June 8, 2019

The DHFL and mutual funds mess explained in simple words

..Okay so if I give you a loan, I can say that you pay me back interest every year. For five years. But I can add a clause saying if you default on your loans to anyone else, then please pay me immediately. Because I am afraid that if you default on someone else he will come and take your sofa and TV and you’ll have nothing left to pay me later.

So when you do that, you create a covenant that triggers when you default somewhere else. This is a cross default covenant.

Because DHFL has cross default covenants on some other loans, some other fellow will come and say dude, my loan is immediately due.

Read more at https://www.capitalmind.in/2019/06/abeyaar-what-is-this-dhfl-default-and-debt-mutual-funds-crashing/

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