Amtek Auto effect: redemptions at fixed income funds zoom

The Amtek Auto default has resulted in panic redemptions from mutual fund investments in corporate debt in September. According to data published by industry body AMFI, fixed income funds — which include the ultra short-term category of JP Morgan AMC’s troubled funds — saw unprecedented outflows of Rs.26,717 crore in September alone.

In contrast, the AMFI had reported net inflows for the previous months this year. For example, in July the AMFI had reported net inflow of Rs.5,861 crore in June, Rs.21,713 crore in July and Rs.12,671 crore in August.

A fixed income fund manager at a top fund house attributed the large September outflow to redemptions at JP Morgan and Rs.10,000 crore from Franklin Templeton.

Ultra liquid funds account for about half of the assets in the Rs.4 lakh crore fixed income category. Concerns about the credit quality of corporate paper, particularly in core sectors that have already sent their lenders in the banking sector reeling, have prompted exits from this category, the fund manager said.

SEBI’s advise

At a recent meeting between the fund industry and the capital market regulator, UK Sinha, Chairman, SEBI, reportedly asked investment managers why their research into corporate debt was not as rigorous as it was in equity.

Against the backdrop of Amtek Auto defaulting on its debt in August, to which JP Morgan AMC had an exposure of about Rs.200 crore, Sinha told managers to do their own due diligence as well, and not just depend on reports from credit rating agencies. While this will make research more robust, a senior fund manager in the fixed income segment says events such as Amtek Auto default are market risks that arise occasionally. “Despite the default, JP Morgan has managed returns of about 7-8 per cent, where other fixed income schemes might have done 10 per cent.”

Equity continued to see sustained inflows of over Rs.5,000 crore through September, taking the total assets under management to over 13.15 lakh crore for the first time in its history. Balanced funds saw an inflow of Rs.2,000 crore and Rs.1,183 crore came into gilt funds. Liquid and money market schemes saw the periodic end-of-quarter withdrawals by corporate investors, with redemptions crossing Rs.60,000 crore.