“A failure is not always a mistake, it may simply be the best one can do under the circumstances. The real mistake is to stop trying.” – B. F. Skinner

All of us are raise with the expectation that you need to be the best and failures are wrong. When One fails in his/her attempt, very rarely S/he admits that they were wrong. We are tune to find the blame on an external factor; when we slip, it is always a fault of either our footwear or the floor but never ours. It pains me to see people apply the same mentality to thier personal finances. The last 12-18 months have not been easy for an investor due to series of events ranging from defaults on their debt investments, banks getting closed, markets falling by 20-25% in few weeks. This reminds me of the proverb “When it rains, it pours.” though rarely people use the full statement which should be “When it rains, it pours but soon the Sun shines again.”

Eight months back in Nov 2019, I flagged that due to the ongoing scenario, the risk of default in the debt fund holding of Vodafone has increased. (Vodafone Idea exposure, What should you do?) One should size their exposure to such investments. I personally had the 30-35% of my portfolio invested in one fund, which had vodafone exposure and I cut down the exposure by more than half as per my risk appetite. Three months later, rating agencies have downgraded the bonds of Vodafone and the exposure in the fund was written off.

Two months back in Apr 2020, I wrote that the liquidity conditions of the fund were deteriorating pretty fast as well as its credit profile. Investors should review their holdings and exit accordingly. (Franklin India Ultra Short Bond Fund: Is it time to exit?) Within few weeks, the AMC decided to wind up the scheme and almost USD 3.5bn invested amount of investors were locked in such schemes. There is going to be a resolution and the money is locked in not lost. How long it stays locked in will be anyone’s guess. These are situations, which can leave a scar in the investors mind for a long time.

Thankfully, a positive news hit this week that the funds have received the coupon payment on the bond investments of Vodafone Idea on June 12, 2020. Though people were not sure how to know the amount they will recieve. Here are the steps to calculate the payout you should expect.

Step 1: Check the segregated portfolio you are holding to find out the number of units you hold in that segregated portfolio. for e.g. Anand holds 50,000 units in the segregated portfolio

Step 2: Find out the NAV of these units. This NAV has been sent by the AMC over an email according to the plan you were invested in (Direct or Regular/ Dividend or Growth etc). A table like below:

Plan Partial payment price per unit (INR)
 Retail Plan Daily Dividend Option 0.5078
 Retail Plan Weekly Dividend Option 0.512
 Institutional Plan Growth Option 1.3797
 Institutional Plan Daily Dividend Option 0.5053
 Super Institutional Plan Growth Option 1.4251
 Super Institutional Plan Daily Dividend Option 0.5094
 Super Institutional Plan Weekly Dividend Option 0.5105
 Direct Super Institutional Plan Growth Option 1.4325
 Direct Super Institutional Plan Daily Dividend Option 0.5084
 Direct Super Institutional Plan Weekly Dividend Option 0.5103

Step 3: The coupaon paid is what % of the overall dues expected on the bond. This is also highlighed in the email. For e.g. 7.58% for the Frankling india Ultra Short Bond Fund.

Amount expected to come back on back of Segregated portfolio = No of Units x Price per unit x % of accrued payment received. In our example of say Direct Super Institutional Plan, Amount  due will be equal to  50000 x 1.4325 *7.58% = 5,429/-. If the full amount is received by the AMC then we can expect the remaining (1-7.58%) portion (~66,000) to be paid out as well.

If you are the one, receiving such amount. Count yourself lucky and do not expect to repeat such good outcomes on future investments. Prudent investing says, you need to be nimble footed on your investments. Always keep an eye on your investments, review it regularly and take corrective actions. In the current scenario, If you want to just buy & hold then you are mistaken because there are no investments without any risk. If you think that there are no risks, It only means that you can not see it or understand it. This payout will also be taxable, so make sure you understand about how this needs to be shown in your tax filing. Enjoy this small payout as a gift and Keep investing!