New Delhi. Following the Supreme Court’s landmark decision to reinstate Yes Bank’s additional tier-1 (AT-1) bonds, Kotak Mahindra AMC and Nippon Life India Asset Management have put a temporary halt on fresh investments in some of their debt mutual fund schemes as a precautionary measure. This step of fund houses has been taken keeping in mind the protection of investors’ interests and the possible sudden increase in the old NAV, so that the arrival of new investors does not affect the profits of the old investors.
Steps taken by fund houses
The Supreme Court has completely upheld the decision of the Bombay High Court, in which Yes Bank’s decision to write-off these bonds was cancelled. This court order is expected to significantly increase the net asset value (NAV) of mutual fund schemes that held these bonds and whose valuation was considered to be zero till now.
Kotak Mahindra AMC: The company has banned new investments in its ‘Kotak Medium Term Fund’ and ‘Kotak Credit Risk Fund’. These two funds together have assets worth about Rs 2,680 crore.
Nippon Life India Asset Management: This fund house has also stopped investing new money in the wealth creation and income generation schemes of its ‘India Retirement Fund’.
Objectives of fund houses and experts’ opinion
Fund management companies have clarified that this is a precautionary step. This has been done so that the benefit of the sudden increase in NAV cannot be availed by the new investors who have taken entry after this decision, and the full benefit can be availed only by those old investors who had been with this risk for a long time. At present, both the fund houses are closely reviewing the Supreme Court order and are waiting for clear guidelines regarding the accurate valuation of these bonds.
It is noteworthy that during the crisis and restructuring of Yes Bank in March 2020, these AT-1 bonds worth Rs 8,415 crore were considered completely extinguished. However, in January 2023, the Bombay High Court had banned it and now the Supreme Court has also upheld it. According to Suresh Darak, founder of FixedIQ.com, after this court decision, now there is every possibility for the bondholders to get huge financial benefits of their principal amount and the interest received on it.
