HDFC may repay FMP investors in full despite Essel loss, but is similar solace in offing for others?

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Updated: June 18, 2019 4:29:36 PM

HDFC FMP mutual fund investors may breathe easy with the AMC deciding to repay them by taking Essel Group securities loss on its own books, but the fate of other similar mutual fund investors still remains uncertain.

HDFC AMCWhile HDFC AMC may have given some clarity to the investors, other fund houses with similar exposure may not do so anytime soon, experts said.

HDFC FMP mutual fund investors may breathe easy with the AMC deciding to repay them by taking Essel Group securities loss on its own books, but the fate of other similar mutual fund investors still remains uncertain. HDFC Asset Management Company’s Fixed Maturity Plan debt funds mature in September, but it was feared that investors may not get their money back in full, owing to the failure of Essel Group securities held by these funds. However, HDFC AMC has offered an exit route to its FMP investors by providing Rs 500 crore liquidity support via transfer of their exposures to Essel group firms on to its own books.

While HDFC AMC may have given some clarity to the investors, other fund houses with similar exposure may not do so anytime soon, experts said. The AMCs are expected to closely watch how the situation evolves over time, they added.

Wait and Watch for other investors

The other fund houses may adopt a ‘wait and watch’ approach for the time being, investment advisor Jitendra Solanki told Financial Express Online, adding that they may want to see how the market reacts to the decision taken by a listed company. “It may help the existing investors, but shareholders’ stand in general is not very clear as of now. Already, the shares are down today,” Jitendra Solanki said.

On the other hand, the other fund houses may not have much choice but to follow suit, given the AMC guidelines laid down by capital markets regulator SEBI (Securities Exchange Board of India), investment advisor Harsh Roongta told Financial Express Online. “The move by the company seems good for investors as of now, even as it comes after SEBI issued notices to top officials of the fund house,” Harsh Roongta said.

SEBI nudge?

Notably, experts pointed out that the move by HDFC AMC follows SEBI’s notice to the AMC seeking answers on extending the maturity date of the FMPs, and potential loss to investors. “Interestingly, it comes after the SEBI, earlier this month, sent notices to top officials and HDFC Trustee Co for extending the maturity of its FMP because of Essel Group’s inability to repay,” Jitendra Solanki said. Harsh Roongta also said that it’s still to be seen if the fund house took the decision on its own or was directed by SEBI.

Yet, there are some who believe that it would be premature now to analyse the likely impact of the move. “We are still in the process to figure out its likely impact on the existing investors,” said Deepak Shenoy, founder, Capital Mind told Financial Express Online.

In April 2019, when a few of FMPs of Kotak and HDFC mutual funds were due for maturity, HDFC extended one of its FMP by 380 days, while Kotak Mutual Fund repaid investors minus their holdings in Essel firms. However, SEBI raised objections through notices to the top management of the fund houses and asked them to explain the legality of the agreement between mutual funds and Essel Group firms.

Meanwhile, the HDFC AMC shares were trading at Rs 1,834.60, down 97.05 points or 5.02 per cent, on NSE at the time of reporting. The fund house has already lost market cap of over Rs 2,000 crore.

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