BOI Axa Credit Risk Fund writes-off 105 Crores – What should an investor do?
In an another shocking incident to mutual fund investors, BOI Axa Credit Risk Fund writes-off IL&FS exposure of Rs 105 Crores. IL&FS Crisis is bigger than everyone would have thought. I have indicated in my previous article that over 20 mutual fund schemes has exposure to IL&FS commercial papers and debt instruments. Investors have started redemption of their mutual funds that has exposure to IL&FS and NAVs started falling now. Why did BOI Axa Credit Risk Fund write-off IL&FS exposure? What should investor of such mutual fund scheme do now? The worst is not yet over?
BOI Axa Credit Risk Fund writes-off IL&FS Exposure of Rs 105 Crores
BOI Axa Credit Risk Fund has invested in commercial papers of IL&FS group companies.
On 15-Sep-18, BOI Axa Credit Risk Mutual Fund has taken 25% haircut after IL&FS has defaulted payment to some of the banks, insurance companies and mutual funds.
BOI Axa Credit Risk Fund has now indicated that it is writing-off Rs 105 Crores where it has invested in IL&FS commercial papers which are maturing on 29th October, 2018. This would be effective from 5th October, 2018.
Soon after the announcement, the NAV fell by almost 5.2%.
BOI Axa Credit Risk Fund has exposure of IL&FS commercial papers to the tune of 6.2% of its total assets. Means, writing off this entire amount is like loosing entire money.
This mutual fund has discontinued fresh investment for the period 8th October to 31st October, 2018 keeping IL&FS Crisis.
In the last 4-5 weeks, AUM of the mutual fund scheme is declined from Rs 1,661 Crore to Rs 1,625 Crores. However, mutual fund experts believe that this is a small tip of the iceberg and redemptions would soon increase.
Why did BOI Axa Credit Risk Fund write-off IL&FS exposure?
Govt of India has taken over the control if IL&FS and sacked the earlier board and formed the new board. New board of directors feels that IL&FS crisis is not that easy to solve, but a relatively complex situation. If this is not handled properly, entire financial markets can collapse. Board members feel that this would take longer time than expected. The same is communicated to all investors and lenders like banks, insurance companies and mutual fund houses to have patience and there could be delay in getting their investments.
What should investor of this such mutual fund scheme do now?
With write-off, the risk of IL&FS is already taken away from this mutual fund scheme. I feel there is nothing more to lose unless we see any other company coming up like an IL&FS kind of crisis. Investors of this existing mutual fund scheme can continue to invest. In case, in future, if there is any money that may come on account of IL&FS commercial papers, it would come as a bonus to the mutual fund scheme and to its investors.
How does overall mutual fund investors reacting to this?
Mutual Fund investors have been increasing month on month. SIP investments has been growing in major way. However, in the last 4-5 weeks, mutual fund investments base have declined by almost 13% i.e. Rs 3.2 Lakh Crores. Currently the base is Rs 22 Lakh Crores. However, if these redemptions would continue like this, we should not get surprised that by end of Oct-18 mutual fund investments would get shrink by another 25%.
Is the worst yet to come?
Some of the stock market experts that we are yet to see the worse in the stock market. IL&FS Crisis is only a small part. Experts believe that few aspects would make stock market worse in the next 1-3 months time frame.
1) IL&FS Crisis impact could be seen across various mutual fund schemes in the coming months. Like BOI Axa Credit Risk Fund written off the investment, other mutual fund schemes might follow too.
2) FIIs are selling the stocks by almost Rs 500 Crores every day in the last few trading sessions. Currently FIIs own over USD 400 Billion in stock market. If this continues for some more time, we would see worse than 2008.
3) US mid term polls in Nov-2018 would set the direction of the stock market too.
4) Iran sanctions about Crude Oil prices would end in Nov-2018. Post that Crude prices to see a major spike. India would get impacted higher due to higher domestic oil prices.
5) 3 Major states and 2 smaller states in India have forthcoming assembly elections in the coming Quarter. This would set the direction of the stock markets.
All these above parameters would set the direction of the stock market. As an investor, you need to have patience, however you should be ready to see the STORM in the near term.
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BOI Axa Credit Risk Fund writes-off 105 Crores – Should you exit the stock markets now
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