MUMBAI: After HDFC Asset Management Company (AMC) made a late evening announcement on Monday that it will provide up to Rs 500 crore liquidity support to Fixed Maturity Plan (FMP) payments maturing over the next few days, the firm’s share price fell 6.32 per cent, or Rs 122 a share, to close at Rs 1,807.75 on BSE.
Though this is not the first time in the mutual fund industry that an AMC has come forward to provide liquidity to buffer good investments that have gone awry, HDFC AMC’s move came as a surprise and turned into a point of heated debate in the market circles.
“Provision of this liquidity arrangement is without prejudice to the validity of the company’s action of entering into the abovementioned standstill arrangement. Such liquidity arrangement is in the larger long-term interest of the company and is being undertaken purely as a measure to provide liquidity to the relevant unit holders,” HDFC AMC said.
HDFC mutual fund had entered into a standstill arrangement over loans extended to Essel or Zee Group firms till September, and the FMPs that hold the Non-Convertible Debentures were not able to pay the full value to investors on maturity. In April, Kotak Mutual Fund had decided to withhold payments to the tune of its exposure to Essel Group papers, while HDFC rolled over an FMP.
“This was a sentimentally bold move by HDFC AMC as investors were worried about their investments. However, investors should be aware that this is a one-off deal inked with Essel and there is always an implied risk with investments where the fund cannot always be the white-knight,” said Umesh Mehta, Head of Research, Samco Securities.
SEBI had also issued notices to the AMCs over the delayed or withheld payments. Mutual fund investments are subject to market risks, but in debt FMPs, an overnight fall in Net Asset Value, or non-receipt of payment on maturity, is more or less guaranteed to impact investors. “As long as the interests of the investors are taken care of, it is good,” said Anita Gandhi, Director, Arihant Capital Markets.