Kotak Mahindra AMC admits better communication needed over credit risks

The comments come against the backdrop of the fund house seeking more time for payouts with respect to Fixed Maturity Plans.

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Kotak Mahindra Asset Management Company (AMC) admitted it should have had better communicated about the credit risks to its investors in certain debt funds which have come under pressure. The comments come against the backdrop of the fund house seeking more time for payouts with respect to Fixed Maturity Plans (FMPs).

"We probably did not convey to investors as much about the credit risks as we should have had conveyed," Shah said, speaking during an industry event at the BSE here.

Otherwise, investors thought that credit risk funds are akin to a "free lunch", which will deliver up to 2 percentage points extra without exposing themselves to any volatilities.


"There is a disconnect between investors' perception of credit risk fund and the fund houses way of communicating the risk," he said.

Shah said only 5 per cent of the funds carry credit risk, where some "incidents" have happened, resulting in a drop in the net asset value.

He added that so far, funds have very limited credit risks and hoped that enforced of the securities "will still give better return to the investors".

Fund houses' exposure to the financially struggling promoters Essel Group through loans against shares is at the centre of the current problems. There was a rapid correction in the share prices of the group's flagship Zee Entertainment, which was the underlying security held.
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In an unprecedented move, the fund houses of acceded to the demands of the Essel Group and promised not to sell the securities till September.

Markets regulator Sebi on Monday issued show-cause notices to Kotak Mahindra AMC and HDFC MF seeking details about their investments in the debt instruments of Essel Group companies.

Latest data from the Association of Mutual Funds in India (AMFI) showed that FMPs witnessed a net outflow of Rs 17,644 crore in April while net outflow from debt-oriented schemes stood at Rs 18,949.76 crore.
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