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For the first time in the industry, Tata Mutual Fund has used the side-pocketing option provided to set aside its troubled investment in Dewan Housing Finance (DHFL) separately and allowed investors to redeem their investments in three schemes without any exit load.
The fund house has already suspended subscription in Tata Corporate Bond Fund, Tata Medium Term Fund and Tata Treasury Advantage Fund.
More fund houses are expected to use the side-pocketing facility in the coming days. As of April-end, about 24 mutual funds across 165 schemes have ₹5,336-crore exposure to DHFL.
Last December, market regulator SEBI had allowed mutual funds to create segregated portfolios of debt and money market instruments in case of a credit event.
Tata Asset Management has already sent written communication to individual investors for enabling provision of segregated portfolios in the three schemes. Investors can exit from the schemes without incurring any exit load till June 14, said Tata Mutual Fund.
The fund house proposes to create segregated portfolios of securities of DHFL in the three schemes after expiry of the mandatory load-free exit period.
Investors redeeming their units after June 14 will get redemption proceeds based on the NAV of the main portfolio and will continue to hold the units of the segregated portfolio.
All investors in the schemes on the day of creation of segregated portfolio will be allotted an equal number of units in the segregated portfolio as held in the main portfolio.
Two NAVs
Depending on the recovery of money from the segregated portfolio, it will be distributed to investors in the proportion to their holding. Subsequently, Tata Mutual Fund will announce two separate NAVs for the main and segregated portfolios.
After creation of the segregated portfolio, it will be listed on the stock exchanges within 10 days. No redemption will be allowed after the listing.
On Tuesday, crisis-ridden DHFL failed to pay ₹1,150 crore interest on its outstanding bonds due to lack of liquidity; it has promised to meet its payment obligation within the seven-day grace period.
Following this, rating agencies on Wednesday downgraded the long-term rating of DHFL to ‘default’ category, forcing many mutual funds to run for cover.
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