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After Kotak FMP snag, a look at other mutual funds with exposure to Essel Group firms

Sushruth Sunder

Even as Kotak AMC failed to return the total money of investors for its recently matured FMPs– Series 127 as well as 183, many other mutual funds too have exposure to Essel group entities. Kotak FMP Series 127 has investments worth Rs 80 crore in Konti Infrapower & Multiventures and Edisons Utility Works, two Essel group firms. The total assets of the schemes as on February stood at approximately Rs 450 crore.

Notably, according to a report by Morningstar, the total exposure of AMCs to the Essel Group stood at over Rs 8,000 crore. Out of this, an exposure of Rs 1,673 crore was in FMPs (fixed maturity plans). HDFC AMC exposure to Essel Group firms totalled to Rs 1,196 crore, out of which Rs 902 crore was the FMP s exposure. Yesterday, HDFC MF announced the extension of its fixed maturity plan Series 35 a close-ended scheme due for maturity on April 15, by 380 days.

ICICI Prudential s exposure totalled Rs 866 crore, (FMP exposure Rs 121 crore), Aditya Birla Sun Life Rs 2,936 crore ( FMP exposure Rs 77 crore), Reliance Nippon Life Asset Management Rs 424 crore (FMP exposure Rs 239 crore), DHFL Pramerica had a total exposure of Rs 46 crore in Essel Group entities, out of which the FMP exposure stood at Rs 7 crore. Notably, out of these, in 2019, 45 FMPs are coming up for maturity that have exposure to Essel Group.

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Lakshmi Iyer, CIO (Debt) & Head Products at Kotak Mahindra AMC said that the retained portion in the recently matured FMPs will be returned to the unit holders along with the accrued interest on or before September 30th, as it expects to receive the payment from Essel group by then. The time allowance has been given to the company to be able to effect stake sale and pay back lenders. The principal plus accrued interest on the retained part will be paid out to investors once we get the funds from such stake sale, Iyer told Financial Express Online.

According to Sabharwal, in this specific case relating to Kotak FMPs, the probability that the principal will come back is very high, as the liabilities relate to the Essel Group that is unlikely to default. However, it is a wake-up call. Due diligence of the portfolio is extremely important while investing in Debt or Equity funds. Just spread sheet based analysis will not be able to forecast future performance, he said.