How does a side-pocket work?
Aug 30, 06:08

When debt security is downgraded to below investment grade, a debt mutual fund scheme can put such an investment into a separate pouch, also known as a side pocket. No fresh investments are allowed in the side pocket. The infected portfolio is quarantined. If the fund recovers money from the company, only those investors benefit whose money lies in this side pocket. As recovery happens, units are extinguished. SEBI rules require the fund house takes a call on the side-pocket immediately after the rating downgrade. The scheme can side-pocket once the security is downgraded to below BBB-minus, which is the minimum rating for investment grade.

Side pocket gfx