Mutual funds’ investment in commercial papers (CPs) issued by non-bank financial companies (NBFCs) crossed the ₹1 lakh crore mark for the first time in July 2023, since August 2019.

Fund houses had deployed ₹1.05 lakh crore in CPs of NBFCs, accounting for 5.5 per cent of their total debt investments as of the end of July. This was a jump from the deployment worth ₹89,601 crore as of June 2023, which comprised 5.1 per cent of total debt deployment.

As of July, ₹73,954 crore was invested in CPs of less than 90 days, ₹9,551 crore in CPs with a duration of 90–182 days, and ₹20,974 crore in CPs with a tenure of 182 days to one year, as per data by the Securities and Exchange Board of India (SEBI).

On an overall basis, however, Mutual Funds’ investments in CPs of other companies continued to remain elevated at ₹2.20 lakh crore as of July 2023, accounting for 11.5 per cent of their total debt investments.

Total deployment by debt mutual funds stood at ₹19.05 lakh crore as of the end of July, as per the cumulative data by SEBI.

While fresh issuances fell in July, both from the previous month and from a year ago, MFs investment in CPs of NBFCs has remained over the ₹87,000 crore mark since the beginning of the current financial year.

Fresh issuances

“With fresh issuances slower during the month, especially by manufacturing and other companies, debt funds looked at more NBFC CPs to deploy their funds,” an industry player said.

CP issuances plunged to a nine-month low of ₹92,268 crore in July, of which CPs worth ₹55,412 crore were issued by NBFCs, ₹5,603 crore by housing finance companies (HFCs), and ₹31,253 crore by manufacturing companies.

Debt mutual funds saw net inflows of ₹61,440 crore during July, as per monthly data by industry body the Association of Mutual Funds in India (AMFI).

Short-term fund raising by NBFCs has been accelerated to support the healthy level of credit growth in shorter tenure consumer and personal loans and to manage their short-term asset-liability mismatch issues.

As a result, MFs’ investments have also remained high given the growth opportunity. Bank credit to NBFCs stood at ₹13.77 lakh crore as of the end of July, up by 23.6 per cent on year.

Rates on three-month CPs issued by NBFCs were in the range of 7.10–7.40 per cent during July, whereas rates on papers issued by manufacturing companies were at 7.00–7.30 per cent.