After SEBI sent separate show cause notices to HDFC Mutual Fund and Kotak Mutual Fund seeking details of the terms of investments and extension of maturity of fixed maturity plan (FMP) due to Essel Group inability to repay has brought the issue in focus once again. The two mutual fund houses made news in April after they couldn’t make complete repayment to the FMP investors. Even as the prominent mutual fund houses defended their agreement with the promoters to extend the repayment period, the market regulator raised questions on the legality of such an arrangement.
“Since the fund houses extended the maturity date to September from April, the notices by the SEBI may be to find out where the responsibility lies in case the value of shares of Essel Group companies held by the investors go down in September. Who would be held responsible in that case?”, said financial expert Harsh Roongta told Financial Express Online.
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In February 2019, Essel Group had said that it was unable to repay the debenture holders the due amount on account of financial troubles. Both mutual funds extended time to the group until September 30 to make repayment. They also didn’t sell the pledged shares parked as collateral with them, at that time, as it would have resulted in further collapse in their market value. The payment to the investors in all those funds which held shares of Essel Group companies was also delayed by the mutual fund houses. The unit holders were even offered to roll over their investments for another 380 days instead of redeeming at maturity in April by HDFC Mutual Fund.
“SEBI’s sending of show cause notices to HDFC MF and Kotak MF follows a due course of action in the matter. We should not make much out of it and all depends on the kind of response fund houses give to the market regulator. However, I believe whatever the fund houses did was in the interest of the investors”, tax and investment expert Balwant Jain told Financial Express Online.