Aditya Birla Sun Life Mutual Fund writes down Essel exposure in 3 schemes
Over the past week, Aditya Birla Medium Term Plan is down 2.07 percent, Aditya Birla Sun Life Dynamic Bond fund is down 1.89 percent and Aditya Birla Sun Life Credit Risk Fund is down 1.06 percent. Several Funds of Aditya Birla Sun Life Asset Management Company hold Non-Convertible Debentures issued by Spirit and hence saw cuts in their Net Asset Value. Brickwork Ratings downgraded Spirit Infrapower and Multiventures, an Essel Group company on 4th October 2019.
Brickwork Ratings downgraded NCDs of Spirit Infrapower worth around Rs 111 crores to D (Default). However, it cut the ratings of NCDs worth Rs 853 crores to BB-. This latter negotiable certificate of deposits (NCDs) are held by Aditya Birla Sun Life Mutual Fund. As per the valuation matrix issued by the Association of Mutual Funds of India (AMFI), such a cut requires the schemes holding the paper to take a 25 percent to write down, which Aditya Birla Mutual Fund has taken in the three affected schemes.
By the end of August 2019, the 3 affected schemes had exposures of 6-11 percent to spirit Infrapower. After receiving money from Invesco Oppenheimer, an international fund that increased its stake in the group, the Essel group repaid half the debt owned to lenders including mutual funds in September 2019. The current exposure is not clear because the Aditya Birla Sun Life Mutual Fund did not release the latest fund fact sheet. According to the information said by a source the range of the exposure is 4-8 percent which is based on seeing the Net Asset Value reductions. A source said that the current exposure is 5.08 percent in Aditya Birla Sun Life Dynamic Bond Fund, 5% in Aditya Birla Sun Life Medium Term Plan and 3.32% in Aditya Birla Sun Life Credit Risk Fund.
A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund said that the Essel exposure is also backed by shares of Zee Entertainment Enterprises as collateral. These shares have seen a downfall of 40 percent over the past year.
In this case, Debt fund investors should not be taking equity-like risks and this is precisely the position of scheme investors. Investors should be mindful of any exit load or tax applicable. They will also lose out on any future recovery in the concerned debt. if the fund is held for less than 3 years Gains in debt funds are taxed at slab rate. The benefit of indexation is given and they are taxed at 20 percent after this period. Amol Joshi, founder, Plan Rupee Investment Services, called for a more nuanced approach. Bad Debt has been recovered. Recently an ILFS (Infrastructure Leasing & Financial Services Limited) group company was upgraded from amber to green and resumed payments on its debt. In Essel half of the money has come to the funds. Subsequently, investors who have a year or more to go for the objective they need to accomplish with this fund should wait thus should investors who have not finished 3 years. Others can consider an exit particularly on the off chance that they are close to their goal based redemption date, he said.