Mutual funds’ redemption woes roil market

With six MFs taking a call on redemption in 3 months, the recovery problems associated with the debt papers issued by IL&FS and the Essar Group seems to have landed the mutual fund industry in a crisis.

Kotak Mutual Fund withheld the returns of its close-ended FMP that matured on 10 April, while HDFC MF offered an option to the investors of its FMP maturing on 15 April to roll over their investment for 380 days.

FMPs of six mutual funds — ICICI Prudential, Reliance, Aditya Birla Sun Life, DSP MF, UTI MF and DHFL Pramerica — with exposure to distressed Essel and IL&FS group companies will mature in the next two months.

Of the 56 schemes that are maturing this year, 45 have exposure to the Essel Group and 11 schemes have invested in IL&FS.

The schemes that are maturing in April include four schemes of HDFC MF, three each of Kotak MF and UTI MF, and one scheme of DSP MF.

Similarly, two schemes each of Kotak and HDFC MF and six schemes of Reliance MF are maturing in May, while one scheme of UTI MF is maturing in June.

As of last December, mutual funds had exposure to the tune of Rs8,000 crore in debt securities of the Essel group companies, according to data from Morningstar. Of this, Rs1,673 crore was in FMPs and the remaining in open-ended schemes.

There are more than 40 schemes maturing later this year with cumulative investment of about Rs1,400 crore. Of these about 14 schemes, with an exposure of nearly Rs475 crore, will mature this month.

These fund houses may either withhold returns or offer investors an option to roll over their investments.