Signs of Malice on the Mutual Fund Front

Close on the heels of alleged irregularities by Franklin Templeton’s top executives, Axis Mutual Fund also, on Friday, suspended two of its fund managers for serious trading violations, in what could be yet another shocker to mutual fund investors. 

Reports citing sources said the two fund managers — Viresh Joshi and Deepak Agarwal — made wrongful gains through ‘front running’. The term is used to describe trading in stock or any other financial asset by a broker, who has inside knowledge of a future transaction that could affect price substantially. 

‘Front running’ is done by placing higher bids than current market price for a share and a lower ask (sell order) with a broker. The broker, then, passes on the difference to the managers off the books, in cash or in kind. 

Mutual fund insiders say the flamboyant lifestyle of one of the fund managers, who drives a limited-edition Lamborghini and owns several houses in Mumbai, caught the attention of the fund house, which began investigating the matter.

Axis MF, India’s seventh largest mutual fund by assets, said it has been conducting a suo motu investigation since February 2022. “The AMC has used reputed external advisors to aid the investigation. As part of the process, two fund managers have been suspended pending investigation of potential irregularities,” its statement read. 

It, however, dismissed rumours that its MD and CEO Chandresh Nigam was also involved in the irregularities. 

The allegations include front running and price rigging of stocks.

Axis MF has engaged two external agencies - AZB & Partners and Alvarez & Marsel - to probe the case and Sbi is being kept apprised of the developments.

Unconfirmed reports said market regulator Sebi is also probing the matter.

According to a May 4 notice by Axis Mutual Fund, Joshi and Agarwal have been dropped as fund managers of four ETF schemes (Axis Consumption, Axis Banking, Axis Nifty, and Axis Technology) and three funds (Axis Arbitrage Fund, Axis Quant Fund and Axis Value Fund). 

It is not yet known how these developments impact those who might have invested in these schemes managed by the two accused fund managers and the state of the other schemes.

It is also not sure whether unit holders can maintain status quo till the final findings of the ongoing investigations.

Axis Mutual Fund, however, said these developments will not have any impact on the portfolios held by any of the schemes of Axis AMC. The company has assured investors that it continues to maintain the highest governance standards, stringent protocols, and best-in-class processes for fund management. It said the company ensures compliance with all legal and regulatory requirements with a zero-tolerance policy towards any instance of non-compliance.

“While the review process is still continuing, we have taken action against two fund managers handling certain equity schemes (one of whom was also our chief dealer), pending further investigation. As our investigation progresses, based on the findings, we will take further action as may be necessary," Axis Mutual Fund said in a statement on Sunday.

“To ensure business continuity, the funds managed by these managers have already been reassigned to other experienced fund managers, and we have put in place necessary arrangements for execution of trades through another dealer. There are no restrictions on redemptions. In any event, we believe that the available liquidity without funds and the quality of our portfolio will enable us to meet redemption requests from investors, if any," the statement said.