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Setback for investors in fixed maturity plans: Here's what experts have to say

Updated : April 10, 2019 07:21 PM IST

The fallout of the IL&FS and the Essel Group crisis still continues to be felt. In the latest, some fixed maturity plans (FMPs) by Kotak MF have returned lower than expected money to their investors on maturity. This, owing to their exposure to some companies from the IL&FS and Essel Groups.

Sources at Kotak MF told CNBC-TV18 that the principal amount has been returned to investors and a part of the interest as well but part interest has been withheld pending resolution by Essel Group promoters.

This problem is not unique to Kotak Mutual Fund. At an industry level, FMPs have an exposure of about Rs 17 hundred crore to the Essel Group. The other fund houses will also likely have very few options. Kotak MF was just the first one due for redemption.

To discuss this, CNBC-TV18's Latha Venkatesh and Sumaira Abidi are joined by Manoj Nagpal, MD and CEO of Outlook Asia Capital, Dhirendra Kumar, CEO, Value Research, Sandesh Kirkire, Professor, JBIMS and Sandeep Parekh, Founder of Finsec Law Advisors.

Here's what they have to say:

Dhirendra Kumar, CEO, Value Research: The collateral of Zee Entertainment is over and above the debt exposure which the fund has assumed. So, January 25th - the 30 percent decline just because Rs 200 crore worth of collateral was sold in the market... I still feel that these products try and optimise return, they assume credit risk and ideally no one should not be taking exposure to illiquid things but that is easier said than done... even the highest quality name may not be liquid. So, asset-liability mismatch on account of mutual fund investors definitely continues.

Sandeep Parekh, founder of Finsec Law Advisors: The way we have seen 4-5 very large episodes which have played out - IL&FS, ZEE, DHFL, Reliance Communications (RComm) to name just a few - clearly many of them have default and many of them have kind of tried to defer their payments, etc. Fund managers are kind of between rock and a hard place. They need to figure out whether they are going to call in whatever pledge securities or other security measures they have in place. They should call that in which would almost in all likelihood be inadequate versus having a deal with the promoters in which they get the principal back and maybe some kind of haircut on their interest. In some places even the principal - there would be a haircut. Broadly, I don’t see any conspiracy theory in play. I think that fund managers have acted in the best interest of the unit holders.
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