The Securities and Exchange Board of India (Sebi) has allowed debt mutual funds to have a “side pocket” that will allow fund managers to segregate their holdings in stressed assets. Mint gives the low-down on what this means for investors and fund houses.
What is a mutual fund side pocketing?
A mutual fund side pocketing helps separate risky assets from other investments and cash holdings. It ensures that the money invested in a mutual fund liquid scheme, which is linked to stressed assets, gets locked, until the fund recovers the money from the company. Investors can redeem the rest of their money. A “side pocket” is typically used by hedge fund managers to differentiate illiquid assets from more liquid investments. Sebi is making it a norm for mutual funds in the wake of serial defaults at Infrastructure Leasing and Financial Services (IL&FS) and its impact on liquid funds that held IL&FS securities worth ₹2,800 crore.
