UTI MF, Nippon India MF, PGIM MF To Side-Pocket Exposures To Yes Bank Bonds
A security guard, left, observes customers standing in line outside a Yes Bank Ltd. branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

UTI MF, Nippon India MF, PGIM MF To Side-Pocket Exposures To Yes Bank Bonds


UTI Mutual Fund, Nippon India Mutual Fund and PGIM India Mutual Fund decided to side-pocket their exposures to Yes Bank Ltd.’s bonds after the rating downgrade of the troubled lender’s debt instruments.

This is subject to approval from the board of trustees of the respective fund houses. The move will prevent the distressed assets from damaging the returns generated from more liquid and better-performing assets.

The development comes after rating agency ICRA Ltd. downgraded debt instruments of Yes Bank to ‘D’, which is below investment grade.

Also read: Mutual Funds With Equity Exposure To Yes Bank

In a statement, UTI MF said it had proposed to create a segregated portfolio in respect of debt securities of Yes Bank in its two schemes—UTI Credit Risk Fund and UTI Medium Term Fund—effective Friday, subject to approval from the board of trustees.

Nippon India MF, too, proposed to create segregated portfolio of securities of Yes Bank held in the schemes with effect from Friday. “Further, processing of subscriptions and redemptions in the schemes would be suspended on the day of the credit event (March 6, 2020) till trustees approval for segregation is received,” it said.

PGIM India proposed to segregate its holdings in Yes Bank’s debt from Friday, in view of the downgrade of the securities to default grade.

Also read: Here’s How Much Mutual Funds Are Exposed To Yes Bank Debt

In December 2018, Securities and Exchange Board of India had permitted mutual funds to create segregated portfolios, or side-pocketing, with respect to debt and money market instruments. In case of a credit event, like a credit downgrade, a segregated portfolio may be created.

Creation of segregated portfolios is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio.

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