Goes back on side-pocketing the investment due to possible breach of SEBI norms
Sundaram Mutual Fund has withdrawn the proposal to side-pocket its ₹52-crore investment in the debt papers issued by distressed Dewan Housing Finance Corporation (DHFL) as the move does not meet SEBI norms.
Side-pocketing is a process which allows mutual funds to separate the stressed investment separately for recovery at a later stage while allowing investments and redemptions based on the value of the remaining assets.
According to SEBI norms, the mutual fund has to seek trustee approval for segregation of a bad asset immediately after the credit rating agencies downgrade the debt paper issuer.
Once approved by the trustees, the AMC has to issue a press release, disclosing the net asset value of the segregated and the main portfolios separately and intimate the unit-holders.
No redemptions and subscriptions will be allowed in the segregated portfolio. By prescribing an elaborate and stringent process for side-pocketing, SEBI has ensured that the provision is used only in extreme cases of default.
In the case of Sundaram Mutual Fund, the non-convertible debentures of DHFL were downgraded to ‘D’ or default grade on June 5. However, in a notice to investors, Sundaram Mutual Fund had mentioned August 16 — the day when the investment matured — as the date of default. The segregated portfolio was to come into effect from August 30.
In a note issued late on Wednesday, Sundaram Mutual Fund clarified that it will not go ahead with segregation of the stressed DHFL asset as it was not in-line with the norms laid down by SEBI.
In the same note, it said the fund house has fully written-off ₹52.2 crore of interest and principal related to the DHFL non-convertible debentures held in its schemes. Four schemes — Sundaram Short Term Debt Fund, Low Duration Fund, Short Term Credit Risk Fund and Debt Oriented Hybrid Fund — are exposed to the troubled housing finance company.