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AMCs bailing out investors should not be the new normal: Kaustubh Belapurkar, Morningstar

“Investors should not expect when there is a little bit of stress, AMC would buy them out.”

ET Now|
Jun 18, 2019, 10.56 AM IST
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Kaustubh Belapurkar, Morningstar-1200
HDFC is making a provision of up to Rs 500 crore to provide liquidity to the unit holders of fixed maturity plans (FMP) of HDFC Mutual Fund that were affected by exposure to the non-convertible debentures (NCD) of Essel group companies.

It is a double-edged sword. It could lead investors into expecting that when there is a little bit of stress, the AMC would buy them out. Obviously that is not something that you want to make as a noble gesture for investors, says Kaustubh Belapurkar, Director, Fund Research, Morningstar Investment Adviser, in an interview with ETNOW.

Edited excerpts:


HDFC AMC has taken Rs 500 crore of Essel group exposures on its books. What does it mean for its shareholders?
This is an interesting development and it has played out obviously from an investors perspective.

Providing liquidity is useful from a mutual fund investor perspective, but from a shareholders perspective, its is an interesting move. There is still that overhang in terms of when the transaction is going to happen and how it is going to work out. Obviously, the comfort is there that the collateral could potentially be unbound in case push comes to shove, but in the long term, this is going to help HDFC AMC sentimentally for just thinking as an equity shareholder.

Should I say poor HDFC AMC shareholders? They did not sign up for this! They simply signed up for HDFC AMC to manage and run schemes and not use the capital to bail out some group?
Yes, I am with you on that. The innocent player thinking as a fund investor versus the stock investor, but I am sure HDFC would have taken that judicious call as a management. I am not privy to them but we may hear that there is something that is pretty much close to being resolved and if not, then obviously the collateral which is available for sell off if it comes to that.

The other interesting bit is they said that they would buy the bonds at current valuations. I want to see how that plays out in light of more recent downgrades.

What kind of message does this send out to mutual fund investors and other fund houses with similar exposures?
It is a double-edged sword. We had similar instances 10-11 years back when mutual funds took them on their books. It could lead investors into expecting that when there is a little bit of stress, the AMC would buy them out. Obviously that is not something that you want to make as a noble gesture for investors. This was probably done as a gesture of faith for investors but this should not become the new normal, because that could just have a very wrong precedent in terms of expectations from mutual fund investors too.
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