Some mutual funds have come under the scanner of capital market watchdog Sebi and industry's front-line regulator Amfi for allegedly window-dressing their fiscal-end assets base through illicit trades.
The funds houses have also been asked by Amfi to “desist from entering into undesirable trades/transactions which are not in conformity with regulation”.
The issue relates to a year-end phenomenon of large redemptions and re-entry by the same investors in the first week of April. This year, the industry estimates March-end pressure of redemption of the order of R60,000-80,000 crore mainly on account of large investments being pulled out by banks.
To ring-fence their assets under management (AUM) from such redemption pressure, some mutual funds tend to park their assets with large investors to meet their redemptions and buy them back in April, sources said.
Amfi chairman Sundeep Sikka said: “We strongly feel that any such practices, if prevalent, should be stopped immediately.” He added: “Amfi has issued best practice circular to all AMCs that require any such outliers deal (variations in trades) to be placed before the respective trustee broads. We believe that trustees will ensure strict compliance," he added.
Concerned over this phenomenon that involves certain “undesirable” trades and transactions to inflate the AUMs, Sebi earlier this month sought clarification from Amfi (Association of Mutual Funds in India) on whether MFs were reaching out to cash-rich entities towards fiscal close to tide over redemption pressure with the help of intermediaries.
Replying to Sebi queries, Amfi has now informed the regulator that it was “very difficult to assess if such transactions do happen or the size of such deals”.
The industry body said this "parking" phenomenon leads to funds buying assets at yields higher than the then prevailing yields in April. “To desist funds from such trades, Amfi has requested all AMCs to send, on a daily basis, their entire trade data, such as secondary market trades, primary market trades and inter-scheme trades to Crisil/Icra.