Last week, Kotak Mutual Fund announced that 6 of its Fixed Maturity Plan (FMP) that are maturing in April/May, investors would get partial payment only and the balance would be paid after it recovers from Essel group / Zee Group. Earlier 6 months back, we have seen similar situations in mutual fund redemption delays when IL&FS Crisis happened. What is this Essel / Zee Group Crisis? Which are the list of 6 Kotak FMPs where the redemption would get delayed? Which other mutual fund schemes have invested in Essel group where investors might face such redemption pressure in the future?
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What is Essel Group / Zee Group Crisis going on now?
Essel Group was promoted by Subhash Chandra that has 2 listed companies (Zee Enterprises and Dish TV) and 2 unlisted companies (Edisons Utility works Pvt Ltd and Konti Infrapower and Multiventures Pvt Ltd). Kotak Mutual Funds have invested some of its Fixed Maturity Plan (FMPs) in Essel group companies. Now such companies (Zee Entertainment and Dish TV) are in debt crisis and not able to honor FMPs of Kotak Mutual Funds.
What is a Kotak announcement about these 6 FMPs?
Generally, investors in Fixed Maturity Plan (FMPs) of mutual funds think that FMPs are safe bets. However, these are now being turned as high risk. Kotak Mutual Fund announced to investors of 6 FMP mutual fund investors, which are getting matured in April/May-2019 that they would get only partial redemption of their amount. The balance would be paid as soon as they recover the money from Essel Group companies. Means, even though these are matured, investors would not get their full money.
Which are the Kotak Mutual Fund FMPs that are maturity now in April/May-2019 which has redemption issue?
Here is the list of 6 Kotak FMPs that have invested in Essel Group companies which are maturing between 8th April, 2019 and till the end of May, 2019.
#1 – Kotak FMP Series 127
AUM of the fund is Rs 453 Crores
Maturity of the FMP is 8-April-2019
This has 18% exposure to Essel Group. This means that investors would get only 82% of their FMP value now and 18% would be paid as soon as they recover from Essel Group companies.
#2 – Kotak FMP Series 183
AUM of the fund is Rs 563 Crores
Maturity of the FMP is 10-April-2019
This has 19% exposure to Essel Group. This means that investors would get only 81% of their FMP value now and 19% would be paid as soon as they recover from Essel Group companies.
#3 – Kotak FMP Series 187
AUM of the fund is Rs 498 Crores
Maturity of the FMP is 15-April-2019
This has 21% exposure to Essel Group. This means that investors would get only 79% of their FMP value now and 21% would be paid as soon as they recover from Essel Group companies.
#4 – Kotak FMP Series 199
AUM of the fund is Rs 123 Crores
Maturity of the FMP is 17-April-2019
This has 10% exposure to Essel Group. This means that investors would get only 90% of their FMP value now and 10% would be paid as soon as they recover from Essel Group companies.
#5 – Kotak FMP Series 193
AUM of the fund is Rs 247 Crores
Maturity of the FMP is 2-May-2019
This has 11% exposure to Essel Group. This means that investors would get only 89% of their FMP value now and 11% would be paid as soon as they recover from Essel Group companies.
#6 – Kotak FMP Series 194
AUM of the fund is Rs 210 Crores
Maturity of the FMP is 15-May-2019
This has 12% exposure to Essel Group. This means that investors would get only 88% of their FMP value now and 12% would be paid as soon as they recover from Essel Group companies.
Other interesting factors Mutual Fund Investors should know
Mutual Funds industry (Kotak + Others) has invested over Rs 7,500 Crores in Essel Group Companies out of which Rs 1,500 Crores are from FMPs.
Essel promoters have planned to come out of this debt crisis, by selling the stake in Zee Enterprises. However the execution would happen in next 2 quarters by the end of Sep, 2019.
HDFC also has exposure to Essel Group companies. They have filed for roll over their FMPs for 380 days.
Kotak MF and HDFC MF cannot do side pocketing (write-off the amount (i.e. Loss to mutual fund investors)) as these are FMPs.
List of Mutual Fund Houses that have exposure to Essel Group companies
Here are the list of investments done by various Mutual Fund Houses in Essel Group companies that are high risk now. The investor need to keep an eye on their funds.
1) Aditya Birla Sun Life Mutual Funds invested Rs 2,936 Crores.
2) HDFC Mutual Funds invested Rs 1,196 Crores.
3) Franklin Templeton Mutual Funds invested Rs 1,009 Crores.
4) ICICI Prudential Mutual Funds invested Rs 866 Crores.
6) Baroda Mutual Funds invested Rs 507 Crores.
7) SBI Mutual Funds invested Rs 477 Crores.
8) Kotak Mutual Funds invested Rs 447 Crores.
9) Reliance Mutual Funds invested Rs 424 Crores.
10) UTI Mutual Funds invested Rs 93 Crores.
11) DHFL Pramerica Mutual Funds invested Rs 46 Crores.
What should a mutual fund investor do now owing to Debt Funds Crisis?
Investors in FMPs that has exposure to Essel group companies cannot do anything except keeping an eye on their investment. There are several other mutual fund schemes (Non FMP) that have invested in Essel group companies. As a mutual fund investor you can check check if they have invested in Essel group companies (Value Research and Moneycontrol could be good source which shows holdings details). I feel, mutual fund investors can adopt below strategy.
1) If you need money in the near term of say 6 months to 9 months, it is better to exit from such funds now. We do not know how this debt crisis might turn in the next 3-9 months.
2) If you are low to medium risk taker (which ideally you should not have invested here), you can exit from such mutual funds as they are turning now as high risk.
3) Investors should avoid pumping more money to such funds (lump sum or SIP).
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Kotak FMPs redemption issue due to exposure to Essel / Zee group – What should a mutual fund investor do now
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Are you sure the mutual funds invested in the unlisted Essel group companies?
Your information is incorrect. Funds actually lent money to the Essel promoter in exchange for the pledged promoter holding shares of Zee.
The underlying collateral is the shares itself and it needs to be sold to recover the money since the promoters are not paying back.
Hello Pradeep, This is public news and there is nothing Myinvestmentideas team created. This was the announcement made by Kotak CEO about such investments. Yes, the underlying assets could be different, but the investments made in group companies is what we specified here.
Very good advice.I am appalled at the justification given by Ms Lakshmi of Kotak MF for delayed payment.She said”Every chest pain need not be a heart attack”How ridiculous this justification is?She further said that payments will be made by Sep 2019 or rolled over.They simply cover up their blunders and inefficiency with grandiose words and with American accent. Another Kotak Official Nilesh Shaw said this morning “Delay does not mean default”What else is it?Can he recover the amount from Essel Group.Viajay Mallya and Nirav Modi are still eluding the all powerful Govt of India.There are umpteen ways of circumventing the legal process.
Investment in FMPs is fraught with risk.
As advised by you all the readers of your mail should check their MF Portfolios and wherever there are investments in Essel and other suspicious companies must immediately redeem or switch to other safe schemes.
Ramakrishna, Thank you for your valuable comments.