Mutual Funds illiquid-asset-workout-mf

Illiquid asset workout in mutual funds

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Illiquid asset workout refers to the AMC’s operational process for resolving mutual fund scheme holdings that have become difficult to value or sell, particularly in stressed credit scenarios. The framework provides AMCs with options for orderly resolution rather than fire-sale liquidation.

Workout playbook

Step 1: Identify

  • Periodic assessment of holdings.
  • Flag instruments with deteriorating credit, low liquidity, or stressed issuers.

Step 2: Mark down

Step 3: Resolution options

  • Negotiated settlement: Direct engagement with issuer.
  • IBC resolution: Insolvency and Bankruptcy Code process.
  • Side-pocketing : Segregate from main portfolio.
  • Asset sale: Liquidate at market-clearing prices.
  • Hold-to-maturity: For some debt instruments.

Notable workouts

  • Franklin Templeton six-scheme situation (resolved through gradual liquidation, full investor recovery by 2022-2023).
  • IL&FS exposure (multiple AMCs, IBC resolution).
  • DHFL exposure (Piramal acquisition resolved).

SEBI oversight

SEBI requires:

  • Disclosure of stressed holdings.
  • Trustee approval for material workout decisions.
  • Investor disclosure of progress.
  • Compliance with broader investment-restriction framework.

See also

External references

References

  1. SEBI (Mutual Funds) Regulations 1996.
  2. AMFI Best Practice Guidelines.

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