Kotak Mutual Fund Suspends Subscriptions in Two Debt Funds Holding Yes Bank AT1 Bonds

Key Takeaways

• Kotak Mahindra AMC has temporarily suspended subscriptions in Kotak Medium Term Fund and Kotak Credit Risk Fund.
• Both schemes hold Yes Bank Additional Tier-1 bonds that had been valued at zero following their write-off during the bank's 2020 reconstruction.
• The Supreme Court on October 15 upheld the Bombay High Court ruling that quashed the ₹8,415-crore AT1 bond write-off.

Kotak Mahindra Asset Management Company has temporarily stopped subscriptions in two debt mutual fund schemes that hold Yes Bank Additional Tier-1 bonds, pending an assessment of the latest legal developments surrounding the securities.

The affected schemes are Kotak Medium Term Fund and Kotak Credit Risk Fund. Kotak AMC said the suspension was a prudent step taken to safeguard investor interests.

The schemes hold Yes Bank AT1 bonds that had been valued at zero after the securities were written off during the private lender's reconstruction in March 2020.

The legal position changed sharply on October 15, 2026, when the Supreme Court upheld the Bombay High Court's decision setting aside the ₹8,415-crore write-off. A bench of Justices Dipankar Datta and Augustine George Masih dismissed appeals against the High Court judgment.

The High Court had earlier found that the bank's administrator lacked the authority to write off the bonds after the final reconstruction scheme had come into force. The Supreme Court's decision leaves that ruling intact.

Kotak AMC's subscription suspension was initiated earlier on Thursday, before the Supreme Court delivered its judgment later in the day. The fund house subsequently said it was reviewing the verdict and would determine the appropriate course of action.

The development is relevant because a change in the legal and valuation status of the AT1 bonds can affect how the assets are treated within schemes that continue to hold them.

Yes Bank itself said it was examining the final order and its implications and would make additional disclosures where required.

AT1 securities are perpetual, loss-absorbing bank capital instruments and carry risks that differ materially from conventional bonds. The current development concerns the treatment of Yes Bank's specific AT1 securities and should not be interpreted as a general change in the structure of debt mutual funds or AT1 bonds across the market.

For investors in the two Kotak schemes, the immediate change is the temporary suspension of fresh subscriptions while the AMC evaluates how the court judgment affects the securities held by the portfolios.