Debt Mutual Funds: What is PRC Matrix and how does it help pick the right fund?

 

In 2021, a SEBI circular made it mandatory for mutual funds to classify all debt schemes in terms of a Potential Risk Class (PRC) matrix. The matrix provides for a great framework to measure the maximum level of risk a fund can take.Investors have started probing more about the dependability of the debt funds. (iStock)

Debt mutual funds in India had witnessed a series of credit defaults till the year 2000. The biggest of casualties was suffered by Franklin Mutual Fund which wound up 6 of its debt schemes which were affected. There were also other AMCs (asset management companies) which had part of their holdings which had defaulted. The sad part of that episode was that some of these debt securities were AAA rated before the default which shook the confidence of investors as never before.

Investors started getting sceptical about investing in debt mutual fund schemes due to these instances. The Securities and Exchange Board of India (SEBI) has come out with more stringent norms to put an end to such defaults bringing AMCs on their toes. Many AMCs ramped up their internal credit appraisal systems with focused manpower deployed into the job.

Investors have started probing more about the dependability of the debt funds since the fiasco. AMCs have multi-level filters today to pick fixed income securities. These measures have ensured high level of caution at the level of investors and fund houses.

Investors have started probing more about the dependability of the debt funds since the fiasco. AMCs have multi-level filters today to pick fixed income securities. These measures have ensured high level of caution at the level of investors and fund houses.

The investor community has very little knowledge about PRC and it has not been published enough.


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