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Notwithstanding the ongoing front-running investigation on Quant Mutual Fund by SEBI, the banking regulator RBI has found 28 open-ended debt schemes of 12 mutual funds with total assets under management of ₹1.76 lakh crore under stress in April.
The capital market regulator SEBI has mandated asset management companies to carry out stress test on all open-ended debt schemes every month to evaluate the impact of various risk parameters including interest rate, credit and liquidity faced by these schemes on their net asset values, said RBI in its Financial Stability Report on Thursday.
The Association of Mutual Funds in India and AMCs specify the thresholds of impact for risk parameters and any breach of this limits need to be reported and remedial action should be taken, it added.
RBI said all the MFs have reported initiation of remedial action to be completed in the prescribed timeframe.
The regulator consider redemption at risk (RaR) and conditional redemption at risk (CRaR) as part of liquidity risk management for open-ended debt schemes. While RaR represents likely outflows at a given confidence interval, the CraR denotes the behaviour of the tail at the given confidence interval.
Liquidity ratios
All AMCs are mandated to maintain these liquidity ratios above the threshold limits which are derived from scheme type, asset composition and potential outflows modelled from investor concentration in the scheme.
MFs are required to carry out back-testing of these liquidity ratios for all open-ended debt schemes (except overnight, gilt and gilt funds with 10-year constant duration) on a monthly basis.
The LR-RaR and LR-CRaR computed by top 10 MFs (based on AUM) for 13 categories of open-ended debt schemes for March were well above the respective threshold limits for most of the MFs.
A few instances of the ratios falling below the threshold limits were addressed by the respective AMCs in a timely manner, said RBI in its report.
In April, the mutual fund industry has seen a net inflow of ₹1.90 lakh crore in debt schemes against a net outflow of ₹1.98 lakh crore in March. Banks have the phenomenon of pulling out money before the quarterly and financial year end and ploughing it back the next month to avoid mark-to-market provisioning, said a debt fund manager.
He added the inflows into debt schemes have been volatile on the back of prolonged expectations of repo rate cut by RBI.
The huge volatility in the inflow would have led to breach of stress test benchmarks and this gets corrected in due course, he said.
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