Thursday, September 10, 2015

JPM Debt fund

After reading insightful analysis from Pattu and Deepak Shenoy, I am writing this post. If you have not read them, I suggest having a look at both the articles:

My wife received some whatsapp message yesterday asking everybody to exit from this debt mutual fund of JPM. She asked me what is this all about? I had no clear answer. I am myself not aware what is exactly all this all about.

I told her that JPM held some papers of Amtec Auto and the rating of Amtec Auto was suddenly downgraded. She asked me how can a rating agency downgrade any company suddenly? This time I was hopeless. I told her that I had no clue how ratings work and why this sudden change of stance.

She further asked me what should an investor do if he holds this fund. This answer was simple. If the goal or there is a requirement of money, redeem (within the permissible limits on daily basis). If there is no urgency, by all means hold on. There is little we can do.

We also discussed how the gating (i.e. allowing limited redemption) would help investors and AMC by holding on to sudden fall in NAV.

Clearly, the fund manager is not entirely at fault. He can of course argue that he had bought the papers as per the then ratings. What can he do if the ratings change suddenly. In the hind sight, we can say that being a professional fund manager, he should have done research and either guessed the ratings fall or at least limit the exposure. The rating agency too must specify why there is sudden ratings change. The blame game can be on an on. As an investor we can just sit tight and let the NAV recover. Once the recovery is made, take a decision to leave or stay further with this fund.

Events like this will further dent people's image of debt mutual fund as an alternative to FDs for creating long term portfolio.


  1. Now people should understand, why it's tougher to select debt funds than an Eq. fund.



  2. Exactly. This will tell people that it is just not about seeing the 'Returns' column in descending manner.