Kotak Mutual Fund Suspends Fresh Investments In Two Funds After Yes Bank AT1 Bond Ruling

Kotak Mutual Fund has temporarily suspended fresh investments in Kotak Medium Term Fund and Kotak Credit Risk Fund as a precautionary measure, after the Supreme Court ruled that Yes Bank’s ₹8,415 crore Additional Tier-1 (AT1) bond write-off in March 2020 was illegal.

The two schemes held Yes Bank AT1 bonds that had been valued at zero following their write-off during the bank’s restructuring, Kotak Mahindra Asset Management Company (AMC) said in a statement on Thursday.

The fund house said the Supreme Court’s judgment had restored the bonds and that it was reviewing the ruling to determine its next course of action.

"Kotak Medium Term Fund and Kotak Credit Risk Fund hold Yes Bank AT1 bonds that were valued at zero following their write-off during the reconstitution of Yes Bank in March 2020. Earlier today, we proactively suspended subscriptions in both funds as a prudent measure to safeguard the interests of our investors," the company said.

"The Honourable Supreme Court's judgment in the Yes Bank AT1 bond matter, delivered later in the day, has restored the Bonds. We are reviewing the judgment and will determine the appropriate course of action. We have taken similar proactive measures in the past and remain committed to acting in the best interests of our unitholders," it added.

Which Investments Are Suspended?

According to the notice-cum-addendum issued by Kotak MF, the suspension covers fresh and additional lump-sum investments, switch-in transactions, and new systematic investment plan (SIP) and systematic transfer plan (STP) registrations in both schemes.

Existing SIP and STP instalments registered before October 15 will continue to be processed at the applicable net asset value (NAV), as per a report by CNBC-TV18.

The fund house said the remaining terms and conditions of the schemes would remain unchanged.

Kotak MF said it had suspended subscriptions earlier in the day to protect unitholders’ interests. The Supreme Court delivered its judgment later that day, prompting the AMC to review the implications for its holdings.

SC's Yes Bank AT1 Bond Ruling

Yes Bank wrote off ₹8,415 crore worth of AT1 bonds in March 2020 as part of its government-backed restructuring. The bank’s administrator argued that the move was necessary to support the lender’s survival. Investors subsequently challenged the decision, questioning the authority to extinguish the securities.

The Bombay High Court set aside the write-off in January 2023. Yes Bank challenged that decision in the Supreme Court in March 2023. On October 15, 2026, the apex court upheld the High Court’s ruling.

AT1 bonds are hybrid capital instruments that help banks meet regulatory capital requirements. They typically offer higher returns but can absorb losses through conversion into equity or a write-off under specified conditions.

The verdict could expose Yes Bank to additional financial liabilities. The ruling could also create regulatory uncertainty around the allocation of losses during future bank rescues.