InvestorQ : Why have analysts been warning that debt fund outflows could post a bigger risk in the coming months for mutual funds?
ishika Banerjee made post

Why have analysts been warning that debt fund outflows could post a bigger risk in the coming months for mutual funds?

Answer
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Niti Shenoi answered.
5 months ago


There are a number of reasons why one needs to be sceptical about the performance of debt funds in India.

a) Firstly, the solvency pressure on Indian companies is beginning to show and the situation has only worsened since IL&FS in 2018.

b) The lockdown likely to lead to business disruption, risk of corporate debt looks a lot more elevated.

c) In addition, there is the risk of yields going up higher. One may wonder why yields would go up when the RBI has cut rates by 75 bps. With the government expected to run a huge fiscal deficit in 2021, the pressure on bond yields will be high.

d) Higher borrowings could lead to higher yields and negative impact on debt returns. That is obvious with the GOI borrowing at 200 bps above the repo rate.

e) SEBI is yet to formulate its policy of relief for investments in stressed debt investments and that could show in the coming months.

f) NBFC debt could come under stress for MF debt funds as they need to offer the EMI deferral but will not get the benefit from banks.