Can I recover money in a fund's side-pocket if I exit the fund?

If side-pocketing is done by a fund and then I sell my investment in the fund, will I get something in future if the fund recovers investment from the side-pocketed portion?
- Smith

Absolutely! The entire idea of side-pocketing is that only existing investors on the date of side-pocketing would be entitled to the recovery from a bad bond as and when it happens.

If there is no side pocketing and you exit your fund, your loss owing to that particular bond becoming bad would be permanent. Thus, side pocketing saves you from this situation and if there is any recovery in the future, you will be entitled to it.

To give some perspective, Franklin's funds, which are now under winding-up, had side-pocketed their exposure to Vodafone Idea. Although many investors sold out from the main funds following the segregation, everybody who was a part of the funds at the time of side-pocketing is still very much an owner of the recently recovered portion from the segregated Vodafone Idea securities.

In a nutshell, side-pocketing ensures that investors who existed at the time of side-pocketing get their proportionate share in the segregated portfolio, subject to realisation.

This article was originally published on July 13, 2020.