SEBI sends show cause notices to HDFC AMC on FMP rollovers

Securities and Exchange Board of India (SEBI) has sent two show cause notices to HDFC Asset Management Company regarding the investments of its Fixed Maturity Plans (FMPs) in debt instruments of the Essel Group, which is reeling under heavy debt.

"We are working with our legal advisors and are in the process of responding to the said show cause notices (dated May 10, 2019)," HDFC AMC, the investment manager of HDFC Mutual Fund, said in a filing to the BSE.

Last month, HDFC Mutual Fund had announced rolling over one of its FMPs because of its exposure to the Essel group, which has sought time until September 2019 to pay back its lenders. HDFC AMC's assets under management stood at Rs 3,43,900 crore as of March-end 2019.

Debt mutual funds are forced to delay redemption in many of the schemes due to their exposure to the struggling non-banking finance companies (NBFCs), which have been reeling under liquidity crisis after payment default by IL&FS. Debt MFs have a total exposure of around Rs 76,000 crore to the NBFC sector, making them one of the biggest sources of funds for the non-bank lenders, according to data from Value Research.

Among MFs, HDFC group has the largest exposure worth around Rs 6,200 crore across three funds followed by Kotak Liquid Fund with total exposure worth Rs 3,972.2 crore at the end of last month. Other big investors include Aditya Birla Mutual Fund and SBI.

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