MUMBAI: Due to a default in payment on bonds by private sector mortgage financier Dewan Housing Finance (DHFL), net asset values (NAVs) of several debt mutual funds, including those run by some of the top fund houses, crashed on Tuesday. Data showed two funds run by

Pramerica MF saw their NAVs dip by around 50% in one day while the NAV of a fund run by Tata MF saw a crash of almost 30%. There are other debt funds run by Reliance, Birla, UTI and DSP MFs which reported substantial drops in their NAVs. All these funds have bonds issued by DHFL in their portfolio.

On Wednesday afternoon, ratings majors Crisil and ICRA downgraded DHFL to “default” category for its inability to pay its bond holders although the company said it would meet all its payment obligations within the next few days. However, to meet Sebi regulations, most fund managers holding DHFL’s bonds in their portfolios had reduced their value by 75% by Tuesday evening itself. In MF industry parlance, such devaluation of bonds is called a markdown.

According to data from Value Research, there are over 100 schemes managed by about a dozen fund houses which hold DHFL’s bonds, and most of these schemes have marked down those bonds. DHFL Pramerica MF’s medium term fund saw its NAV crash by 53% while the NAV of its floating rate fund dipped 48%.

The NAV of Tata MF’s

fund took a hit of nearly 30%, data showed. A select few fund houses are yet to mark down their holdings of DHFL bonds which will be reflected when their NAVs are published on Thursday, industry players said.

On the sharp fall in NAVs, a spokesperson for DHFL Pramerica MF said that the scheme, which has given a negative 50%-plus return, is a medium term fund with a current corpus of Rs 11 crore. “We are currently in the process of merging the scheme with a near-similar mandate based on Sebi approval.” DHFL Pramerica was a joint venture between DHFL and Prudential of USA which was sold to the foreign partner recently and is awaiting final regulatory approvals to complete the deal.

According to a senior fund manager, DHFL’s bonds are backed by assets and the company is also in the process of selling off large parts of its businesses to meet its payment obligations. It’s only a matter of time that the company will meet all its monetary obligations, the fund manager said.

According to some estimates, it has given loans worth Rs 50,000 crore to homebuyers, about Rs 25,000 crore to real estate developers, about Rs 15,000 crore for loan against property and another Rs 5 crore to SMEs. On the other hand, the company has raised about Rs 55,000 crore through NCDs, about Rs 35,000 crore from banks and has a net worth of about Rs 10,000 crore.

In addition to selling of its

business, the company is in the process of selling off its affordable housing finance company and is also securitising its home loans at a fast pace to raise funds. Securitisation is a process of pooling several smaller loans and selling the pool to a third party to raise money.