Home >Money >Personal Finance >Aditya Birla Sun Life Mutual Fund suspends inflows into two of its debt schemes
The funds also saw huge depletion in size due to continuous outflows.
The funds also saw huge depletion in size due to continuous outflows.

Aditya Birla Sun Life Mutual Fund suspends inflows into two of its debt schemes

  • Fresh systematic investment plans (SIPs) and systematic transfer plans (STPs) will also not be registered in the two schemes.
  • The move may be an attempt to stop speculators from entering the schemes and taking advantage of recovery in bad debt.

Aditya Birla Sun Life Mutual Fund has suspended fresh inflows into its Credit Risk and Medium Term funds from 22 May 2020. The schemes were exposed to both IL&FS group and Essel group papers in the past, which it had written down.

Fresh systematic investment plans (SIPs) and systematic transfer plans (STPs) will also not be registered in the two schemes. However, existing SIPs and STPs can continue.

According to financial planners, the move may be an attempt to stop speculators from entering the schemes and taking advantage of recovery in bad debt. When such entry by speculators happens, original investors do not fully benefit from the recovery in bad debt.

A spokesperson for Aditya Birla Sun Life Asset Management Company also stated this to be the reason.

"We have stopped taking additional money in our credit oriented funds—Medium Term Plan and Credit Risk Fund. We believe that there are substantial gains in our 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," the spokesperson said.

Amol Joshi, founder, Plan Rupee Investment Services, said, "It is probably because the size of the funds has diminished so much that even a small bad debt recovery might cause a jump in the fund's NAV.

Due to multiple write-downs, the two schemes of Aditya Birla Mutual Fund have one-year returns of 0.59% and -8.48%, respectively according to data from Value Research. In case of Essel, the AMC side pocketed its exposure to Adilink Infra and Multitrading Pvt. Ltd in November 2019.

Side pocketing is the segregation of units in lieu of bad debt. It allows existing investors to exit without giving up on a chance of recovery. Side pocketing takes away the need for stopping fresh inflows into the scheme since speculators cannot buy the side pocketed units.

However, side pocketing was not done for IL&FS Group paper. The funds also saw huge depletion in size due to continuous outflows from investors. They had AUMs of 7,038 crore and 6,367 crore at the end of June 2019. The AUMs currently stand at 2,576 and 2,401 crore. Mint had highlighted the situation in the two schemes as far back as July 2019. You can read our piece here bit.ly/2WSEm5D.

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