Govt proposal to buy investment grade debt securities to deepen bond mkt a positive step for debt MFs: Experts 

PTI | New Delhi | Updated: 01-02-2021 22:14 IST | Created: 01-02-2021 22:14 IST
Govt proposal to buy investment grade debt securities to deepen bond mkt a positive step for debt MFs: Experts 

The government's proposal to create a permanent institutional framework to buy investment grade debt securities in stressed and normal times and to deepen the bond market is a very positive step for debt mutual funds too, experts said on Monday.

This is a positive for debt mutual funds, especially credit funds, which had witnessed significant outflows last year due to poor liquidity in certain corporate papers, they added.

''To instill confidence amongst the participants in the corporate bond market during times of stress and to generally enhance secondary market liquidity, it is proposed to create a permanent institutional framework,'' Finance Minister Nirmala Sitharaman announced in the Union Budget 2021-22.

The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the bond market, she added.

While further details on the modus operandi for such a framework is awaited, it will clearly help to deepen the corporate bond market which continues to face liquidity challenges, Suman Chowdhury, Chief Analytical Officer at Acuite Ratings & Research.

''In our opinion, this will be fairly positive for debt mutual funds particularly credit funds which had witnessed significant outflows last year due to poor liquidity in certain corporate papers. This will also help to reduce the volatility in secondary market yields of relatively lower rated bonds in the AA and A category,'' Chowdhury noted.

Prathit Bhobe, CEO and MD at Tata Mutual Fund said the measure to set up a body to buy bonds up to investment grade is a good step to help deepen and market making in corporate bond market. It is a very positive step for mutual funds.

''It is important to have continuous confidence of investors and participants in the bond market particularly during the times of stress. The proposed framework will increase liquidity across the bond market during normal as well as stressed times, this will benefit debt mutual funds,'' Harshad Chetanwala, Co-Founder of MyWealthGrowth.com said.

The government move is extremely positive for corporate bond market. Assurance of liquidity will boost confidence in the debt market, Pankaj Pathak, Fund Manager- Fixed Income at Quantum Mutual Funds, said.

In recent past many debt funds faced this problem of liquidity crunch and liquidity infusion by the RBI was not trickling down to the needy borrowers, he said.

''An institutional framework to address the liquidity concern will go a long way in the market development. This would also bring down liquidity and credit premiums and thus cost of capital for borrowers,'' he added.

Tejas Khoday, Co-Founder and CEO of FYERS, is of the view that panic selling in corporate bonds scares people away really fast because of the fear of default. The proposed institutional framework will help improve the secondary market in the segment.

Vidya Bala, Co-Founder of Primeinvestor.in, said the move would in the medium to long term help generate demand and liquidity for debt instruments and thus improve liquidity in the bond market.

''For mutual funds, as liquidity has been a key limitation in times of stress, this long-term measure can ease the pressure of dealing with illiquid instruments,'' she added.

Overall, experts have termed the Budget as a growth-oriented one.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)


TRENDING

OPINION / BLOG / INTERVIEW

Blockchain in Healthcare: Opportunities and challenges

The use of blockchain in healthcare is a relatively new innovation with many of its uses still being explored and related technologies being developed, improved, and scaled. ...

Debate surrounding vaccine passports and development misses bigger picture

... ...

Blockchain vs IOTA: Looking for a better alternative

... ...

For stability, Iraq needs to crack down on corruption

... ...

Videos

Latest News

U.S. Senate Democrats set to advance partisan election law changes

Democrats in the U.S. Senate on Tuesday pushed forward sweeping legislation on political campaigns and elections they argued would expand access to voting, even as Republican-controlled states rushed to impose new restrictions. After a long...

Pakistan's COVID-19 death toll breaches 19,000-mark

Pakistan on Tuesday crossed another grim milestone as the number of COVID-19 deaths in the country exceeded 19,000. Citing the data provided by the National Command and Operation Centre NCOC, The News International reported that 3,084 peopl...

India’s decision allowing 5G trials without Chinese companies a sovereign one: US

Indias recent decision authorising 5G trials without Chinese companies Huawei and ZTE is a sovereign one, a top State Department official has said, asserting that America is deeply concerned about the dangers of installing networks with equ...

UK unveils law to fine social media firms which fail to remove online abuse

Britain said on Wednesday a planned new law would see social media companies fined up to 10 of turnover or 18 million pounds 25 million if they failed to stamp out online abuses such as racist hate crimes, while senior managers could also f...

Give Feedback