The problem of loan defaults has now begun to affect fixed maturity plans. ET Wealth delves into the issue in order to explain to investors what it means for them.
What is the problem with FMPs?
Some mutual fund companies which had lent to Zee (Essel) Group entities are holding back payments due to investors in their fixed maturity plans (FMP). Several FMPs that are due for maturity are not able to repay the entire amount. This is because of the delay in recovery from the Zee Group.
Investors in six FMPs of Kotak MF will not be able to redeem the entire maturity value. HDFC Mutual Fund has also informed investors its plan to extend the tenure for one of its FMPs coming up for maturity by another year.
Is my money lost or will it be recovered later?
Investors in affected FMPs of Kotak MF will receive a part payment of maturity proceeds for now. They will get the amount equivalent to the value of the other holdings in the FMP (maturity amount minus value of holdings in Zee Group). The remaining amount may be paid if and when the fund house recovers the money from the companies.
In case of the HDFC MF FMP maturing on 15 April, investors can either agree to an extension in maturity date or exit on the prevailing maturity date. For investors who exit, units will be redeemed at applicable NAV on existing maturity date. They will get the amount minus the value of holdings in Zee. Investors who agree to extend the maturity date may recover the entire amount, provided the entities to repay the debt.
Are all FMPs in trouble?
Apart from Kotak MF and HDFC MF, several other fund companies have exposure to debt instruments of the Zee Group. Of the total exposure of Rs 7,500 crore to the troubled entities, around Rs 1,400 crore is held by FMPs. Most of the FMPs with exposure to Zee Group are from the stables of Kotak MF, HDFC MF, Aditya Birla Sun Life MF and Reliance MF.
FMPs coming up for maturity are likely to either roll over the maturity date or delay payments to investors. In some schemes, exposure to Zee Group entities is as high as 20% of the scheme corpus. Investors in these schemes will take a hit.
These FMPs with high exposure to Essel Group are coming up for maturity