‘Sell in May and go away.’ This is the mantra that was played out with credit risk funds and medium-term funds facing increased redemption pressure last month. It has not been since the IL&FS crisis that the bond fund market has faced such high redemptions, fund analysts have pointed out. Both credit risk and medium-term bond funds have witnessed a combined withdrawal of over ₹6,200 crore in May 2019, data from the Association of Mutual Funds of India shows. Outflows from these funds had stood at about ₹1,800 crore in April.
These funds have a larger proportion of ‘AA’ rated paper. This shows that investors are clearly shying away from taking higher risk.
“Post the IL&FS crisis, the withdrawals from credit funds were not as high as a proportion of assets under management (AUM). Now on a smaller base, we have seen higher redemptions. There is no slowdown in the pace of redemption in this category. In fact, this has worsened, which may have been due to the severity of the news flow in certain credit instruments," said a debt fund manager of a prominent fund house who does not wish to be named.
This could also be the highest possible withdrawal in the history of this category, according to fund managers. Keep in mind credit funds are a three-year-old category, which sprung to prominence post-demonitisation. This category witnessed huge inflows in 2017 and the first half of 2018 ballooning to a ₹1.4 lakh category combined by September 2018, points out the above-mentioned fund manager.
Now the outflows from these categories are increasing on the back of the already dwindling AUM. This has already bought down the AUM size of these categories i.e. credit risk and medium term bond funds down to ₹1.13 lakh crore in May 2019, latest AMFI data shows.
Turn to corporate bond funds and the picture is more sanguine. Corporate bond funds, due to their larger proportion of AAA-rated paper, are considered less risky. AUMs of corporate bond funds and banking and PSU funds increased 1% in May over April.