum for the long term for any goal you may have, including retirement from your next career, a couple of decades later.

If you are very conservative and only safety matters, then consider large pubic or private bank deposits, post office time deposits and deposits with large NBFCs like HDFC or Sundaram Finance. Lock into these for only 1-1.5 years as rates are low now. You can renew them when rates go up a year or two later.

If you can take some risks, then our suggestion would be that you park 20-30% of your corpus in equity index funds such as Nifty 50 or Nifty 500 for a minimum of 7-10 years. You can also park 5-10% of this in Indian funds that invest in U.S. indices such as the S&P 500 or Nasdaq 100.

This will help provide exposure to the U.S. markets, too, by just investing in rupees.

Use a systematic investment plan to invest in these over the next 1-1.5 years and don’t let the market ups and downs worry you. Make sure 70% of your money is in safe in deposits. You can also consider the RBI Taxable Bond available with all major banks. Do not be lured by any high interest rates in deposits. Over the next 1-2 years, high interest will carry far higher risks.

(The author is co-founder, Primeinvestor.in)

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[investglobal]

Ex Blackstone official Punita Sinha set to join InCred Capital

MUMBAI: InCred Capital, a unit of non-banking finance firm set up by former Deutsche Bank top officials including Bhupinder Singh and backed by Anshu Jain, has hired former Blackstone Group public equity business head Punita Kumar Sinha to spearhead its asset management business.

Sinha, wife of former aviation minister Jayant Sinha, will be the chief investment officer of InCred, which is looking to expand to a full-service financial services company from retail and MSME focused NBFC, multiple sources with knowledge of the matter told ET.

“She will be coming on board soon and will be launching a dedicated AMC. The strategy is to expand into investment advisory business. InCred will be setting up a dedicated portfolio management service (PMS) in addition to an alternate investment vehicle, which will take significant exposure in Indian equities,” said one of the sources mentioned above.

Currently, Sinha is founder, Managing Partner and Chief Investment Officer for Pacific Paradigm Advisors, an independent investment advisory and management company, an affiliate partner of US private equity firm Lindsay Goldberg.

A veteran in equity strategy, Sinha headed the world’s largest alternate asset manager Blackstone Group’s public equity business in India. Prior to that she was managing director of Oppenheimer and managed Asia mutual fund business of the firm, including that of India, which was the largest Indian fund in the US at that time.

When contacted, Bhupinder Singh, CEO of InCred declined to comment on the matter. Sinha was not immediately available for comment.

Asset management business is one of the four verticals of InCred Capital, a sister company of the retail/MSME-focused NBFC InCred Finance, backed by high profile investors. InCred Capital is targeted at the institutional and wealth markets and was launched by the InCred Group a few months ago. Its asset management vertical will be developing a large number of strategies with the initial focus being on alternatives including private investment in public equity (PIPE), long short equity, fintech debt and financial inclusion. InCred Capital will also have a flagship PMS long-only product.

Set up by Bhupinder Singh, ex-head of the corporate finance division of Deutsche Bank in 2016, InCred has high profile investors such as Anshu Jain, Gaurav Dalmia and Ranjan Pai. InCred currently has close to Rs 2000 cr assets under management.

In its wealth management, InCred now has 50 relationship managers under the leadership of Nitin Rao, an industry stalwart with 30 plus years of experience building and managing HDFC’s private banking business.

Rao will be joined shortly by a global private banking veteran managing $100 bn plus assets under management at a large global firm, said a source.

InCred Capital has also entered wholesale debt capital markets by hiring a market leading team. It has also launched a structured credit business within this division and is working with a number of global fund partners to look at Indian special situation transactions, said two people familiar with the matter.

On the advisory front, InCred Capital is in the midst of acquisition discussions with some well-known names in the Indian market.

A senior executive, who ran a European bank’s Asia capital markets/ investment banking business, will spearhead the capital markets and advisory units at InCred.

