Birla MF stops inflow into two debt schemes to protect investor interest

Suresh P Iyengar Mumbai | Updated on May 22, 2020

The fund house will still honour redemptions in the two schemes

In a rare investor-friendly move, Aditya Birla Mutual Fund has suspended fresh inflow into two of its debt schemes — Medium Term Plan and Credit Risk Fund, as it expects recovery in some of its investments that had gone bad earlier.

However, the fund house will continue to accept inflows through systematic investment plans (SIPs) and systematic transfer plans (STPs) registered before Thursday.

At a time when the mutual fund industry is scouting for inflows, Birla Mutual Fund has stopped accepting investments while keeping open redemption for investors who want to exit.

A Balasubramanian, MD and CEO, Aditya Birla Sun Life AMC, said there are substantial gains in few funds which would be realised by the existing investors over the next few months.

“Since we do not wish to dilute this for existing investors by taking more money in these funds, we have stopped fresh subscriptions in these funds,” he said.

The Credit Risk Fund has an AUM of ₹2,200 crore and the Medium Term Plan ₹4,200 crore.

Due to multiple write-downs, Medium Term and Credit Risk schemes of Aditya Birla Mutual Fund have one-year returns of 0.59 per cent and -8.48 per cent.

Default blues

The debt schemes of the mutual fund industry have been in the eye of a storm for the last two years due to a series of defaults by large corporates.

Of late, Franklin Templeton had to suddenly close six of its debt schemes due to huge redemptions amid severe liquidity crunch.

In fact, Aditya Birla Mutual Fund had debt exposure to few of the companies that had defaulted in 2018 and had to mark down the value of these assets, leading to sharp erosion of up to 25 per cent in the net asset value (NAV) of these schemes.

While the fund house managed to recover money from some of the corporates, it is expecting major returns from its investments in the special purpose vehicle of IL&FS.

The fund house is expecting inflows of ₹950 crore in IL&FS subsidiary Jharkhand Road Projects Implementation Company which has now agreed to service both principal and interest.

Similarly, its investments in IL&FS subsidiaries in power and education are also turning around and are expected to repay their debt. These inflows, as and when they happen, will push up the NAVs of the schemes and the fund house does not want tactical investors to walk away with long investors’ gains, said an analyst.

Published on May 21, 2020

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