India Ratings has downgraded UTI Mutual Fund's ultra-short-term fund from AAA to AA.

The agency said the downgrade was done because of "downward credit migration in one of the underlying investments" of the fund.

"India Ratings and Research has downgraded UTI Ultra Short Term Fund’s National Fund Credit Rating to ‘IND AAmfs’ from ‘IND AAAmfs’ while placing it on Rating Watch Negative (RWN). The fund is managed by UTI Asset Management Company," said India Ratings in a statement.

Sources said more debt schemes in the mutual fund (MF) industry could be rated down, as companies like the recently downgraded Dewan Housing Finance have exposures across the industry. Earlier, the repayment issues around IL&FS' special purpose vehicle had also triggered adverse rating action on schemes of some of the fund houses.

The MF industry has been facing troubles over their debt exposures since the IL&FS crisis tightened liquidity in the debt markets. The non-banking financial companies have had to bear the brunt of the tight conditions as their business model was heavily dependent on short-term borrowing in the debt markets.