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JP Morgan Mutual Fund has restricted redemptions from two of its debt schemes – Short Term Income Fund and India Treasury Fund – a move that may severely impact its investors.
The move follows a decline in NAVs (net assets value) of the schemes due to fund house’s exposure to troubled auto component firm Amtek Auto’s debt papers. These schemes have a collective exposure of around ₹200 crore in Amtek Auto.
The decline in NAVs was triggered after a rating agency withdrew its rating on these debt instruments, after rating them quite high earlier.
Without giving any specific reason for restricting the redemption, JP Morgan MF said, “In the general interest of the unit holders of the JP Morgan India Treasury Fund and JP Morgan India Short Term Income Fund, JP Morgan Mutual Fund India Pvt Ltd, the trustee company, has decided to limit the redemptions in the above referred two schemes effective August 28, 2015.
“Accordingly, the redemptions in these two schemes will be limited to a percentage limit not exceeding one per cent of the total number of units outstanding on any business day,” it added.
As of June 2015, JP Morgan MF has average assets under management of ₹14,684 crore. There is already a speculation that the US-based giant is looking to sell its Indian mutual fund business.
Asked about the redemption restriction by JP Morgan MF, rival fund house Quantum MF’s CEO Jimmy Patel said, “MF houses can restrict redemption in certain risk associated cases like extreme volatility of markets, political, economic or monetary events, natural calamities, war, strike etc. as disclosed in SID /SAI. Any such restriction would adversely impact confidence of investors.”
Reliance Mutual Fund CEO and industry body Amfi chairman Sundeep Sikka said, “This is an isolated case and should in no way deter investors from investing in a mutual fund. It is a fund house issue and not the industry issue.”
Markets regulator SEBI is also believed to have expressed concern about high exposure of some mutual funds to the corporate debt instruments, especially of the companies facing financial troubles.
Earlier this month, Amtek Auto informed stock exchanges that “there is temporary cash flow mismatch in the company.”
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