HDFCMF provides liquidity support to FMPs upto Rs 500 crore

HDFCMF in a filing yesterday evening to the Stock Exchanges, declared that it is providing a liquidity support to its Fixed Maturity Plan (FMP) Schemes that hold Essel Group debt. The support has been capped at Rs 500 crore. Checkout the actual filing made here – 1. At what value Whereas in the filing it’s … Read more

HDFCMF in a filing yesterday evening to the Stock Exchanges, declared that it is providing a liquidity support to its Fixed Maturity Plan (FMP) Schemes that hold Essel Group debt. The support has been capped at Rs 500 crore.

Checkout the actual filing made here –

There are 2 important questions that arise out of this arrangement

1. At what value

Whereas in the filing it’s clearly mentioned at ‘prevailing valuation’, as per some media houses it’s at 100%. Supposedly, there is no haircut that has been taken into these schemes due to the underlying security cover and hence investors will get back 100% of their investments.

I personally, will be very surprised if there is no hit in the NAV that has been taken for a troubled paper and if that’s the case, investors can rejoice !

Till the time of publishing this post, there is no official confirmation on the same.

2. Why HDFCMF decides to provide this liquidity?

I guess the main reason is that this is for FMPs wherein a typical investor profile is crema de la crème and hence holds very high value for any AMC.

Irrespective of the answer to above questions, in my personal view this is a wrong precedent set by HDFC AMC. “Mutual funds are subject to market risks” – need to be followed in true words and spirit.

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