My family has an investment in UTI Credit Risk Fund. I was informed today that the fund is segregating its holdings in Altico. What does that mean for me as an investor?

Firstly, segregation is done for bad quality assets in a mutual fund portfolio. Altico recently defaulted on its ECB repayment leading to their bonds being downgraded by CARE to below investment grade. Altico is an NBFC which largely lends to the real estate sector, mainly to property developers. UTI Credit Risk fund has an exposure of approximately Rs.201 crore to bonds issued by Altico and that accounts for nearly 5.9% of its total portfolio.

Segregation means that any the stake in Altico will be held in a separate account and will not be included in the NAV calculation of the fund. If you redeem now you will get the NAV of the fund excluding Altico. When UTI Credit Risk Fund realizes the sum from Altico proportionately, that will be distributed to the existing unit-holders. As of now you will be allocated equivalent units in the segregated units of Altico and that segregated fund will also be listed in the market where it will be traded. Once you have been issued the segregated units, even if you have sold out the main units, you will still hold the segregated units and can recover the money when it is redeemed. But no fresh entry and exit will be permitted in the segregated portion and to that extent it will be like a closed-ended fund. Now your statement of account will separately show your holdings in the main fund and in the segregated fund.