Why Kotak MF suspended subscriptions in two debt funds holding Yes Bank AT1 bonds

Kotak Mahindra Asset Management Company (AMC) has temporarily suspended subscriptions in two debt mutual fund schemes holding Yes Bank’s Additional Tier 1 (AT1) bonds as a precautionary measure to safeguard investors’ interests.

AT1 bonds are perpetual debt instruments issued by banks to raise capital and strengthen their capital base. They do not have a fixed maturity date and carry risks, including the possibility of coupon payments being cancelled and principal being written down or converted into equity, subject to applicable regulatory provisions and the terms of issuance.

Two Kotak debt funds affected

AMC reviewing Supreme Court judgment

Explaining its decision, Kotak Mahindra AMC said it had proactively suspended subscriptions in both schemes “as a prudent measure to safeguard the interest of our investors”.

“We are reviewing the judgment and will determine the appropriate course of action,” the fund house said.

The AMC added that it had taken similar proactive measures in the past and remained committed to acting in the best interests of its unitholders.

The Supreme Court’s ruling could have implications for the treatment of the AT1 bonds held by mutual fund schemes. Kotak AMC, however, has not yet announced any changes to its approach following the judgment.

Tata Mutual Fund restricts fresh investments

Meanwhile, Tata Mutual Fund has announced temporary restrictions on fresh investments in its Tata Gold ETF Fund of Fund, effective October 16.

In a separate statement, the fund house said it would restrict fresh and additional lump-sum investments, switch-ins, top-ups, and new registrations under systematic investment plans (SIPs) and systematic transfer plans (STPs).

Existing SIPs and redemptions to continue

Tata Mutual Fund clarified that instalments under existing SIPs and STPs would continue to be processed at the applicable net asset value (NAV).

Redemptions, switch-outs and existing systematic withdrawal plans (SWPs) will also remain permitted, allowing investors to access their investments through these facilities.

The fund house said the restrictions would remain in place until further notice.

The announcements highlight precautionary measures by the two asset management companies concerning fresh investments and subscriptions in their respective schemes, while specified existing investment arrangements and redemption facilities continue to operate.