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[onlevelup01]

MUMBAI: Banks and mutual funds scrambled on Thursday to contain the fallout of the default by Altico Capital, with investor attention turning to non-banking finance companies’ liquidity problems on the eve of the first anniversary of IL&FS’ bankruptcy. On Friday, ratings agency India Ratings & Research cut Altico’s creditworthiness to ‘D’, or ‘default’ category, from A+ earlier. Care, another ratings agency, downgraded the finance company’s debt to below investment grade. Meanwhile, mutual funds such as UTI and Reliance Nippon AMC rushed to ring fence the value of their debt schemes by segregating, or ‘sidepocketing’, Altico’s securities.“The revision takes into account Altico’s significant exposure to real estate sector which is witnessing a slowdown and experiencing heightened refinancing risk which is reflected to an extent with moderation in asset quality of the company,” Care said in a statement.Shares of banks and nonbanking finance companies (NBFCs) ended mixed on Friday as some investors fretted about a possible repeat of last year’s scare and subsequent market meltdown caused by the default and eventual bankruptcy of IL&FS.The default in the last week of September 2018 had triggered a market crisis and brief credit shutdown to over-leveraged finance firms and their clients.Many NBFCs are yet to recover from the 2018 crisis, and investors are still nervous about the poor liquidity condition of many small players. On Friday, mutual funds were quick to take advantage of ‘sidepocketing’ rules put out by the Sebi after the IL&FS crisis, which allow funds to segregate illiquid securities from defaulting companies till the fund houses are able to realise some value from these papers. The process creates two schemes — one that contains the illiquid paper and the other holding the good ones. As and when fund houses are able to recover money from Altico Capital, it will be distributed to investors in proportion to their holdings in the segregated portfolio.UTI Credit Risk Fund, with assets of Rs 3,536 crore, has an exposure of Rs 202.82 crore to Altico papers (5.85% of assets under management). Reliance Ultra Short Duration Fund, with assets of Rs 3,258 crore, has an exposure of Rs 150 crore (4.61% of assets under management).In a note, UTI Mutual Fund said existing investors shall be allotted the same number of units in the segregated portfolio of the scheme as in the main portfolio. “No subscription and redemption will be allowed in the segregated portfolio. The AMC will disclose separate NAV of segregated portfolio and enable transfer of such units on receipt of transfer requests,” it said. Reliance Nippon AMC said it will suspend all subscriptions in the affected fund from September 13 till further notice. The fund house said it had informed investors about the segregated portfolio in the scheme and given them time till September 24 to redeem units. The AMC said it will create a segregated portfolio on September 25.Top Indian lenders including HDFC Bank, State Bank of India Yes Bank and UAE-based Mashreq Bank had provided a six-year, Rs 340-crore loan to Altico. On Thursday, the finance company failed to pay Rs 20 crore that was due as interest. The NBFC’s total debt amounts to about Rs 4,000 crore.Mashreq Bank has the highest exposure to Altico with Rs 660 crore of outstanding term loans, including external commercial borrowings. Among Indian lenders, HDFC Bank has the maximum exposure at Rs 500 crore, followed by Yes Bank at Rs 450 crore and SBI at Rs 400 crore, according to a report by India Ratings.BANKERS SAY EXPOSURE SMALL Spokespersons from HDFC Bank, Mashreq Bank, Yes Bank and SBI did not reply to emails seeking comment. However, officials of these banks said on the condition of anonymity that their exposure was relatively small and manageable. “Our exposure is peanuts compared to our Rs 12-lakh-crore loan book. It is half of what has been projected in the India Ratings report. I do not think this account poses any serious risk to us since we have enough securities covering the loan,” said a senior official from HDFC Bank. A senior SBI official too said his bank’s exposure was negligible. “I don’t think we have such an exposure. And even if true, it is too small to impact us. It looks like a case of cash flow mismatch that can be resolved,” he added. Some analysts, however, said the incident has heightened risks of contagion in the debt-laden NBFC sector. “If a company with such marquee investors faces liquidity stress, then it raises concerns for others. Banks will be reluctant to lend to these companies, which could worsen the liquidity squeeze,” said Nitin Aggarwal, an analyst at Motilal Oswal. from Economic Times https://ift.tt/2NdoQ0n

#Blogger

[headlines-twentyfour]

