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Rating downgrades and payment delays not new to debt mutual funds

The prospects of debt mutual funds are back in focus after Kotak Mutual Fund’s FMPs failed to return investors’ entire money.

, ET Bureau|
Apr 13, 2019, 11.42 AM IST
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The prospects of debt mutual funds are back in focus after Kotak Mutual Fund’s fixed maturity plans (FMPs) failed to return investors’ entire money on account of delay in repayment by two Essel group companies. In the past too, investors in various debt schemes have been affected by ratings downgrades of investments, defaults or delay in repayments. ET looks at such instances.

Amtek Auto
MF: JP Morgan TIME: August 2015 SCHEMES: JP Morgan India Short Term Income Fund and JP Morgan India Treasury Fund FALL IN NAV: 1-3%

BRICKWORK RATINGS brought down its rating to C from A+, while CARE suspended coverage of Amtek Auto. Soon, JP Morgan side-pocketed the Amtek Auto exposure and allotted units to investors. In December, JP Morgan sold Amtek Auto bonds at 85% of the value. Investors, who stayed invested in the scheme since May 2015, did not lose capital in the fund.

Ballarpur Industries
MF: Taurus Mutual Fund TIME: February 2017 SCHEMES: Four debt schemes of Taurus Mutual Fund FALL IN NAV: Up to 11%

INDIA RATINGS and Research downgraded Ballarpur Industries’ long-term issuer rating to ‘IND D’ from ‘IND BBB-’. Non-convertible debentures (NCDs) and commercial paper of the company saw a downgrade from ‘IND C’ from ‘IND BBB-’ and ‘IND A3’. Investors in Taurus Dynamic Income Fund, Taurus Ultra Short Term Bond Fund, and Taurus Short Term Income saw their NAVs dip by as much as 11% in a single day.

IL&FS Group
MF: LIC, DSP, Aditya Birla, Tata, Principal, HSBC, BOI Axa, Motilal Oswal and Invesco
TIME: September 2018 FALL IN NAV: 7%

Due to the rating downgrades of IL&FS group papers to D, many mutual fund schemes had to mark-to-market their holdings. Investors suffered a loss with the NAVs of these schemes falling by as much as 3-7% in a single day.

JSPL
MF: Franklin Templeton TIME: February 2016 SCHEMES: Six debt schemes of Franklin Templeton held 2-7% of their assets in JSPL FALL IN NAV: 3%

JINDAL STEEL and Power (JSPL) saw a ratings downgrade. Crisil downgraded JSPL’s long-term rating from BBB+ to BB+ and the rating deteriorated to default status in a month. Schemes of Franklin Templeton Mutual Fund saw their NAV dip by nearly 1-3% in a day. Franklin sold off the two securities completely from the schemes in two tranches on February 29, 2016 and March 10.

Zee /Essel group
MF: Aditya Birla, Kotak, HDFC, Franklin Templeton, Reliance, SBI, Baroda, ICICI Prudential TIME: January 2019 FALL IN NAV: NA

Mutual funds have given time till September 30 to the promoters of Zee /Essel group to seal a deal and pay them their dues. FMPs of Kotak Mutual Fund that matured in April and May will pay back investors minus the value of their holding in Zee /Essel group, while HDFC MF has rolled over one of its FMP. Open-ended schemes of mutual funds continue to hold securities of Zee /Essel group.

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