The high redemptions in could further increase exposure levels of such funds to unlisted debt papers. The schemes in this category have seen their asset size shrink, which is likely to lead to a rise in proportion of unlisted debt papers in the schemes.

According to industry estimates, several schemes in the category had exposure to unlisted securities in the range of 10-22 per cent.

Industry players say that could find it challenging to bring down unlisted exposure in such schemes in-line with the regulatory norms as redemptions have continued. In May, credit risk fund category saw asset-size declining by Rs 5,258 crore, to Rs 29,963.86 crore (as of May 29, 2020).

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“While overall market liquidity has improved, there is relatively lower liquidity for unlisted securities as MFs are avoiding taking incremental exposure in this market segment. Further, companies also need to complete lot of listing norms before extended deadline given by the Securities and Exchange Board of India (Sebi),” said a fund manager.

“Some credit risk schemes can find it more challenging as exposures to unlisted debt is in the range of 50-70 per cent,” he added.

Industry sources say recently asked MFs to disclose their exposure to unlisted papers to take stock of the situation.

The regulator has allowed debt MFs to bring down their exposure to unlisted debt papers to 10 per cent or lower by December 31, 2020.

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In October 2019, barred MFs from investing in unlisted debt securities, allowing only limited exposure, as long as the unlisted debt security had a simple structure.

Recently, pointed that unlisted debt securities, particularly those where a single investor invested, suffered on two-fronts. “Opaqueness of structure and true nature of risk on one hand and lack of ongoing disclosure in respect of financials of the issuer,” it said.

Experts say unlisted exposures may not necessarily help in gauging the risk-profile of a credit risk scheme, from investors’ perspective.

can reduce risks by holding shorter-tenure papers. Investors can look at what is the proportion of debt papers held at what duration. Further, rating and parentage of the issuer can be second set of factors,” said Vidya Bala, co-founder of

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The Sebi had earlier stated that debt MF schemes shall not have more than 10 per cent exposure to unlisted papers, and needed to bring down their outstanding exposure to this limit by June 2020. By March 2020, MFs were required to bring it down to 15 per cent.

However, on industry’s request for relaxations in light of the pandemic and liquidity constraints amid lockdown, Sebi extended the timelines for reducing exposure to 15 per cent by September 30 and 10 per cent by December 31.


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