Your debt mutual funds are impacted!

Rating Agency CARE has downgraded Future Lifestyle Fashions Ltd to ‘C’ rating, after the company defaulted on payments for its bond. The company has defaulted on Payment of annual interest of Rs 30.93 crore for the period between Nov 10, 2019 to Nov. 09, 2020.

You have exposure to this risky bond through Kotak Credit Risk Fund.

What led to the default?

• Due to uncertainty created by the pandemic and consequent lockdown and disruption, the revenue of the firm has been adversely impacted. The company has reported a 73% on-year drop in Revenue and a loss of ₹250 crore in quarter ended September, as against a profit of ₹8 crore in Q2FY20.
• The fashion retail business is more impacted due to drop in footfalls, de-growth of revenue, lack of disposable income and discretionary spending by the customer, Future Lifestyle said in a statement. 
• Consequent to the default, CARE ratings downgraded it to ‘C’ from ‘BB’ earlier. 
• Future Lifestyle had requested for an extension of date of payment of annual interest and principal up to January 2021, which has been agreed by two (out of three) Debenture holders.

INDmoney Analysis

Kotak Credit Risk Fund has significant exposure to Future Lifestyle’s NCDs. The fund house sold part of its holding in the secondary market at 75% value and remaining investment is being valued at 75% of Face Value. However, there is a very high chance that Future Lifestyle is unable to honour its obligations, further impacting the NAV of Kotak Credit Risk Fund. 

We advise you to exit/ reduce your investments in the funds to avoid any further loss. Invest only in debt funds that have a 100% allocation to AAA-rated papers and a low modified duration.

Find below a list of your debt mutual funds with exposure to Future Lifestyle’s NCDs.