(MC)
After weeks of deliberation, the Securities and Exchange Board of India (SEBI) allowed mutual funds to segregate their holdings in stressed securities. Known as side-pocketing in mutual fund (MF) parlance, this refers to a practice where fund houses isolate risky assets from the rest of their holdings and cap redemption.
Once segregated, a set of units will contain investments made in the troubled paper, while the other set of units will contain all other investments and cash holdings. This will ensure that if a paper gets downgraded to ‘default’ grade and the fund doesn’t receive the money from its underlying investment in time, resulting in a sharp drop in the scheme’s net asset value (NAV), the bad asset will then be segregated.
