The debt funds market, of late, is in news for all wrong reasons --- losses, write downs, write-offs and downgrades. Aniruddha Chaudhuri, head - retail sales of ICICI Prudential AMC, in an interview to Kumar Shankar Roy says this is not an industry-wide problem and that fund houses see the current situation in the debt market as an investment opportunity, especially in credit risk category of funds given its attractive valuations. With over 17 years experience in banking and financial service industry, he could be right.
How big is the retail business in ICICI Prudential MF?
At ICICI Prudential Mutual Fund, we are present across 350 locations pan-India. 85% of distributors sell our products, thereby helping us reach locations where we may not be present. In effect, 70% of our assets under management is retail in nature, which currently stands at Rs 2.16 lakh crore, as of May 2019.
There is a lot of noise related to debt mutual funds. What should investors do in this scenario? Should they be wary or take advantage of the opportunity?
There has been a lot of negative buzz around debt mutual funds. For investors, it is important to understand that the trouble is limited to certain schemes of select fund houses. It is not an industry-wide problem as it is perceived to be. We see the current situation in the debt market as an investment opportunity, especially in credit risk category of funds given its attractive valuations. The yield currently is at 10%.It could be beneficial to lock-in investments at current high yields.
But, existing investors have faced bad experiences with debt funds. Why should they repose their faith?
We at ICICI Prudential MF had zero exposure to the troubled debt papers. In fact, we have not faced a single day delay in payment of interest or principle from the debt issuers so far. As a result, the investor experience for our funds has been good. Over the recent months, data suggests there has been a flight to safety among debt mutual fund investors and we have been one of the beneficiaries. As a fund house, we have been able to avoid the troubled names due to the stringent credit due diligence.
What about group concentration in debt funds? We have seen many debt funds having 10-20% exposure to one group. When the group or its flagship faces trouble, everything falls apart...
For us, the credit rating provided by an independent rating agency is just one of the inputs and not the sole factor in the decision-making process. As a means to avoid concentration risk on the individual scheme level, we have ensured that our portfolio is spread across 87 securities and our average exposure to each security stands at 1.1%.
Such a structure ensures that the portfolio does not come under stress even at adverse times.
Even with solid group exposure, debt funds have problems. How do you manage this situation?
Given the recent events, the asset (investment) side of the mutual funds has come under scrutiny. But it is also important to maintain granularity on the liability (asset under management) side as well. Therefore, when it comes to ICICI Prudential Credit Risk Fund, we have a limit of Rs100 crore stipulated on investment from a single investor. Focus needs to be on ensuring adequate diversification both on the asset and liability side of a portfolio.
How does credit selection work in your debt funds? How did you avoid all the troubled debt papers, which were present in many other fund house portfolios?
In terms of the process followed, we have an independent Investment Risk Management team which oversees credit evaluation and approval processes.
We follow 'four-eyes' concept for approval of credit investments with the decision to invest in any debt instrument being taken after in-depth credit review and not based on the sole judgment of the Fund Manager.
We ensure that investments are made only after appropriate credit due diligence and with requisite credit approvals. Credit due diligence requirements include both qualitative (management profile, industry outlook, competitive positioning, key risks and mitigation) and quantitative (financial and operating parameters) analyses.
There are uniform categories for all funds, but there is scope for innovations. Have you done any innovation in terms of product?
ICICI Prudential has been at the forefront when it comes to innovation both in terms of products and digital initiatives. We are the pioneers in the industry when it comes to value investing and defensive suite of products, especially in the dynamic asset allocation category. Our fund in each of this category currently has the largest asset under management and enjoys immense investor trust.