Ratings of IDBI Bank and Reliance Communications were downgraded in the recent past. The latest one to join the list is Adani Power. The rating agency Crisil downgraded Adani Power, citing that the company has total debt of about Rs. 54,000 crore on it. Adani Power was downgraded to BB- by the rating agency.
Whenever a rating downgrade happens, the first question many investors ask is: do my schemes hold any papers from the downgraded entity. Some schemes from SBI Mutual Fund, HDFC Mutual Fund, Birla Sun Life Mutual Fund, among others, have investments in Adani Power debentures. SBI Savings Fund has 5.57 per cent exposure to Adani Power while HDFC Regular Savings Fund (3.2 per cent). (See table below)
What should investors in these schemes do? Vishal Dhawan, Founder, Plan Ahead wealth Advisors, advises the investors to stay calm and wait for more information from the company. “Unless the exposure is high (around 7-8 per cent), the investors need not worry. The diversification in a mutual fund portfolio takes care of small downgrades,” he adds.
Suresh Sadagopan, Founder, Ladder7 Financial Advisors, says that there will always be a chance of a upgrade or a downgrade in bonds. “If you don’t have the risk appetite, move to accrual funds and invest only in schemes with major exposure to AAA rated instruments,” Sadagopan advises. He adds that the risk is less with the schemes of a bigger AMC.
There might be mark-to-market losses because of the downgrades but Deepali Sen, Founder, Srujan Financial Advisors, said in an earlier interview that investors shouldn’t take things for granted. “After the loss, pulling out money won’t help you. Investors should wait for the company to come up with a plan,” says Sen. “This advise holds if your returns are low due to the downgrades. If you are losing your capital, you shouldn’t wait and pull your money out,” Sen adds.
For more, read: What to do when downgrades hit your mutual fund schemes