InvestorQ : Are the defaults on bonds held by mutual funds still a serious problem?
diksha shah made post

Are the defaults on bonds held by mutual funds still a serious problem?

Answer
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rhea Babu answered.
4 months ago


A recent report by CRISIL on the status of bond funds indicate that while there have been losses for debt funds, the situation on the ground is not alarming as it is made out to be. According to the report, 22 companies that issued bonds to mutual funds defaulted since July 2018 when the IL&FS crisis first triggered a spate of NBFC defaults. The total hit to Debt Mf portfolios due to these holdings was to the tune of Rs.17,700 crore. However, this is a very concentrated list and many defaults may still not have been recognized. Nearly 90% of these defaults could be attributed to IL&FS, ADAG, DHFL and Yes Bank, while the rest were fairly small in size. In terms of categories affected by these defaults, the top of the rung was credit risk funds followed by medium duration funds and aggressive hybrid funds. Now, for the good news from the report! CRISIL has also noted that 92% of debt fund assets were in safe assets like cash, short term debt and government securities, treasury bills and it is only 8% of the assets that were facing some sort of default risk. Even if you consider a 50% write down on these holdings, the overall macro impact on debt funds may not be much.