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India Ratings outlines key points in rating of mutual funds of IDFs

Ind-Ra recognises that the IDF concept has been evolved by the government to augment the supply of long-term capital for meeting India’s ambitious infrastructure development programme

May 13, 2013 2:07 IST | India Infoline News Service
India Ratings & Research (Ind-Ra), in a new report, has outlined key considerations in rating the mutual fund (MF) schemes of infrastructure debt funds (IDFs), launched under the Securities and Exchange Board of India guidelines.

In assigning ratings to individual schemes, Ind-Ra will assess a number of factors including the underlying credit quality of the investment portfolio, experience and expertise of the sponsors and the asset management company, sponsor commitment to the scheme and robustness of the investment identification, evaluation and risk management processes and systems employed.

Ind-Ra recognises that the IDF concept has been evolved by the government of India (GoI) to augment the supply of much-needed long-term capital for meeting India’s ambitious infrastructure development programme. GoI has actively facilitated the creation of a regulatory framework and establishment of an enabling environment.

Considering that this is a new product in the Indian market and given the objectives of the government-led initiative, the agency will, while using its long-term credit rating scale (‘IND AAA’ to ‘IND C’), append an idf-mf suffix to assign ratings to IDF schemes. The report explains the definition in that the ratings do not measure the expectation of default risk for the scheme itself, as a fund/scheme generally cannot default.

Rather, the ratings should be interpreted as an opinion regarding the strength of the credit protection factors embedded in the fund's investment policies, expertise and experience of the sponsors and investment managers and vulnerability to losses and prospects of ultimate recovery as a result of defaults in the fund portfolio.

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