Why DHFL payment won’t bring any gains for investors soon

A rigid regulator, defensive fund managers, and rattled rating agencies are today caught in a web of rule and fear psychosis that is hurting mutual fund investors.

Even after a company with a ‘D’ or default tag pays interest on its bonds, funds holding the securities are not allowed to mark-up the valuation of the papers. As a result, investors, hit by a huge valuation mark-down following a downgrade, do not see the value of their investments rise.

On Tuesday, the troubled housing financeNSE -1.14 % company DHFLNSE 4.16 % paid Rs 962 crore as interest on some of the debentures it had issued. But, unlike a downgrade (following delay in interest payment that shaved a slice of their investments), Tuesday’s interest payment did not improve the fortunes of investors.

The question that crops up is: even though DHFL is not out of the woods and may have to struggle to arrange cash after two months, why can’t the funds mark-up securities and show a higher net asset value (NAV) after the company serviced interest on the bondsRs

Here comes the rating companies wearing two hats: first, assigning rating of debt instruments -- triple-A, or triple B or D, etc; second, estimating valuation of securities based on which funds calculate the respective NAV of sch ..

Having been hammered after the IL&FS fiasco, which sparked downgrades by several notches in quick succession, rating companies have turned far more sceptical and are unwilling to upgrade the rating of a bond simply because DHFL has serviced one round of interest payment.

“It is a company under stress. It is constantly under media glare and there are reports of the government issuing look out notices on promoters. Rating companies, whose role has been looked into by SFIO, will think  ..