UTI MF creates segregated portfolio after rating downgrade of Altico Capital

UTI Mutual Fund Friday said it has created a separate portfolio -- UTI Credit Risk Fund -- segregated from its main holding, following the downgrade of debt instruments of Altico Capital India, a lender to real estate companies.

The move will help prevent the distressed assets from damaging the returns generated from more liquid and better-performing assets.

Pursuant to downgrade of debt instruments of Altico Capital to 'B' -- 'below investment grade' -- by CARE Ratings, UTI Mutual Fund has decided to create segregated portfolio in respect of Altico Capital India in UTI Credit Risk Fund.

"The board of Trustees of UTI Mutual Fund has approved the creation of segregated portfolio in UTI Credit Risk Fund. Investors are hereby informed that with effect from September 13, 2019 securities of Altico Capital India will be segregated from total portfolio in the captioned scheme," the fund house said in a statement.

Till Thursday, UTI Credit Risk Fund has an exposure of Rs 201.82 crore, amounting to 5.85 per cent of assets under management, in debt security of Altico Capital.

Upon recovery of money from Altico Capital in the segregated portfolio, whether partial or full, it will be distributed to the investors in proportion to their holding in the segregated portfolio.

"Existing investors in the scheme, as on the day of creation of segregated portfolio, shall be allotted equal number of units in the segregated portfolio as held in the main portfolio," the fund house said.

"A statement of account indicating the units held by the investors in the segregated portfolio along with the net asset value of both segregated portfolio and the main portfolio as on the day of the credit event shall be communicated to the investors within five working days of creation of the segregated portfolio," it added.

UTI Mutual Fund is one of the leading players with investor accounts of over 1 crore under its 182 schemes as on August 31, 2019.

In December last year, Sebi had permitted mutual funds to create segregated portfolios with respect to debt and money market instruments.

In case of a credit event that is a credit downgrade like below investment grade and similar, segregated portfolio may be created.

Creation of segregated portfolios is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio.