With the help of side-pocketing all the investors get fair treatment, there would still be downgrades or default but equal absorption of losses among the most influential or major investors and investors with less influence.

Since under side-pocketing (as a layman calls it) the affected assets move into the bad fund (segregated portfolio) and one can’t buy or sell into the bad portfolio, no investor has an unfair advantage, at least after the credit event.
Now, with an option to transfer a bad asset to a different fund, there is a possibility that fund managers might bear the excessive risk. There is no clear understanding of it, we will have to see if it happens.

It has been mentioned in the SEBI circular that the scheme performance (Main portfolio) should reflect the fall in NAV due to segregation. There are a few subjective aspects in the circular; clarity would emerge over a period of time.