The landslides in Himanchal Pradesh and floods in Chennai may appear as natural calamities, but it would be erroneous to deny the role of the man in these incidents. Like parliamentarians, nature is also losing its balance. The end result is a stalled parliament, stalled cities, and traffic logjams. In Parliament, personal rifts have been garnering national importance which has led to loss of crucial time, impeding the passage of important legislative reforms. On the other hand, apocalyptic flood in Chennai, Kancheepuram, Cuddalore, and Tiruvallur has finally started receding, leaving behind heaps of debris and garbage to be cleared. The landslide has blocked National Highway 21, the national highway connecting Chandigarh and Manali. In the end, the common man bears the brunt, geo-economically and socio-politically.

It is anyone’s guess when the legislative bills will manifest as reforms, and how long it will take to recover from the losses, clean up debris, and get the spirit of Chennai-ites back on track. How many landslides are still to be witnessed on the Himalayan ranges is anybody’s guess too.

But if you are an investor and especially the one who’s trapped in two of JP Morgan debt schemes; there’s some good news for you. There was a glimmer of hope of JP Morgan being able to recover the Amtek Auto debt; SSG. capital has made it possible. This Hong-Kong-based vulture fund has bought Non-Convertible Debentures (NCDs) from the troubled JP Morgan debt schemes. The fund house is taking a hit of 15% on its investments.

Vulture funds buy defaulted assets at discounted rates from financial institutions and fund houses. In this case put pressure on companies for recovering the original sums, and keeping the difference as profit.

Now that JP Morgan has been able to salvage 85% of the amount it invested in Amtek Auto; investors may breathe the sigh of relief now. Initially, when the Amtek Auto missed the repayment, JP Morgan tried restricting redemptions but later allowed partial redemptions after putting illiquid Amtek Auto assets in one bucket. The fund has already written off 25% from its investments when the news of downgrade broke in August this year. So as a result Net Asset Value (NAV) of the ‘illiquid bucket’ may go up by 10% now. The actual loss to the fund has been 15% and not 25% as was provided for.

Well, if you think JP Morgan is out of the woods just yet, Securities and Exchange Board of India (SEBI) is not going to let the fund house get away with what it has done. MF Panel is in a process of deciding upon the penalty to be imposed on JP Morgan. Also, it is expected that, the JP Morgan maybe asked to make the loss to investors good.


PersonalFN believes, while imposing penalty may be justifiable considering the way JP Morgan handled the entire issue. However, compensating investors may set out a wrong practice in the industry. Although the affected schemes were the debt schemes, the fund house hadn’t concealed the risk factors. So why investors are being bailed out remains a question.

Parliamentary logjams, floods in Tamil Nadu, landslides in Himachal Pradesh, and the debt fiasco of Amtek Auto teach you 3 important lessons:
 

• Never underestimate the risk of unforeseen forces
• Raise the performance of disaster management
• Always be ready with an alternative plan

Parliament may function this winter session or it may not. The local authorities may learn something from Chennai floods or they may not. Man will learn something from the side-effects of his encroachment in Himalayas or he may not. And, what about investors?

Amtek Auto is a burning example of overconfidence in one’s own abilities, slack in risk management, and tentativeness in operations, eventually resulting in a loss. Investors have an easier learning curve this time. The key aspect of your learning exercise would be how you should select a worthy mutual fund. In case you are unsure of the funds to invest in, you may take advantage of unbiased research services provided by PersonalFN.

 

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