Aditya Birla Sun Life Mutual Fund has been in the thick of events for all the wrong reasons. It had exposure to lot of papers which had credit downgrades. Last month, we looked at its exposure to Essel Group. Here, we will look at its exposure to the beleaguered IL&FS group.

AMC had released an update in Apr-2019. I am also attaching that document with this note. You should read that before you proceed further. Nowhere in the release did they mention either the quantum of exposure or the percentage allocation. An excerpt from the release:

I see the AMC has not lost its sense of humour. They seem to have applied “prudent” valuations after the deed is done! Ha ha. We certainly expect nothing less from India’s fourth largest AMC.

I have compiled scheme wise exposure to the 2 group companies of IL&FS

Call me old fashioned but isn’t a 6%+ exposure to one business group a bit excessive? Is it prudent? How did it qualify the internal risk management scrutiny, assuming the AMC has one?

The AMC was able to recover part of the dues from Jharkhand Road Projects & Implementation Company Limited (JRPICL). And here is what they have to say on 19-Sep-2019:

Here is the approximate exposure to IL&FS group entities over the past 12 months:

What was the AMC doing holding these papers even when the IL&FS debacle blew in the face last year?

Of the 700+ Cr outstanding, they were able to recover just about 114 Cr, after 5 months. It’s a long and winding road for schemes before they make any meaningful recoveries. And mind you, Asset Management Companies are not in the business of recovering money. They are in the business of managing money. Somehow the roles got muddled.

Let us look at the AUM trend of these 6 debt funds over the last 2 years:

The total AUM was about 36,000 cr an year ago when the IL&FS fiasco came into limelight. The AUM as on 31-Aug-2019 is about 23,500 Cr. It is evident, from the trend, that the “smart” investors had been redeeming from these schemes. Only the retail will be left holding the cup.

What is the way ahead – If you have exposure to these schemes, think hard and evaluate your options. Look at history of companies which have undergone troubles like the IL&FS group. How many resolutions have happened in the past? In what time-frame? This might give some idea of what to expect from this restructuring. More importantly – is this what you signed up for? Debt funds are supposed to be safe investments giving a known range of return. Equity investments is where one expects high returns by taking risk of the unknown. What is the point of high risk and mediocre returns in a debt fund? Another easy way out is to cut your losses and move on. In future, choose an AMC and scheme that follows risk management not only in word but also in spirit. That is the only way to protect the downside.