MUMBAI: Banks and mutual funds scrambled on Thursday to contain the fallout of the default by Altico Capital, with investor attention turning to non-banking finance companies’ liquidity problems on the eve of the first anniversary of IL&FS’ bankruptcy. On Friday, ratings agency India Ratings & Research cut Altico’s creditworthiness to ‘D’, or ‘default’ category, from A+ earlier. Care, another ratings agency, downgraded the finance company’s debt to below investment grade. Meanwhile, mutual funds such as UTI and Reliance Nippon AMC rushed to ring fence the value of their debt schemes by segregating, or ‘sidepocketing’, Altico’s securities.“The revision takes into account Altico’s significant exposure to real estate sector which is witnessing a slowdown and experiencing heightened refinancing risk which is reflected to an extent with moderation in asset quality of the company,” Care said in a statement.Shares of banks and nonbanking finance companies (NBFCs) ended mixed on Friday as some investors fretted about a possible repeat of last year’s scare and subsequent market meltdown caused by the default and eventual bankruptcy of IL&FS.The default in the last week of September 2018 had triggered a market crisis and brief credit shutdown to over-leveraged finance firms and their clients.Many NBFCs are yet to recover from the 2018 crisis, and investors are still nervous about the poor liquidity condition of many small players. On Friday, mutual funds were quick to take advantage of ‘sidepocketing’ rules put out by the Sebi after the IL&FS crisis, which allow funds to segregate illiquid securities from defaulting companies till the fund houses are able to realise some value from these papers. The process creates two schemes — one that contains the illiquid paper and the other holding the good ones. As and when fund houses are able to recover money from Altico Capital, it will be distributed to investors in proportion to their holdings in the segregated portfolio.UTI Credit Risk Fund, with assets of Rs 3,536 crore, has an exposure of Rs 202.82 crore to Altico papers (5.85% of assets under management). Reliance Ultra Short Duration Fund, with assets of Rs 3,258 crore, has an exposure of Rs 150 crore (4.61% of assets under management).In a note, UTI Mutual Fund said existing investors shall be allotted the same number of units in the segregated portfolio of the scheme as in the main portfolio. “No subscription and redemption will be allowed in the segregated portfolio. The AMC will disclose separate NAV of segregated portfolio and enable transfer of such units on receipt of transfer requests,” it said. Reliance Nippon AMC said it will suspend all subscriptions in the affected fund from September 13 till further notice. The fund house said it had informed investors about the segregated portfolio in the scheme and given them time till September 24 to redeem units. The AMC said it will create a segregated portfolio on September 25.Top Indian lenders including HDFC Bank, State Bank of India Yes Bank and UAE-based Mashreq Bank had provided a six-year, Rs 340-crore loan to Altico. On Thursday, the finance company failed to pay Rs 20 crore that was due as interest. The NBFC’s total debt amounts to about Rs 4,000 crore.Mashreq Bank has the highest exposure to Altico with Rs 660 crore of outstanding term loans, including external commercial borrowings. Among Indian lenders, HDFC Bank has the maximum exposure at Rs 500 crore, followed by Yes Bank at Rs 450 crore and SBI at Rs 400 crore, according to a report by India Ratings.BANKERS SAY EXPOSURE SMALL Spokespersons from HDFC Bank, Mashreq Bank, Yes Bank and SBI did not reply to emails seeking comment. However, officials of these banks said on the condition of anonymity that their exposure was relatively small and manageable. “Our exposure is peanuts compared to our Rs 12-lakh-crore loan book. It is half of what has been projected in the India Ratings report. I do not think this account poses any serious risk to us since we have enough securities covering the loan,” said a senior official from HDFC Bank. A senior SBI official too said his bank’s exposure was negligible. “I don’t think we have such an exposure. And even if true, it is too small to impact us. It looks like a case of cash flow mismatch that can be resolved,” he added. Some analysts, however, said the incident has heightened risks of contagion in the debt-laden NBFC sector. “If a company with such marquee investors faces liquidity stress, then it raises concerns for others. Banks will be reluctant to lend to these companies, which could worsen the liquidity squeeze,” said Nitin Aggarwal, an analyst at Motilal Oswal. from Economic Times https://ift.tt/2NdoQ0n

#Blogger

[swedna]

Market regulator the Securities and Exchange Board of India has reduced the sectoral caps for debt mutual funds to 20 per cent from 25 per cent. It has also reduced the additional exposure limit allowed in case of housing finance companies (HFCs) to 10 per cent from 15 per cent. These changes, however, may not have an immediate impact for the mutual fund industry but will “significantly reduce the financial flexibility” of non-banking finance companies (NBFCs), says Kotak Institutional Equities.

MFs exposure to non-banks (including PFC and REC) has declined to 36 per cent in May 2019 from 39 per cent in September 2018. Excluding PFC and REC, the ratio was 28 per cent in May 2019, in line with the new effective cap of 30 per cent. Within this, the exposure to NBFCs was 18 per cent and HFCs was marginally higher than the new cap at 11 per cent,” says a note by the brokeage.

“NBFCs make concerted efforts to diversify funding avenues from banks to mutual funds, insurance companies, foreign borrowings, retail bonds in order to optimize funding costs as well as reduce dependence on any single source. The new regulations will structure reduce the leeway for NBFCs especially in the backdrop of the recent Sebi regulation that prescribed large borrowers to raise 25 per cent of incremental borrowings from bond markets from FY2022,” the note added.

