What does the DHFL resolution mean for fund investors?

Partial recovery from DHFL bonds is in sight. Will investors get back their fair share?

- Sneha Suri

The fall of Dewan Housing Finance Corporation Ltd (DHFL) sent shock waves across the mutual fund industry. When the credit rating of the once-revered mortgage lender dropped to D (default), NAVs of several debt funds faced the brunt.

But following its acquisition by Piramal Capital & Housing Finance, the resolution of its defaulted obligations is finally in sight. About 40 per cent of the face value of DHFL bonds is reasonably expected to be returned to the lenders in about three to six months. So, the good news is that mutual funds will partially recover the value that they have written off. The bad news, however, is that it may not be pocketed by the rightful owners.

Two years ago, when the mortgage lender went up in smoke, ashes were spread around 90-odd open-end funds of over 20 AMCs, with a market value of over ₹3,600 crore (the face value of around ₹4,300 crore) having been written off fully or partially across different funds. While many AMCs have sold their holdings over a period of time, about half of this exposure across 27 funds of eight AMCs still remains in the portfolios. In rupee terms, this adds up to just over ₹2,100 crore of the face value. Of this, over 80 per cent is with UTI Mutual Fund, followed by Sundaram Mutual Fund with 7.9 per cent.

The table ‘Potential beneficiaries’ provides scheme-wise details of the outstanding DHFL exposure. These funds can hope to recover a part of their investments under the resolution proposed by Piramal. Note that while we have made every effort to piece together a comprehensive picture, some funds may have got excluded because of poor disclosures.

So, what’s the issue?