Yes Bank AT1 bonds prompt Kotak Mahindra AMC to suspend subscriptions in two debt schemes

Kotak Mahindra Asset Management Company has paused new subscriptions in two debt mutual fund schemes. The move followed uncertainty around Yes Bank Additional Tier 1 bonds held by the schemes. The AMC said the pause was a precaution to protect investors. It acted earlier on Thursday, before the Supreme Court decision later that day.

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The affected schemes are Kotak Medium Term Fund and Kotak Credit Risk Fund. Both hold Yes Bank AT1 bonds. Kotak earlier valued these bonds at zero. The AMC said the write-off happened during Yes Bank’s reconstruction in March 2020. The Supreme Court later restored the bonds in its judgment.

Kotak Mahindra AMC and Yes Bank AT1 bonds

Explaining the step, Kotak Mahindra AMC said, "it had proactively suspended subscriptions in both schemes as a prudent measure to safeguard the interest of our investors.\" The AMC added, \"We are reviewing the judgment and will determine the appropriate course of action,\" indicating the next steps depend on its assessment.

Kotak Mahindra AMC also said it had used similar precautionary actions earlier. The fund house stated it remained focused on unitholder interests. The suspension was described as temporary. The decision was linked to how the Yes Bank AT1 bond ruling may affect valuations and transactions in the schemes.

Tata Mutual Fund and Tata Gold ETF Fund of Fund restrictions

In a separate development, Tata Mutual Fund announced limits on fresh flows into Tata Gold ETF Fund of Fund. It said it will temporarily restrict fresh and additional lump-sum investments, switch-ins, top-ups, and new SIP and STP registrations from October 16. The fund house said the change is temporary.

Tata Mutual Fund clarified that existing SIP and STP instalments will continue. These instalments will be processed at the applicable NAV. The fund house also said redemptions and switch-outs will stay allowed. Existing Systematic Withdrawal Plans will also continue without changes, keeping exit options open for investors.

Both fund houses described their steps as temporary controls on inflows. Kotak’s action links to Yes Bank AT1 bonds and the Supreme Court judgment. Tata’s restrictions start on October 16 for Tata Gold ETF Fund of Fund. Tata said the limits will stay until further notice while normal processing continues for existing plans.

With inputs from PTI