#NBFCs

[askgopal]

Should investors invest in debt funds?

Many debt fund investors in India are facing lock down during the times of lock down, if I may use the buzz word of the current times.  Locking down of six prominent debt schemes by one of the renowned asset managers, Franklin Templeton has sent shock waves across the investors' community and the financial markets in general. So much so that the ripples were felt in the stock markets too. After all, shutting six debt funds at one go is something unprecedented in this industry going by the past history. The said funds have been shut down owing to severe liquidity crisis precipitated by disproportionate redemptions during the short term, due to which the fund house has not been able to liquidate all of those holdings to fund the investors. Moreover, distress sale of the securities may lead to erosion of capital and eventually the investors may not even get back their principal. Taking that into consideration, the fund house has chosen to suspend the schemes for transactions.

Now that those funds are locked for transactions, investors need to wait till the bonds in those schemes are liquidated as and when opportunity arises. Now the key question is - should the investors pull out from the other debt funds 2) should the investors stay away from the debt funds altogether.

It's a fact that the debt markets in the country are in a state of acute distress due to the crisis engulfing the NBFC space in the country, owing to series of downgrades and defaults in the debt instruments of various companies. Holders of such papers will see a sharp erosion in the value and in some cases may even lead to write off in such papers. Mutual funds in the recent past have been troubled by such downgrades and defaults in the securities held by them. With the Covid-19 crisis rubbing salt to the existing wounds, debt markets are in a dire strait. Of course, these kind of stressful conditions are new to the markets, given the fact that the debt markets have never been this stressful in the past, even during the 2008 financial crisis. 

Investors, who are already invested in other debt schemes of various mutual fund houses should definitely go in for a review of their investments, without doubt. But that should not warrant panic selling or panic pull out from those funds, without fully understanding the quality of the portfolios. What happened at Franklin Templeton need not happen with the other fund houses. Most of the funds, even in high risk categories like Credit risk would have high quality papers with some marginal exposure to high risk papers in the category. Investors based on the review of their existing debt portfolios can reshuffle the funds based on the portfolio quality and the time horizon. In the meanwhile the stress in the debt markets would continue in the interim till such time RBI and SEBI step in to provide life line to the debt funds. Even otherwise, the current crisis arising out of Covid-19 will linger on for some more time in the future, thereby adding more stress to the debt markets in a substantial way. The NBFC crisis and the associated risks in the debt markets are here to stay for some more time. But the quality matters for the investors.

Should the investors invest in debt funds in the current scenario?

First of all, the answer to the question depends on the risk appetite of the investors. Any investment in mutual funds, be it debt or equity is risky depending on the category. And they are linked to market dynamics adding more shocks like the one we saw in Franklin Templeton schemes. Having said that, the debt funds for a period of 2-3 years or even longer should generate above average returns compared to the other fixed return instruments like Bank FDs and various other schemes. Given the fact that the interest rates in the country is on a downward spiral, one can expect lesser and lesser returns from Bank FDs and other instruments like NCDs. 

Compared to that, debt funds are still a viable category of investments for the investors who would want to make better returns than the Bank FDs. But that comes with an additional risk should be a fact fully understood by the investors. In the current scenario marred by abysmally low interest rate and volatile stock markets, debt funds as a category still offer some good investment choices to the investors. Needless to say, investors should focus on quality portfolio while investing through debt funds. With the RBI set to cut repo rates to boost the growth, the interest scenario is poised to slide down even further making debt funds, an attractive proposition in the current scenario. Of course, one must be very cautious about quality of the portfolios, the risk levels and a compulsory periodical review. The lock down of schemes by Franklin Templeton, should be taken as a one off case in the industry and it may not be contagious, hopefully. Investors in such dried up investment scenario can still hunt for some good debt investment choices through proper due diligence. Seeking the assistance of a financial advisor should be a good way to filter the right funds to invest in the current scenario.

Happy Investing!

[consumerinfoline]

IL and FS redux; Zee group MF debt exposure at Rs.7,000 crore

IL and FS redux; Zee group MF debt exposure at Rs.7,000 crore

In an IL and FS redux, Zee group companies’ exposure to the mutual fund debt and non banking financial companies industry is estimated at Rs.12,000 crore–Rs. 7,000 crore to MF debt and Rs. 5,000 crore to NBFCs.

The MF debt exposure is reportedly entirely at Zee promoter level. Exposure to Birla MF was Rs. 2,900 crore while it was Rs. 1,000 crore in the case of HDFC. The exposure to ICICI Pru was…

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