A majority of debt mutual fund schemes’ investments are concentrated in a single industrial sector and many small schemes have concentrated exposures to a single company, posing significant risks to investors.
According to an analysis of 860 debt fund schemes which cover 96 per cent of assets under management (AUM) by ratings agency CRISIL, almost all debt schemes have significant exposure to at least one sector.
Half of the schemes have a significant exposure to the banking sector, and 38 per cent have a significant exposure to the non-bank financial company (NBFC) sector. Contrary to widespread perception, exposure to the real estate sector is relatively low. A concentrated portfolio increases the risk of investors losing a large chunk of their capital in the event of a single default.
Even worse is single-company exposure. At least 250 of the companies studied have significant exposure to at least one company, Crisil noted.