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UTI MF, Nippon India, Aditya Birla MF will not segregate Vodafone Idea debt investment

In all four fund houses have exposure to bonds of Vodafone Idea. Franklin Templeton Mutual Fund, Nippon India Mutual Fund,UTI Mutual Fund and Aditya Birla Sun Life Mutual Fund

January 29, 2020 / 07:15 PM IST

Three fund houses, UTI Mutual Fund, Nippon India Mutual Fund and Aditya Birla Sun Life Mutual Fund will not segregate investments in schemes with exposure to bonds of Vodafone Idea, despite CRISIL downgrading the outstanding debt to below investment grade.

Securities and Exchange Board of India (SEBI) guidelines allow fund houses to segregate investments or create a side-pocket for investments that have been downgraded below investment grade by rating agencies.

Known as side-pocketing in mutual fund (MF) parlance, this refers to a practice where fund houses isolate risky assets from the rest of their holdings and cap redemption in the segregated assets.

However, all three fund houses said they are in a ‘wait-and-watch mode’ and if further downgrade happens then they will have to segregate or markdown investments in Vodafone Idea.

In all, four fund houses have exposure to bonds of Vodafone Idea. Franklin Templeton MF, Nippon India MF, UTI MF and Aditya Birla Sun Life MF.


On January 24, CRISIL downgraded the non-convertible debentures (NCDs) of Vodafone Idea to BB, which is considered to below investment grade, prompting Franklin Templeton MF to side-pocket investments in six schemes that had exposure to Vodafone Idea bonds.

According to Morningstar, Franklin Templeton MF, held the highest 62 percent (Rs 2,049 crore) exposure in Vodafone Idea. It was the first fund house to mark down its investments in the company to zero and segregate the investments in Vodafone Idea.

So far, none of the three fund houses with investments in the telecom company have segregated the holdings.

Aditya Birla Sun Life MF has exposure worth Rs 508 crore, UTI MF hold securities worth Rs 551 crore and Nippon India holds bonds worth Rs 241 crore in Vodafone Idea

On January 16, 2020, debt securities of Vodafone Idea held in the schemes of Franklin Templeton MF were marked down to a value of zero immediately after Supreme Court dismissed the review petition by telecom players including Vodafone Idea on account of liabilities related to adjusted gross revenue (AGR) dues.

After the credit crisis in IL&FS and DHFL, SEBI issued a comprehensive circular in December 2018 to allow mutual funds to segregate their holdings in stressed securities.
Himadri Buch
first published: Jan 29, 2020 04:07 pm
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