FMP scare cautions MF investors

The scare prevailing in the mutual fund industry after the one of the Kotak fixed maturity plans and two of the HDFC Asset Management companies deferred payments to its investors, owing to default by Essel Group, according to industry experts.

"There have been slowdowns in the new inflows. That is mainly because of the nervousness that is there in the markets because of these events... There is definitely a sense of nervousness in the markets and people are looking at what is happening. They are also wondering why these defaults are happening," NS Venkatesh, Chief Executive, Association of Mutual Funds in India (AMFI) said.

The Amfi data shows that six new FMPs in April have garnered Rs 384.45 crore worth of inflows. The six new schemes include: HSBC Fixed Term Plan Series 140, ICICI Prudential FMP Series 86 - 1099 days Plan A, Reliance Fixed Horizon Fund - XLI - Series 8, SBI FMP Series 2 (1178 days) and Series 3 (1179 days), and UTI Fixed Term Income Fund Series XXXI-XII (1148 days).

As of date, there are 800 FMPs in the country spread across the 9.17 lakh folios, with net Assets under Management (AuM) worth Rs 1,41,170.58 crore. Due to the maturity of various FMPs, the segment saw a net outflow of Rs 17,644.42 crore worth of investment.

However, there is no data regarding FMPs till March this year, as it was only in April Amfi adopted the new reporting standards issued by Sebi.

Around Rs 2 lakh crore of the mutual fund industry’s exposure is stuck in the risky corporate debt, according to the industry sources.

Mutual fund industry witnessed a scare recently as two of HDFC Asset Management's fixed maturity plans (FMP) one of the Kotak Asset Management’s defered payment to its investors, owing to the exposure to the non-convertible debenture(NCDs).

In a turn, that could have made things worse for Kotak MF, the major exposure of Series 183 was to the army jawans, according to the sources in the know.

The industry sources told that it has been Sebi’s non-application of existing laws, that is making customers. “The laws are there. The question is what Sebi does. Or rather doesn’t do,” an industry source told DH.

When the collateral cover of Essel Group fell short, it wasn’t topped up. And second, when the debt repayment was pushed to September 30, it would make Subhash Chandra owned company a non-performing asset by the RBI norms. However, instead of the central bank, Securities Exchange Board of India (Sebi) is the regulator in this case – which has constantly declined to comment on the issue.