DHFL Pramerica Mutual Fund merges two schemes exposed to sponsor

The MF industry has been facing mark-to-market hit on its exposure to DHFL

DHFL Pramerica Mutual Fund (MF), which has seen some of its schemes’ exposure to its sponsor Dewan Housing Finance (DHFL) rise sharply due to a fall in asset size, has decided to merge two such schemes with larger schemes.

“This is in the best interests of the investors. Both from investors’ and fund managers’ points of view, dealing with a larger scheme is better. Concentrated exposure in these schemes had gone up due to a fall in their asset size. These schemes are being merged into schemes with similar investment mandate and an increase in exposure levels of the larger schemes will not be significant,” said a spokesperson for the DHFL Pramerica MF.

The floating rate fund, which at the end of April was just Rs 13 crore in size, had 31.9 per cent of its assets to DHFL. Before the IL&FS crisis in September, the fund’s size stood at Rs 640 crore and exposure to DHFL at 6.58 per cent.

The medium-term fund, having an asset size of Rs 34 crore, has 37.41 per cent of its assets exposed to DHFL’s debt paper and 47.28 per cent exposed to Indiabulls Housing Finance. The fund also has seen more than 90 per cent fall in its asset size since September — from Rs 437 crore at August-end to Rs 34 crore. As of August, the scheme’s exposure to DHFL and Indiabulls was 9 per cent and 5.7 per cent.

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The MF industry has been facing mark-to-market hit on its exposure to DHFL as the non-banking financial company has been seeing a spate of downgrades since the IL&FS crisis.

To deal with concentrated exposure in its schemes, DHFL MF has decided to merge the floating rate fund into the ultra-short term fund and the medium-term fund into the credit risk fund.

The fund house has given an exit-load free window to in­v­estors to leave these schemes between May 24 and June 22. If the investors in the larger scheme decide to stay, they would get exposed to debt holdings of the smaller scheme as a proportion of the merged scheme.

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“The unitholders of the larger scheme could opt to exit. They are getting a bit more exposed to debt papers, which most market participants are wary of,” said Amol Joshi, founder, Plan Rupee Investment Services, a Mumbai-based advisor.

The fall in asset size of these schemes has also led to passive breaches of the exposure limits laid down by the Securities and Exchange Board of India (Sebi). According to Sebi norms, an MF scheme cannot actively invest more than 12 per cent of its assets to a single issuer.

Besides the above scheme mergers, DHFL MF announced creating the option of the segregated portfolio in two of its fixed maturity plans — fixed duration fund (series AH) and fixed duration fund (series AP).

In December last year, Sebi had allowed the creation of segregated portfolio in debt schemes to deal with papers downgraded to below-investment grade.