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Measures To Protect MF Investors Appear To Fall Short

Joan Mathews Joan Mathews 10 July 2019

Fund houses are looking at different methods to address the DHFL downgrade, various news reports have suggested. Segregation is among the measures being considered for the protection of investors.

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Mutual fund schemes holding DHFL bonds were required to write down the value of the holding after Dewan Housing Finance Ltd. defaulted on its obligations. Investors were affected by the write-down in the value of DHFL investments (necessitated by the downgrade) and the fall in the NAV. However, this has brought in bargain hunters, Indian financial daily Mint has reported.

Few fund houses, like BNP Paribas Asset Management and DSP Investment Managers, have suspended subscription into these schemes, it further stated. Meanwhile, certain AMCs are charging exit loads on the schemes, with the intent to dissuade bargain hunting and safeguard the portfolio from the early redemption by investors seeking only short-term gains. Another measure incorporated has been segregating the affected assets to limit the impact on the remaining portfolio, according to Mint.

Tata Asset Management has notified creation of segregated portfolios in affected schemes. Investors in the captioned schemes as on the date when segregated portfolio was created shall be provided an equal number of units in the segregated portfolio, as held in the main portfolio of the respective schemes, reported the Economic Times. The main portfolio’s NAV on the segregation date is dependant to the extent of the value of securities moved out, however, this will be made up by the segregated portfolio’s NAV. For the segregated portfolio, since fresh units will not be allocated, recovery in dues shall be for the benefit of the investors during the time of the side-pocket creation.

Recoveries from DHFL shall be paid to investors in proportion to their unit holding. They will not be able to redeem the units of the segregated portfolio, the report by Mint stated. The units, however, will be listed and investors seeking to exit can sell on the stock exchange. Doing so may give them a chance of recovering the written down portion if the borrower pays up, the report further said.

Joan Mathews
Written by Joan Mathews
Joan has over 4 years of experience writing for the BFSI industry. She enjoys watching mystery TV series, listening to 80s classics and spending time with her furbabies.