Rising exposure to AT1 bonds Issued by banks, additional Tier 1 bonds, popularly known as AT1 bonds, do not carry any maturity date. They are a riskier variety and if a bank lands into financial trouble, their investors may have to bear the losses, as the bank can write these bonds off. This was exactly what happened in the case of Yes Bank's AT1 bonds as their value was written off completely last year. As per the fund's December 2020 portfolio, it owned three AT1 bonds accounting for close to 50 per cent of its debt holdings (14 per of the total AUM). These include the ones issued by ICICI Bank (4.96 per cent of the total AUM), IndusInd Bank (4.58 per cent) and Axis Bank (4.43 per cent). Although these bonds have been in the fund's portfolio for about four years, their weightage in the portfolio has increased notably, owing to the falling AUM. Over a period of time, the fund has sold some non-AT1 bonds, however, very little or no redemption has been made from AT1 bonds. On the other hand, the exposure to less than AAA-rated papers (a bulk of which is contributed by AT1 bonds itself) is also on the rise. As per the December 2020 portfolio, they made up well over 50 per cent of the debt portfolio (16 per cent of the total AUM). However, the fund has never gone below papers rated AA-. Moreover, while many debt funds have been badly hit during the last couple of years, the debt funds of this AMC have not suffered any defaults in their portfolios. This has instilled confidence in its credit-appraisal and underwriting practices. High exposure to sma
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