ICICI Prudential AMC’s Nimesh Shah Has Tips For Investors After DHFL Crisis
A higher yield from credit risk comes with a higher risk, said the chief of ICICI Prudential AMC.
Dewan Housing Finance Ltd.’s delayed interest payment and subsequent downgrade by rating agencies may have made mutual fund investors wary of risks. Nimesh Shah sought to allay such fears.
Just because one non-banking lender defaults, doesn’t mean that the whole category can be painted red, the chief executive officer of ICICI Prudential Asset Management Company told BloombergQuint.
Such defaults, he said, get highlighted because of the upfront hit to fund houses. “A higher yield from credit risk comes with a higher risk.”
Shah said diversification within a fund will be its biggest hedge. The issue is a lesser problem for mutual funds and a bigger one for other lenders, he said.
Here’s What Shah Said On Issues Facing Debt Funds
Can NBFC Failures Become Systemic?
“In India, if there is a particular NBFC issue, it's restricted to that (non-bank financial company),” Shah said. “It doesn't lead to a systemic issue.”
If there are issues, those are entity-related and there are no general segment related issues, he said.
The mutual fund industry has an exposure of around Rs 6,500 crore to debt of DHFL and its subsidiaries as on April 30, according to Association of Mutual Funds in India data. But there are some NBFCs, said Shah, with “issues” that need to be sorted out.
Diversification
The key to risk management, according to Shah, is identifying the percentage of assets under management is invested in various commercial papers. “...you need to see what's the concentration, and how many instruments are there in one particular fund, since no one can guarantee zero risks or issues.” The key is to not take concentration risk on the asset side when you are investing, he said. “Risk is manageable by diversifying by your investment.”
What Next For Retail Investors?
Monetising on fear in the market, according to the fund manager, is the best time to invest in an asset class to get maximum benefits. “Right now there are no flows into credit funds,” he said, adding: “The fear is maximum and thus you get maximum credit spreads.”
Credit risk fund is a brilliant opportunity today, he said. “There is risk but it's manageable by diversification.”