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Last Updated : Apr 12, 2019 05:25 PM IST | Source: Moneycontrol.com

Is your FMP in troubled waters?

Total eight fund houses — ICICI Prudential, Reliance, HDFC, Adity Birla Sun Life, DSP,UTI, Kotak, DHFL Pramerica — have exposure to distressed companies from Essel Group and IL&FS.

Himadri Buch @himadribuch
Representative image
Representative image

After Kotak Mutual fund, other fund houses may also delay payment of redemption amount to their FMP investors.

Fixed Maturity Plans or better known as FMPs are under the scanner after Kotak Mutual Fund told investors of Kotak FMP Series 127, which matured on April 8, that it may not be able to pay the entire redemption amount.

The fund house 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.

As a result, investors of this scheme have got most of their money back, but are yet to get some portion that is stuck in the two instruments, according to Kotak Mutual Fund.

FMPs of other fund houses that are coming up for maturity in the next two months which had invested in beleaguered Essel Group and IL&FS companies, too, are expected to either give the remaining money back to their investors and hope to pay the rest after recovery or roll over the FMPs for another year.

HDFC MF on Thursday announced the extension of its fixed maturity plan — Series 35 — a close-ended scheme due for maturity on April 15, by 380 days.

“The purpose of the roll over/extension is due to current interest rate scenario and portfolio positioning, the yields prevailing in the short maturity bucket present an option for investors to lock-in their investments at current prevailing yields,” HDFC Mutual Fund said.

According to the data from ACEMF, there are almost 100 schemes that have exposure to the beleaguered Essel and its group companies and IL&FS and its subsidiaries.

Total eight fund houses—ICICI Prudential, Reliance, HDFC, Adity Birla Sun Life, DSP,UTI, Kotak, DHFL Pramerica have exposure to distressed companies from Essel Group and IL&FS.

Of these, in 2019, 45 FMPs are coming up for maturity that have exposure to Essel Group and 11 FMPs that have investments in IL&FS.

FMP exposure to Essel

FMP exposure to IL&FS

The data reveals that four schemes of HDFC Mutual Fund, three schemes each of Kotak Mutual Fund and UTI Mutual Fund, and one schemes of DSP Mutual Fund are maturing in April 2019.

Similarly, two schemes of Kotak Mutual Fund are maturing in May 2019 and two fixed term plans of HDFC Mutual Fund, six schemes of Reliance Mutual Fund a 1099-day fixed term income fund from UTI Mutual Fund is maturing in June this year.

After the story was published, UTI Mutual Fund sent a clarification, "UTI MF's debt exposure in IL&FS Group, in its FMPs pertains to the Infrastructure  SPV  i.e. Jorabat Shillong Expressway  Ltd. which has held back payments pending NCLAT order,"

"UTI MF has already in appeal at NCLAT.  The exposure is marginal and has been fully provided for.  Therefore, this exposure will not have any impact on  the NAV of these schemes on its maturity."

The fund house also said it does not have any exposure to the Loan Against Shares (LAS) of Zee Group or any other promoter groups.

According to the data from Morningstar, as on December 2018 portfolios mutual fund houses had exposure worth Rs 8,002 crore in debt securities of Essel group companies.

Of which, Rs 1,673 crore was held by FMPs (Kotak AMC’s FMPs held around Rs 381 crore) and the balanced by open-ended schemes. A total of six fund houses had FMPs that invested in securities issued by Essel group companies.

WHY MONEY IS STUCK?

Since August 2018, debt mutual fund schemes have been found investing in securities that have faced several headwinds.

In August–September last year, Infrastructure Leasing & Financial Services Ltd (IL&FS) default surfaced and a few of its subsidiaries’ debt instruments were downgraded on the back of weak financials and default in payment of interest and repayment of principal.

We need to wait and watch to know what action capital market watchdog takes on these fund houses.


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First Published on Apr 11, 2019 04:00 pm
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