In a bid to safeguard investors' interest UTI mutual fund house with exposure of a huge Rs. 186 crore in Vodafone Idea's debt instrument has created segregated portfolios in respect of 5 of its debt schemes.
UTI Debt Schemes Being Side-Pocketed After Voda Idea Downgrade
1. UTI Credit Risk Fund
2. UTI Bond Fund
3. UTI Regular Savings Fund
4. UTI Dynamic Bond Fund
5. UTI Medium Term Fund.
"Pursuant to the downgrade of debt instruments of Vodafone Idea Limited to 'BB-' (i.e. 'below investment grade') by CARE Ratings Ltd on February 17, 2020, UTI Mutual Fund proposes to create a segregated portfolio in respect of debt securities of Vodafone Idea Limited in UTI Credit Risk Fund, UTI Bond Fund, UTI Regular Savings Fund, UTI Dynamic Bond Fund and UTI Medium Term Fund effective February 17, 2020, subject to approval from the Board of Trustees," it said in a release..
Further in a statement, the mutual fund said that after recovering amount in the segregated or side-pocketed portfolio from Vodafone Idea, the same will be distributed to investors' in proportion of their holding in the segregated portfolio.
On Monday, the ratings firm downgraded NCDs of Vodafone Idea lower to 'BB' which signifies below investment grade rating.
Primarily side-pocketing is a technique to safeguard investors' interest in instruments which have exposure to risky assets. Using such a methodology, risky bets in the scheme are segregated from the safe and liquid investments which might get impacted due to credit profile of risky asset. And herein, the efforts are made to stabilize the net asset value of the scheme and also redemption in it is attempted at as small investors do not get hit severely due to sudden exits by large investors.
What will Happen to Investors in These 5 Debt UTI Schemes with Exposure to Vodafone Idea NCDs?
As on the date of segregation or side pocketing in each of these 5 MF schemes, existing investors will be allotted equal number of units in the segregated portfolio as those in the primary portfolio. No subscription or redemption will be allowed in the segregated portfolio of the schemes, said the fund house.
Further, investors going in for redemption will get proceeds based on the NAV or net asset value of the main portfolio and will need to continue holding units of segregated portfolio.
Those making fresh investments in these UTI debt schemes will be issued only units in the main portfolio based on the scheme's NAV.
Further, in reference to the units of segregated portfolio in these 5 schemes, the mutual fund house will facilitate stock exchanges listing within 10 days of creation of the segregated portfolio. Also, from the date of creation of segregated units, there shall be separate disclosure of NAV of main and segregated portfolio.
Also, within 5 working days of establishment of segregated portfolio, investors will be sent a separate statement of account in respect of units held in segregated portfolio as well as NAV of both the main and segregated or side-pocketed portfolio.