RAJESH MOKASHI,
tail participation in the secondary market,” says a dealer. Globally, apart from a well developed secondary market, there is also a credit default market, which is like an insurance against a possible default in a corporate bond. A likely default in the paper worries investors. “Investors like MFs or insurance need a protection against credit or a credit default insurance, which is something yet to develop in India,” says Pawan Agrawal, Chief Analytical Officer at CRISIL. The credit default swap ( CDS) market, which provides a protection against default, is completely non- existent in India.
There is also a need for credit enhancement mechanism through a bond guarantee fund or some sort of financial support from other institutions. These are currently not in place. The RBI has recently allowed foreign portfolio investors ( FPI) to invest in a default paper, but there is hardly any interest because of the challenges in recovery. In fact, the global markets have enough avenues to exit, but the Indian market is still in its infancy jeopardising the interest of investors and policyholders.
The Safeguards
After the Amtek issue, the regulators, the Securities and Exchange Board of India (Sebi) and Insurance Regulatory Development Authority ( IRDA) have stepped up their vigil. ( See Box: Sebi’s exposure limits). There is, however, need to do more. “There has to be a minimum size of say ` 4,000 crore for debt mutual fund schemes in order to mitigate risk. A bad exposure in a small scheme has all the potential of impacting the yield of the entire scheme significantly,” suggests Mokashi of Care. There is also need for more disclosure norms to protect the interest of MFs and insurers. For example, companies today release only the profit and loss statement on quarterly basis. “There has to be a mandatory requirement for all the companies with bond issuance to also issuer quarterly data of balance sheet,” says Mokashi.
The regulators often wake up when a mishap takes place in the market. It’s time for policy makers to build enough safeguards as more and more retail money pours into MFs and insurance companies. ~ SEBI is waking up to protect investors in mutual funds