InvestorQ : I read that UTI Mutual fund is writing off all its exposure to the Dewan Housing group. I am holding some of these debt funds so how will it impact me?
Priyanka N made post

I read that UTI Mutual fund is writing off all its exposure to the Dewan Housing group. I am holding some of these debt funds so how will it impact me?

NISHA Nayak answered.
3 years ago

UTI has one of the largest exposures to the debt of Dewan Housing Finance group in excess of Rs.1,800 crore out of a total MF exposure to DHFL debt to the tune of Rs.6200 crore. This decision was taken by UTI Mutual fund after Dewan Housing defaulted on its Rs.960 crore payment of interest to debenture holders on 04th June. The problems are getting worse for Dewan Housing in other ways two. In the coming month of July, Dewan Housing has total anticipated receivables of Rs.2200 crore but total committed outflows of Rs.6600 crore. There is no way the company is going to be able to meet these huge shortfalls other than defaulting.

The decision to write off the entire exposure to DHFL was taken by UTI Mutual Fund after the bonds of the company were downgraded to Default category by CRISIL and ICRA, two of India’s leading rating agencies. Normally, when a bond is classified as default category, the mutual funds are required to write off 75% of the value of the bonds immediately. However, in this case, UTI Fund has chosen to write off the full amount of outstanding debt considering the low probability of recovering anything from the fund. At a future date when anything is recovered from Dewan Housing bonds, the amount will be written back and credited to the NAV. But for now the fund has decided to treat the value of all Dewan Housing debt at zero; and rightly so.

What does this mean to you and what should you be doing. There are two options in front of you. Firstly, you can look to hold on to the fund in the hope that the other assets are not so toxic and eventually, your fund performance may improve over a period and part of the dues from Dewan Housing debt will be recovered. But there is no guarantee on this front. Secondly, you can look to book a loss and exit the debt funds at this point of time, especially where any of the debt funds you hold have an exposure to such stressed debt like IL&FS, Dewan Housing, Jet Airways or Zee Group. Instead, you can invest the money in a short term fund and tide out the crisis in the financial markets and NBFCs and then take a fresh view. Practically, the second option should be more meaningful for you. However, there is an important constraint here. UTI has levied exit loads on all such debt funds with exposure to Dewan Housing. For example, there will be an exit load of 3% for redemption within 3 months, 2% for redemption within three to six months and an exit load of 1% if redeemed between 6 months and one year. There will be no exit load after that. Effectively, if you redeem today, apart from the depleted NAV, you will incur a higher exit load of 3%. That may look unfair to you but that is the reality. You need to take your call accordingly.