Finance minister Nirmala Sitharaman has suggested a permanent institutional framework to purchase investment-grade bonds in stressed times to expand the corporate bond market. This institution will purchase investment-grade securities that are stressed and become the secondary market liquidity of corporate bonds. Debt mutual fund managers understand that this move is positive for funds like banking & PSU debt funds and credit risk funds.
“The move will improve liquidity in corporate bonds both in good quality and in stressed assets. And bring feathers the yield in illiquid bonds,” says Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund.
Corporate Bond market institutional structure to obtain investment grade bonds should enable trust in the corporate bond market. This move will also instill confidence in investors who have been disturbed with corporate bond investments in various debt fund classes in the past. Experts believe that the new framework would help to make liquidity to debt markets and facilitate faster debt analysis for stressed assets.
Debt mutual fund managers believe that debt schemes funding in corporate bonds might be positively affected by this move. “Prima facie this move looks great. We will have to read and understand how this will work. But for now, if the liquidity in corporate bonds spreads, that will positively impact many debts, mutual fund classes. We can foresee good returns from Banking & PSU Funds, Corporate Bond Funds, and Credit Risk Funds, etc,” says Pankaj Pathak, senior fund administrator, Quantum Mutual Fund.
Lakshmi Iyer, CIO-Debt and head-product, Kotak Mutual Fund, states that there will be a positive impact of this move but with a lag. “Right now the markets are focused on more important than expected fiscal deficit numbers. The new framework would support increase liquidity to the corporate bond market and hence is accurate for the debt funds. However, the change won’t return soon. It will take participation. Once everything is completed, we might see a positive impact on funds with A+, AA, and AAA bonds which incorporates credit risk funds also,” says Lakshmi Iyer.