JPMorgan AMC waives fees on trouble-hit schemes

JPMorgan AMC (India) has waived the fund management fees for two of its trouble-hit debt schemes — India Short Term Income Fund and Indian Treasury Fund. These schemes had Rs 200 crore exposure to the financially-stressed Amtek Auto. The fund house has imposed redemption cap of one per cent of total outstanding units on these schemes.

The decision to waive fees comes amid allegations that the fund house allowed three big corporates to redeem their investments just head of imposing restrictions on redemption on August 28.

The total expense ratio (TER) for Treasury Fund is 0.48 per cent while for Short Term Income Fund it stands at 1.07 per cent. Since, the TER is fungible, it could not be ascertained how much of it is the management fees. Industry experts estimate it to be up to 20 basis points.

THE ILLNESS

• Management fees waived in JPMorgan AMC’s India Short Term Income and Treasury Fund
   
• Fund house allegedly allowed certain corporates to redeem investments ahead of imposing cap
   
• These schemes, with collective size of Rs 2,964 crore, had exposure of Rs 200 crore to Amtek Auto’s debt papers
   
• Short Term Income fund cuts allocation to 10.78% in August from 15.37% in July

TER comprises of all kinds of expenses related to operating a mutual fund scheme.

According to news reports, ITC, Hero MotoCorp and HCL Technologies are mulling legal actions against JPMorgan AMC for restricting them from redeeming their investment, while allowing a few others.

Capping the redemptions to 1 per cent of the outstanding units has not gone down well among the fund management industry and the large clients.

Meanwhile, JP Morgan Schemes have drastically cut its exposure to Amtek Auto in its India Short Term Income Fund, August data shows. The scheme now has exposure of 10.78 per cent to Amtek’s debt paper, down from 15.37 per cent in July. The India Treasury Fund, however, has seen a slight increase in exposure to 5.87 per cent in August. India Treasury Fund had allocated 5.29 per cent (or Rs 134 crore) out of its total assets of Rs 2,534 crore to Amtek Auto's debt papers.

These schemes, with a collective size of Rs 2,964 crore, witnessed a sharp decline in their net asset value (NAV) on August 27 due the exposure to Amtek Auto debentures. These schemes had sizable chunk (Rs 200 crore) of investment in the debt papers of Amtek Auto, which offered a coupon rate of 10.25 per cent.

According to industry executives, putting limitations to redeemable units is not a solution to the problem. “This way, the fund house is not letting investors take their own money. The fund house should allow investors to redeem their money at a loss if they wish to,” said a CEO of a large fund house.

In the scheme of things
Management fees waived in JP AMC's India Short Term Income and Treasury Fund

Fund house allegedly allowed certain corporates to redeem investments ahead of imposing cap. These schemes, with collective size of Rs 2,964 crore, had exposure of Rs 200 crore in Amtek Auto's debt papers. Short Term Income Fund cuts allocation to 10.78 per cent in August from 15.37 per cent in July