Labourers work at a real estate construction site in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

What Mutual Funds’ Exposure To Real Estate Debt Reveals

Even as mutual funds’ lending against shares to promoters has triggered concerns, they are far better placed on exposure to a stressed sector: real estate.

Mutual funds’ investment in real estate debt accounts for 2 percent of the industry’s exposure to longer-dated paper. Total assets of income and liquid schemes, which invest in long-term debt, stood at Rs 10.9 lakh crore as of March, according to data released by the Association of Mutual Funds in India. Of this, data by Morningstar show, the market value of investments in real estate non-convertible debentures is Rs 21,462.8 crore. There is no evidence of any stress on any of these investments.

Real estate companies are finding it tough to borrow more or repay existing debt after the surprise defaults of AAA-rated IL&FS group caused a liquidity shortage. That has sparked worries for non-bank lenders who lent to developers. But data suggests mutual funds are largely insulated for the real estate stress.

In all, 19 asset managers have invested in real estate debentures, according to Morningstar. Top five mutual funds account for 83.6 percent of the industry’s investments in such instruments.

Top Issuers

Asset managers’ real estate exposure is to large groups with high credit ratings. Ten developer groups account for 80 percent of the issuances subscribed by the mutual funds.

Mutual funds have the largest exposure to the Tata Group’s non-convertible, according to Morningstar data as of March. Asset management companies have subscribed Tata Group’s debentures worth Rs 4,990.20 crore, about 23.3 percent of mutual fund’s investments in real estate NCDs exposure of Mutual Fund houses. Shapoorji Pallonji Group with 12 percent contribution, Piramal Group with 11.8 percent and DLF Group with 10.5 percent followed.

Scheme-Wise Exposure

Nearly 15 percent of the income and liquid schemes have exposure to real estate NCDs, according to BloombergQuint’s calculations. As many as 177 schemes from 19 fund houses had exposure to real estate NCDs as of March, according to Morningstar—63 from 12 mutual funds had more than 10 percent exposure.

Here is the list of all mutual fund schemes with exposure to real estate.