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ICRA move takes AMFI by surprise

Ratings agency has put six MF schemes under watch for their exposure to IL&FS

The decision of ratings agency ICRA to place six mutual fund schemes under watch, with negative implications, due to their exposure to the IL&FS group has taken the Association of Mutual Funds in India (AMFI) by surprise.

According to N.S. Venkatesh, chief executive, AMFI, the exposure of these funds to the IL&FS group must be understood in the context of the nature of these investments. “These are SPV [special purpose vehicle] -linked investments which are ring-fenced,” he said. The fund flow into these SPVs was operated through escrow accounts. Hence, the money invested by these funds were secure, he added.

The NCLT’s intervention in the IL&FS case under the Insolvency and Bankruptcy Code had perhaps pushed the ratings agency to take such a decision, he said.

He reckoned that this was a standard reaction by ICRA. These reactionary positions could have negative implications for raising debt money for infrastructure projects, he felt.

Mr. Venkatesh said AMFI had made a case for debt-linked savings scheme on the lines of equity-linked savings scheme. Such debt-linked savings schemes would help small investors participate in bond markets at low costs and at a lower risk, as compared with equity markets. “This will also bring debt- oriented mutual funds on a par with tax saving bank fixed deposits, where deduction is available under Section 80C,” AMFI said in its proposal.

Debt capital

Post the development financial institution era, the responsibility of providing debt capital in India has largely rested with the banking sector. This has seen some avoidable negative fallouts.

Post IL&FS imbroglio, the need for a vibrant bond market has assumed urgency. “Though several committees [such as the R.H. Patil Committee (2005) and Raghuram Rajan Committee (2009)] had studied various aspects of the issue and made recommendations, the progress has not been as desired,” the AMFI said. Mr. Venkatesh said AMFI had sought a level-playing field for MFs vis-a-vis investment in retirement solutions.

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