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Asset allocation & asset selection are keys.
The move by FT to write down Vodafone asset to zero is not a fair one and goes against the spirit of sidepocketing rule by SEBI, in such cases. If FT had placed these funds in suspension by disallowing new investments till clarity emerges would have been appropriate. Even if it wanted to proactively value the asset, then it should have sidepocketed the asset to safeguard the existing investors. By not doing both, FT has defenitely acted against the interests of existing investors and SEBI should defenitely step in to reign in such reckless behaviour by other AMCs.
As long as we do not have vibrant bond market including junk bond market in India, pricing of illquid bonds differently will continue to happen and it is not good for all.
Good initiative by wealthforum
There is so much of discussions and debate going on the credit risk funds category in general and Vodafone in particular. Effectively all Debt funds are credit risk funds but the quantum of credit risk and holding period varies between categories. I am surprised to see that an ultra short fund taking so much of credit risk. Referring to Vodafone, the probability of this Supreme court decision is not an unexpected Outcome. The company is highlighting this risk in their annual report under Contingent Liability for more than 5 years and clearly saying that no effects have been given in the financial statements for the above. I cant understand as to how some AMC has given Rs. 2000cr unsecured loan for a company which is clearly highlighting this contingent liability in their annual report for more than 5 years and that too having this exposure in an ultra short term fund.
