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Exposure of mutual funds to Essel group firms

 


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Troubles in the debt market have finally reached the doorsteps of mutual fund investors, with Kotak Mahindra Asset Management Co. Ltd withholding part of the redemptions from one of its fixed maturity plans (FMP). Two leading mutual fund houses--Kotak Mahindra AMC and HDFC AMC--Wednesday admitted to redemption pressures in their select fixed income schemes and sought more time for payouts.

In a written communication to investors of Kotak FMP Series 127 that matured on April 8, Kotak Mahindra Asset Management Co said that it may not be able to pay the entire redemption amount to its investors.

The scheme said it may face a delay in recovering its money that it had invested in the non-convertible debentures (NCD) of two of Essel group companies, namely Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd.

The development has attracted the attention of the stock market regulator, which has asked all mutual funds to provide details of debt schemes backed by promoter shares.

Mutual funds have an exposure of more than Rs 17,000 crore to three entities, according to data by fund houses and credit rating agencies. These investment decisions have impacted investor sentiment in the last few months.

Chairman Subhash Chandra earlier stated that they have "arrived at an understanding" with the lenders, which are having pledge on shares held by the promoters, not to be declared defaulter following any steep fall in share prices of listed entities such as Zee Entertainment and Dish TV.

Many investors are concerned about the impact the Essel Group fiasco will have on their mutual fund investments, say mutual fund advisors.

Typically, in a situation where assets are not realized, AMCs have three options—take a hit on their books, roll over the scheme or mark down the value of security to zero.

Multiplier Wealth has pulled out the exposure of mutual funds to the group companies.

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You can check if you are having exposure to the above stated schemes and take your call accordingly.

Happy Investing
Multiplier Wealth

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