Why JP Morgan Mutual Fund house has restricted redemptions in 2 Debt Schemes?

JPM MF restriction redemption on Debt schemesWhy JP Morgan Mutual Fund house has restricted redemptions in 2 Debt Schemes?

Last week, JP Morgan Mutual Fund house has restricted redemption for 2 of its Debt Mutual Fund schemes. This was shocking to mutual fund investors. This also indicates that even debt mutual fund schemes are not safe investment options. What exactly happened in this case? Why JP Morgan MF has put such restrictions on redemption of mutual fund units by its debt fund scheme investors. Can investors come out of such schemes immediately now?  Are there any ways where mutual fund investors can avoid such instances in future ? It is million dollar question which might be roaming around mutual fund investors now.

Also Read: Best Diversified and Multi-Cap Mutual Funds to invest in 2015

Why JP Morgan MF has restricted redemptions in 2 Debt Schemes?

  • JP Morgan Mutual Fund house has 2 debt mutual fund schemes, JPM Short Term Income Fund and JPM India Treasury Fund.
  • These 2 schemes has collectively invested upto Rs 200 Crores in Amtek Auto, auto-ancilliary company.
  • Amtek Auto has informed last month that it has temporary cash flow problem. Stock has fallen for more than 80% in last 2 months
  • Recently, leading rating agency company CARE has reduced Amtek Auto debt papers rating from A+ to C.
  • NAV of such debt fund schemes declined due to reduction in such debt paper credit rating.
  • JP Morgan has announced on 28-Aug-2015 that investors in such debt mutual fund schemes can redeem / sell only 1% of their total portfolio value / units per business day.  Means if you are holding Rs 1 Lakh, you can sell Rs 1,000 worth of units only per business day (Monday to Friday).
  • JP Morgan Mutual Fund India total AUM is Rs 14,600 Crores. There is speculation that JPM US Gaint want to sell its India arm.

What does JP Morgan Mutual Fund house say about this restriction on redemption in debt mutual fund schemes?

JP Morgan Mutual fund house was silent on this aspect for some time. However has given statement indicating that "In the interest of mutual fund unit holders, 2 of these debt schemes, there would be limit in redemption w.e.f.28-Aug-15"

Can Mutual Fund houses restrict investors from redeeming / selling their mutual fund units?

Mutual fund investors can sell their mutual fund units any time. However, mutual fund houses can restrict redemption of mutual fund units in certain cases like high market volatility, economic and political events, natural calamities, war etc.

However if you see this issue is about JP Morgan Mutual Fund House having high exposure of Amtek Auto debt papers in these schemes. Hence this is not about general industry problem, but merely the mutual fund house issue.

SEBI also raised concerns that some debt mutual fund schemes are having high exposure on corporate debt instruments.

Also Read: Best Balanced Mutual Funds to invest in 2015 for medium to low risk investors

How investors can redeem mutual fund units from these debt schemes now?

This is rare incident happened now. While market regulator SEBI would keep an eye, investors of these mutual fund schemes should have close eye on their investments. While there is no choice for investors to wait till the restriction is lifted, if you have high exposure, you can redeem 1% per business day i.e.5% can be redeemed every week. This way you can redeem to some extent immediately.

Definitely this is not good sign for mutual fund investors who has been believing that Debt Mutual Fund schemes are safe investment options.

Readers, what is your view on such sudden shocking news from mutual fund houses? Do you feel there are any better ways to handle such instances?

If you like this article, please share it on your facebook or Twitter. This would be biggest gift which you would be giving to this blog.


Why JP Morgan MF has restrictred redemptions in 2 Debt Schemes


  • srinivas bandaru

    Hi suresh, i am avid reader of all your articles. i want to know you view on value investing for very long term say 20+ yrs. what is the better strategy for very long term investment.value fund vs growth fund. how do you rate PPFAS long term value fund for such investment?

    • Srinivas, Value funds invests based on so called “luck”. It could be diversified funds, mid-cap or small cap. However growth funds majorly focusses on blue chip stocks / large cap stocks. In long run, large cap funds would perform better. Value funds may or may not perform better. If performs well, it could outperform growth fund. So if you are high risk investor, you can choose value funds. But if you want to build corpus or wealth in sure shot way, better to invest in large cap funds i.e. large cap growth funds. Part could be invested in value funds like mid-cap or small cap funds.

  • Rama

    Hi Suresh,

    Now markets are very low. The SIP investor’s portfolios are very very down in terms of profits. How can we analyze this. Can you comment on this situation?


Leave a Reply

Your email address will not be published. Required fields are marked *