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?

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Suresh

Why JP Morgan MF has restrictred redemptions in 2 Debt Schemes

Suresh KP

11 comments

  • Satish

    They can pay of debt funds redemption through other asset class like equity etc from there AMC if possible or else they can pay off from there profit reserves to some extent for time being

  • Ajay Agrawal

    My suggestions :-
    stop investing in private companies.
    stop investing in new fund houses.
    SBI, HDFC, ICICI, AXIS, UTI, are good and old in market with impressive image. And can also fulfill all the requirements of an investor via different category funds.
    I have a doubt in Reliance also as this company may also give shocking news in future so be alert for your hard earnings.
    Invest Safe.

  • Ajay Agrawal

    Hello Mr. Suresh
    Good news
    Its Ok that invesments in Mutual Fund is also risky but whatever the value of our fund is we must get our money according the NAV of that fund, restriction of redemption is a type of cheating to the investors.
    further private companies FDs are also not a safe invesments, they can cheat at any time like sahara group.

  • s ravi chandiran

    I am wondering with this type of situation. The question arises how can we belive these type of MF houses. What SEBI and Govt. is doing with this? How can they prevent MF holders from these typesw of issues in future? Whether our believe in MF as well as in Stocks are questionable now? Can any one explain.

    Regards.
    s. ravi chandiran 9894828077

  • Ghana Syam

    Is there any advance information MF investors are going to get when rating agencies are downgrading that to A+ to C?

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