By Ashley Coutinho
The Securities and Exchange Board of India (Sebi) may tighten regulations for mutual funds and alternative investment funds (AIFs) in its upcoming board meeting.
The role of chief executive officers and managing directors of MFs may come under greater scrutiny. MF trustees as well as independent auditors or lawyers may be asked to review the performance of all MD-CEOs. The chiefs will have to file undertakings declaring that the investments made by the fund house are kosher and do not violate existing guidelines.
The chiefs of at least three different fund houses have come under regulatory glare in the past few months. The regulator may pronounce direct action against these CEOs by debarring them from the capital market or asking that they not to be a part of the AMC set-up anymore. “Instances related to front-running, inter-scheme transfers and investments in AT1 bonds have come to light. In all these cases, the actions of the top brass have been found wanting,” a person familiar with the matter said.
Axis MF has come under the spotlight after it sacked two employees, including its chief dealer, earlier this year, amid an internal probe. The fund house has submitted the findings of the probe to the regulator, which has been carrying on its own independent probe. The income tax department recently searched the premises linked to the dealer along with a few middlemen and some brokers over suspected tax evasion.
A whistleblower has filed a complaint against Invesco Asset Management (India), alleging irregularities in the management of its fixed income schemes. The matter has been taken up with Sebi as well as the US Securities and Exchange Commission. A case has also been filed with the Bombay High Court. Sebi is probing the matter. Sebi is also reportedly looking at Nippon Life India Asset Management’s (formerly Reliance Nippon Life Asset Management) `2,500-crore investment in Yes Bank’s AT1 bonds.
It could not be ascertained if the regulator has reached out to each of these AMCs in the recent past. An email sent to Sebi as well as Axis MF, Invesco MF and Nippon MF did not get a response.
Norms for AIFs
The regulator may amend AIF regulations against the backdrop of several investor complaints received in the past few months and irregularities in obtaining credit ratings. New norms may come to ensure that the investments being made by the funds are line with the private placement memorandums filed with Sebi.
The regulator may also issue a diktat that will dub side letter agreements of AIFs with investors as fraudulent, effectively banning such arrangements. Side letters are something over and above the general terms and conditions that are binding under the investment product agreement.
Sebi has been increasing its oversight on AIFs in the past few months, given the pace of growth clocked by the industry. In June, Sebi levied a fine of Rs 10 lakh on Indgrowth Capital Advisors as its fund exceeded the 10% investment limit in Ugro Capital.
AIF commitments have grown 42% year-on-year to Rs6.94 trillion as of June 30, 2022, latest data from Sebi show. The amount invested has risen 43% to Rs 3.1 trillion and the number of AIFs is inching towards the 1,000 mark.