MFs hold on till realty debt do ’em part

LICMF, Can Robeco, Reliance Mutual & DSPML Reveal Big Holdings In Realty Debt Paper

AT A time when investing in realty and real estate-related instruments is considered a taboo, a few fund houses — having debt portfolios — are seen holding on to their investments in debt securities issued by real estate companies. Fund houses like LIC Mutual Fund, Canara Robeco Mutual, Reliance Mutual and DSP ML reveal substantial holdings in the real estate sector at the end of September. As per mutual fund tracker MFI Explorer, the liquid and liquid-plus funds of LIC Mutual Fund hold 19% and 65%, respectively, on each portfolios in real estate debt papers. LIC’s floater fund holds nearly 71% investments in papers issued by real estate companies. The Canara Robeco floater has nearly 46% in real estate debt securities. 
  Likewise, the liquid plan of ICICI Prudential owns nearly 3% in unrated papers issued by real estate companies. Around 17% of net investments made by DSP ML Liquid-Plus Fund is in real estate debt — a portion (4.4%), of which is in unrated papers issued by real estate companies. The liquid and liquid-plus funds of Reliance Mutual Fund holds over 6% each in papers issued by real estate companies. “We are not holding a lot many unrated papers; if you consider our entire debt portfolio, only 2 to 3% of the pool will be in unrated securities of sound companies,” said LIC Mutual Fund chief executive Sushobhan Sarker. 
  “It was a conscious decision on our part to invest in papers issued by real estate companies. These papers yield very high returns; moreover, we’re very comfortable with issuers of these papers. We’re very sure, these companies are strong enough to pay back the principal amount on time,” Mr Sarker added. He also said the sector would look up once the liquidity crunch in the system eases out. 
  Most fund houses had invested into real estate debt securities (including unrated ones) with a view to get higher returns from their investment. Papers with lower investment grade (or unrated ones) usually yield 200-300 bps more than the rated ones. With concerns over the credit quality of Indian companies looming large, investors, fearing a probable loss of capital in the event of default by companies, have been redeeming their investments from funds over the past one month. As per AMFI, there has been an outflow of Rs 26,665 crore (fresh investment not considered) from income funds in September. Redemption in debt funds have shot up 25% from the regular trendline, expert opine. 
  “At the end of September, we only have 1% of our fixed income portfolio in debt papers issued by real estate companies. The remaining 1.8% is in my real estate securities fund, where I have the mandate to invest in real estate. Over 90% of our investments are in highly-rated papers of good companies,” said ICICI Prudential Mutual Fund CIO Nilesh Shah. 
  According to Crisil Fund Services head Krishnan Sitaraman, investors need not really have apprehensions about their investments in various debt schemes. “Majority of the schemes have invested into good quality instruments and rated papers,” he added.