I am sure that we all accept that we are in a panic situation. When FT shut down 6 funds, most people had no clue whether it was a liquidity problem or a solvency problem. I do think it was a liquidity problem, and now a new liquidity window – of listing is also going to be available.

Let us see what Aditya Birla Sunlife Mutual fund has done. Well here is a quote..

ABSL Trustee Pvt Ltd. will suspend new subscriptions in 2 of its DEBT PLANS to PROTECT THE NAV for the EXISTING INVESTORS -so that new investors do not come and dilute the Nav.

Let me explain. The 2 funds -ABSL Medium Term Plan and ABSL Credit Risk Fund will halt taking fresh APPLICATIONS from TOMORROW. I believe they already had a limit of Rs. 10L per applicant, now they have made it zero. Now let us say this fund had invested in a company which was written down to zero (over provisioning in hindsight) instead of side-pocketing. This money is likely to comeback now. Which means it will become very profitable to invest – in these funds. However it will dilute the Nav for the older investors – and that is not the purpose!

Here is a note from Bala the Ceo of ABSL Mutual fund…and I quote:

“We have stopped taking additional money in our credit oriented funds -Medium Term Plan and Credit Risk fund. We believe that there are substantial gains in our funds which would be realized by the existing investors over the next few months. Since we do not wish to dilute this for existing investors by taking MORE MONEY in these funds, we have STOPPED FRESH SUBSCRIPTIONS IN THESE FUNDS.

I know many people who withdrew from all credit funds last month when the FT incident happened. Many of them would be wringing their hands in pain!

I remember talking about these funds about 15-18 months ago – with the caveat that further deterioration could happen. Those who attended my sessions in Gujarat would remember I presume.

I only hope that all investors, MFD, banks realize that this is being done TO PROTECT THE interest of the existing unit holders. If there was a payment crisis they would have stopped the redemption, not the subscription.

SO MY ADVICE TO INVESTORS AND MFD is that please understand what is happening…and please stay invested till the written off amounts are realized and reflected in the Nav. I do not have those details (Manish will have it, or ask your RM)…..

just a quick clarification…

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  1. I have a different feeling. After reading all the news in the last one month, no new investor is coming and it is only outflows. With this stoppage announcement of new subscription, they killed two birds in one shot. They will restrict the outflows and gain the image of protecting the existing investors. Innovative PR to gain advantage.

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