JPMorgan and Amtek Auto: who won who lost whom to blame
By now everybody knows that JP Morgan bought a lemon from Axis Bank. Name of the lemon was Amtek Auto. Well it does not matter.
Name of the Fund: JP Morgan India Treasury Fund.
What should a Treasury fund contain: Government bonds. (look up Wikipedia please).
Who is to ensure that a Treasury fund should have only sarkari bonds? At the top the Trustees should ensure that a system is put in place so that a liquid fund does not hold equities, a treasury fund does not hold junk bonds, etc. It is a simple process to be installed.
The Custodian saw what was happening, the broker did the documentation for the bonds (obviously), so both these people knew.
The Investment committee knew what was happening (if they did not they need to be sacked now).
The CIO, MD, should have been part of the committee. So the directors knew (the MD is acting on behalf of the board)
The Vigilance should have seen what happened….
Now the funny part.
Who will be blamed for the losses of the retail investor?
Yes you got it right: The IFA.
The IFA should have known that a Treasury fund can have corporate bonds bought in the secondary market (come on it happens regularly), The IFA had no business recommending a Treasury fund to a corporate, retired person, student, …or anybody. Did the IFA not know the risk of a treasury fund?
So now the amount of loss that the client has made will have to be clawed back from the IFA…
ps: this is NOT A HUMOR COLUMN. This is very serious, and he will get away…
IamNoSpecial
Just as they say, “Who will tie the bell”
anmol
What are the ramifications of the same thing happened in the United States?
Arun Jayant
Under what circumstances can redemption in Mutual Funds be gated?
Vikram
All the people in this gravy train who are mandated to keep the investments as per the promised profile of the fund should have criminal proceedings on them. They have obviously been bought off by the Amtek Auto or Axis bank folks and now are making the retail investors pay for it.
Pi
Treasury does not mean only govt securities. Treasury is a broad term (Eg: corporate treasuries, bank treasuries etc).
A Treasury fund in India almost always means a fund that takes a bit of duration risk and a bit of credit risk (but in small doses only, else go for income funds for duration or credit funds for credit risk exposure). i doubt any investor, IFA, regulator, distributor etc ever thought of it as a ‘gsec only’ fund. We can definitely and rightfully debate on whether enough due diligence was done on the Amtek security. But to say that it was some fraud by AMC or trustees etc is a stretch unless proved otherwise. And by the way, a fixed-income fund is not a risk free product, but a low-risk product. Low-risk is different from ‘no-risk’.
And what we have here is hardly 2-3 corporate defaults in the entire MF industry in the last 10-12 years whereas we have more than that coming out probably everyday (big as well as small cases) in the banking sector. Please tell me which lending business has completely zero NPAs. Remember the entire MF industry is around 12lakh crores and this default on JP Morgan books is 200crs.
Additionally, same company has also been lent thousands of dollars from a clutch of banks. Why are very few people questioning their credit appraisal process. So is it a case of selective attention to one credit and one lender (JP Morgan in this case?)
Pi
By the way, Amtek auto was below 6% of their total scheme AUM in Treasury fund as on Aug end which means even if the company pays back nothing, the scheme will still return a small positive return for its investors who have remained invested longer than a year.
bharat shah
now the time to discuss franklin templeton’s debt funds and their investments in Jindal group companies!