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If you had invested ₹100 in this fund at its launch in February 2015, would have been left with ₹44 now. It has returned -17.86% since its launch, and much of the collapse came after the IL&FS crisis in India erupted in September 2018. On April 24, 2020, the fund fell 50, 22% overnight as it proactively reduced multiple values.
BOI Axa Mutual Fund is a joint venture between the Bank of India and the investment arm of Axa, a French insurer. Called BOI Axa Credit Risk Fund, this fund was launched in a private USP, a link to global private equity actor KKR that would advise you on your investments for a fee. The AMC continues to be advised by KKR to this day.
The turning point in the fund’s history occurred in September 2018, before which, in fact, it had yielded a strong TCAC of around 9.49% (as of August 30, 2018). The fund had some IL&FS paper that shook but did not break the fund. However, the credit crisis in India was only just beginning. In June 2019, Dewan Housing Finance Ltd (DHFL) was downgraded to default causing pain across the mutual fund industry.
This, combined with a downgrade in Sintex BAPL, caused the BOI Axa Credit Risk Fund to see a vertical drop in its NAV and CAGR from inception, declining from 6.7% to -7.78% in July. The final coup de grace came on April 23, when the AMC decided to “revalue” the debt securities in its possession, such as DHFL and Coffee Day Natural Resources Pvt Ltd, which had previously only been partially canceled. The fund has been closed for new subscriptions since June 2019.
The KKR association was an important selling point for the fund, a mutual fund distributor told Mint. “They kept commissions low at 0.10-0.15%, attracting more investment from the HNI segment or those coming through direct plans,” he said. “KKR were advisors to the fund house and we invested them together in many documents, but we did it.” Do not follow them as such.
There were no negative investment sales by KKR to the mutual fund. Yes, we pay them advisory fees, “said Alok Singh, Chief Investment Officer (CIO) of BOI Axa Investment Managers.” Distributor fees were low to avoid wide distribution of the scheme and any improper sales. Only a small fraction of our investor base, which currently stands at around 1,000 pages, are retail investors, “he added.
However, Singh went to great lengths to emphasize that the mutual fund was not in the hands of a few wealthy investors. “Before the IL&FS crisis, at its peak, the fund was around ₹Rs 1.7 billion The largest investor was ₹Rs 25 million. Several banks such as Kotak, Deutche and Credit Suisse were distributing the fund, “he said. Another key question is why the fund did not create segregated portfolios (side pockets) for its securities.” We had virtually no defaults since March 2019, “Singh said in response to this. BOI Axa Mutual Fund amended its
Scheme information documents to allow secondary pocket in April 2020 around 13 months after SEBI first introduced the procedure in the world of mutual funds in December 2018. The side pocket allows a mutual fund to segregate a part of your portfolio instead of bad debt. This allows mutual fund investors to exit the rest of the scheme without giving up the opportunity to make a profit from bad debt recovery. However, why BOI Axa Mutual Fund chose to implement the procedure more than a year after its introduction remains a mystery.
Investors, in what remains of the scheme (currently in ₹167 crore AUM) they can take what little they have and go. The scheme remains open for redemptions. However, leaving could mean giving up the possibility of recovery. They must evaluate the rest of their portfolio and risk appetite before making a decision. Much of this remaining portfolio consists of Certificates of Deposit (CDs) from banks such as Bank of Baroda and Axis Bank and Commercial Paper from issuers such as HDFC (based on data as of March 31) that represent moderate risk to investors.
