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 –

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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About the author

Nitin Jain

A finance professional with around 20 years of investing experience in Indian markets both on buy and sell side, equity and debt, private and public with some of the best organizations globally including Goldman Sachs, ICICI Group, ICRA and others. He is a All India Silver Medalist CA by qualification.

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