“Investors have been provided 30 days' load-free exit period to redeem from the schemes. The 30 days' load-free exit period will expire on June 14, 2019,” said the release.
A day after several fixed income schemes saw fall in their net asset value (NAV), as Dewan Housing Finance Corporation (DHFL) missed interest payments on a set of outstanding bonds, fund houses have temporarily suspended the subscription in some of the schemes that have invested in debt instruments of DHFL. Tata Asset Management Company (AMC) has announced side-pocketing or creation of segregated portfolio in three of its debt schemes. DSP MF, BNP Paribas MF and DHFL Pramerica MF have suspended subscriptions in some of their debt schemes.
Tata AMC in a press note said Tata Asset Management has already sent individual written communication as well as released a notice advertisement in newspapers for enabling provision of segregated portfolio in the Tata Corporate Bond Fund, Tata Medium Term Fund and Tata Treasury Advantage Fund. “Investors have been provided 30 days’ load-free exit period to redeem from the schemes. The 30 days’ load-free exit period will expire on June 14, 2019,” said the release.
Rating agencies have downgraded long-term rating of DHFL to default ‘D’ on June 5, 2019. “AMC proposes to create segregated portfolio of securities of DHFL held by captioned schemes immediately after expiry of mandatory load-free exit period of 30 days, subject to approval by trustee of Tata Mutual Fund. Ongoing subscription in the captioned schemes has already been suspended,” said the release from Tata AMC.
DHFL, which missed interest payments on a set of outstanding bonds several fixed income schemes, has seen a fall in its NAV as mark-down for the schemes has been around 75%-100% of the value of the assets. Industry participants say DHFL has missed a deadline to pay interest of around Rs 1,000 crore.
As per Sebi and Reserve Bank of India (RBI) regulations, if even one day’s principal or interest is delayed, it is effectively a default. The biggest drop in the NAV was seen in the schemes of DHFL Pramerica, Tata MF, Baroda MF, BNP Paribas MF and JM Financial MF. Participants in the mutual fund industry say DHFL has informed them that interest will be paid by Monday. Data from Value Research show that as on April, mutual funds invested around Rs 4,423 crore across 135 debt schemes issued by DHFL.
In a separate note, DSP MF said in the event of DHFL making payments by June 10, 2019, valuation agencies may review the markdowns initiated on June 4, 2019. A substantial portion of DHFL holdings in schemes of DSP Mutual Fund matures on June 25, 2019.
“In the event of an upward revision in markdowns, the valuation of these securities will see a significant rise. Any inflow at this juncture, if followed by upward revision in markdowns, will dilute the return profile of existing investors on the schemes. Hence, with effect from June 6, 2019 there will be a temporary suspension of subscriptions in schemes which have witnessed 100% mark down in the DHFL exposure, viz., DSP Credit Risk Fund, DSP Low Duration Fund and DSP Strategic Bond Fund. This temporary suspension on subscription will continue till the valuation is maintained at zero or till maturity of the security i.e. on June 25, 2019, whichever is earlier,” said DSP in a note. DHFL Pramerica has decided to suspended subscriptions in four of their debt schemes and BNP Paribas has done so in six of its debt schemes.