Side pocketing in mutual funds is away to segregate good and bad assets owned by debt mutual funds.

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2. Side pocketing is a process of segregating bad quality assets thus creating two different pockets
and calculating separate NAV for each pocket. These two NAVs would be sub sets of the original
scheme wherein the NAV of good quality assets will behave like normal actively managed fund.
Article Dates : 24th Nov and 17th Dec 2018 Resp.2
NAV of Bad Quality
Assets
NAV of Good
Quality Assets
Original
Scheme NAV

3. Article Dates : 24th Nov and 17th Dec 2018 Resp.3
Side pocketing can stabilize the NAV and protect the good quality portion of the portfolio. It also
protects all the investors (retail as well as institutional) as redemption is not allowed till the side
pocket is in place. Investors will benefit when the bad quality portion of the portfolio is liquidated.

4. Article Dates : 24th Nov and 17th Dec 2018 Resp.4
• Calculation of NAV of bad quality portfolio
• Tracking two NAVs of the same fund
• Ensuring that fund managers don’t take comfort from this and sign up for
more risky bets

5. Article Dates : 24th Nov and 17th Dec 2018 Resp.5
As per the view’s of Axis Mutual fund’s Devang Shah, it’s a win-win situation for both investors as
well as AMCs.
By creating a side pocket, the distribution of the risk will be equal among all investors as well as
the fund manager will not be pressured to meet the liquidity requirements and business can run as
usual.

6. Article Dates : 24th Nov and 17th Dec 2018 Resp.6
Visit the links below to know more about Side Pocketing
• What is Side Pocket? Can it help investors of funds stuck with illiquid assets?
https://www.rupeeiq.com/content/what-is-side-pocket-can-it-help-investors-of-funds-stuck-with-
illiquid-assets/
• Axis Mutual Fund’s Devang Shah: Side pocketing is a win-win for both investors and AMCs.
https://www.rupeeiq.com/content/axis-mutual-funds-devang-shah-side-pocketing-is-a-win-win-
for-both-investors-and-amcs/

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