NAVs of fixed income schemes fell 7-12% on Wednesday as the fund house wrote down its entire investment in Ballarpur
Mumbai: Investors in debt schemes of Taurus Mutual Fund lostinonedaywhattheyhadgained in a full year. Net asset value of TaurusMutualFund’sfixedincome schemes fell 7-12% on Wednesday after India Ratings and Research (Ind-Ra) downgraded its credit ratings on Ballarpur Industries (BILT), India’s largest maker of paper products, to the lowest grade.
Thisforcedthefundhousetowrite down the entire investment in Ballarpur and stop fresh inflows into the affected schemes.
Taurus holds ₹ 58.05 crore worth of Ballarpur Industries’ instrument s a c r o s s four funds. According to Value Research data, Taurus Short Term Income Fund, Taurus Ultra Short Term Bond Fund, Taurus Dynamic Income Fund and Taurus Liquid Fund had exposuresof 11.96%,11.94%,7.47% and 4.3%, respectively, to BILT’s commercial paper. Ind-Ra downgraded Ballarpur Industries’ (BILT) Long-Term Issuer Rating to ‘IND D from ‘IND BBB-’. BILT’s term loans, fundbasedandnon-fund-basedworking capital limits, non-convertible debenture (NCDs) and commercial paper instruments have all been downgraded.
In the last couple of years, the mu-
tualfundindustrysawtwoinstances of debt schemes’ NAVs falling sharply in a day following credit rating downgrades. NAVs of select d e b t s chemes o f Franklin Templeton and ICICI Pru MF had dropped by as much as 1.5% in a day in February 2016 after Crisil first cut its ratings on JSPL securities to junk category before further downgrading it to default. In 2015, investors in two debt schemes of JPMorganAssetManagementhad borne the brunt of credit rating downgrades of troubled auto component maker Amtek Auto’s debt instruments.
Investors in Taurus can redeem their investments from these schemes, the fund said. In a notice cum addendum, on its website, the fund house said, “With effect from February 23, we have decided to temporarily suspend subscription on account of certain unavoidable circumstances, in Taurus Liquid Fund, Ultra Short Term Bond Fund, Short Term Income Fund and Dynamic Income Fund”. An emailsenttothefundhousedidnot elicit any response.
As Taurus has written off these investments, unitholders would benefit if Ballarpur pays back. But, analysts said investors should cut their losses and move on.
“Holding low-grade short-term commercialpaperinaliquidfundis acauseforconcern.Investorswould do well to move out of the schemes despite the loss,” says VIdya Bala, head of research, Fundsindia.com.
Three other mutual funds houses held Ballarpur Industries’ debt instruments in their fixed income portfolios till late 2016 or early 2017. These fund houses, however, managed to exit the Ballarpur paper before the downgrade though the industry is abuzz with speculation that two of them have sold the debt instruments to their parents. This could, however, not be confirmed.