Funds winding up investments in low grade CPs

Slowing economy has increased the risks on investments in Commercial Papers – CPs of companies with low investment ratings.

Companies with low investment rating are going to find it even more difficult to raise money in the already liquidity hungry market. Mutual fund houses are reducing the exposure to commercial papers issued by companies with low investment rating.

Slowing economy has increased the risks on such investments and fund managers are in no position to take any chances. Total investment liquid and liquid plus schemes and FMPs in these instruments has declined to around Rs 1670 crore at the end of July this year compared to Rs 3000 crore at the end of January this year.

Poor liquidity conditions prevailing in the market has also given more space to the fund managers to concentrate only on high investment rating companies. Usually these companies pay lower rate of return which forces fund managers to diversify in high risk investments. However, during the current high interest rate regime, even the companies with top investment ratings are willing to pay at par with the market rates.