NEW DELHI: According to Dhirendra Kumar, chief executive officer, Value Research, there are two key lessons for investors have to keep note of from the ongoing Essel Group saga, which revealed the fund houses’ exposure to the company: One, mutual funds are subjected to market risk and two, this kind of issues will keep happening all the time.
“The whole saga will impact the popularity of mutual funds among investors. They have been buying all sorts of schemes from sellers. Incidents like this creates awareness among people and force them to observe due diligence before buying any scheme,” Kumar said.
As for fund houses, Kumar said, they will have to be extra careful. “They will have to be more prudent with their investment. Why invest 10-15 per cent of the funds in one group, instead of 5 per cent? They are also expected to spread their risk. Having a significant allocation to such securities that go wrong is the lack of prudence to an extent.”
Earlier this week, panic was felt among investors when Kotak Mahindra Asset Management Company (AMC) and HDFC AMC said that investors in some of their Fixed Maturity Plans (FMPs) will not be able to redeem all their units on maturity date, as there is a delay in recovering money lent to Essel Group firms. The fund houses have an exposure of around Rs 8,000 crore to various debt instruments of the group led by Birla Sun Life and HDFC AMCs.
Kumar feels the scenario at present is hardly a calamity. “The unit holders (Kotak AMC) have got their money and it is only the interest that has got delayed. By September, it is likely that the investors will get 6-9 per cent interest plus interest for the deferred period of time.” He, however, added that the return will depend entirely on Essel Group chairman Subhash Chandra giving back the money.
Essel, in a statement, affirmed its commitment to repay each debtor by September 2019. Chandra is reportedly looking to sell his stake in the group’s flagship Zee Entertainment Enterprises to repay lenders after borrowings for diversification went awry by halving his stake to 22 per cent.
Nilesh Shah, CEO, Kotak Mutual Funds, has written to mutual fund distributors that the fund house has taken actions, which it believes was in the best interest of unit holders. However, this reportedly has not gone down well with the capital markets regulator, Securities and Exchange Board of India. The regulator has reportedly asked Kotak AMC and HDFC AMC to clarify under what provisions of the existing rules has it held back the redemption of FMPs.
SOOTHER
Value Research CEO Dhirendra Kumar feels that the current scenario involving the exposure of fund houses to Essel Group firms is hardly a calamity. The unit holders have got their money and it is only the interest that has got delayed. The investors will get 6-9% interest plus interest for the deferred time by September, he says.