No change in NPA norms for MFs: AMFI - Hindustan Times
close_game
close_game

No change in NPA norms for MFs: AMFI

Hindustan Times | BySandeep Singh, New Delhi
May 06, 2009 11:50 PM IST

Non-performing asset (NPA), a term usually used in banking to denote loans that stop yielding interest or go into default, is not part of the mutual fund vocabulary, but funds facing the heat in investments made into fixed-income securities of real estate companies and other troubled entities have demanded comfort levels similar to banks, but with no luck yet. Sandeep Singh reports.

Non-performing asset (NPA), a term usually used in banking to denote loans that stop yielding interest or go into default, is not part of the mutual fund vocabulary, but funds facing the heat in investments made into fixed-income securities of real estate companies and other troubled entities have demanded comfort levels similar to banks, but with no luck yet.

HT Image
HT Image

The Association of Mutual Funds of India (AMFI) has said that the existing norms will continue and there is no need for a change. “It is not required as the loans are getting rescheduled and there doesn’t seem to be an issue,” said AP Kurien, chairman, AMFI. “The existing NPA norms will continue.”

Hindustan Times - your fastest source for breaking news! Read now.

Banks often get comfort in central banking rules concerning NPA accounting or through the injection of capital to strengthen the balance sheet.

In a situation where several mutual funds had exposure to real estate companies and were suffering from repayment from them, many fund houses proposed with the industry body AMFI to have NPA norms similar to banks.

An industry official who asked not to be identified told Hindustan Times that if the NPA treatment norm is made similar to what banks have, then it won’t get reflected in the net asset value of the scheme (NAV) which would send misleading signals.

In such a case, investors will suffer greater loss at the time of redemption when a fund closes as smarter, bigger investors would have redeemed at unrealistic NAV levels.

“In a mutual fund if there is an NPA, it should get reflected in the NAV and the effect should be born by all the unit holders equally,” said the industry official.

Unlock a world of Benefits with HT! From insightful newsletters to real-time news alerts and a personalized news feed – it's all here, just a click away!- Login Now!
Stay informed on Business News along with Gold Rates Today, India News and other related updates on Hindustan Times Website and APPs
SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Friday, March 29, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On