Large investors get AMFI rap
25 Oct 2001
Not anymore. The Association of Mutual Funds (AMFI) has sensed that there is indeed some foul play happening, and has taken initiatives to prevent any recurrence of such deeds in the future.
What
is the whole story about? Struck by the sudden rise in
bond prices on 22 October, some large investors (apparently
two big financial institutions), sought to get units allotted
at the NAVs to gain an unfair advantage. The investible
amount was large (around Rs 40 crore) enough to entice
some mutual funds to adjust and accommodate these big
bosses.
How does it work? Suppose one applies for an allotment
of units in gilt or in an income fund before the scheduled
cut-off time on any working day. The allotment would be
made at the end of that days net asset value - which
means the allotment is made at the prospective net asset
value. On the other hand, if an application were to be
made for an allotment of units in a liquid fund before
the cut-off time on any working day, the allotment would
be made at the previous days net asset value - called
the historical net asset value.
But as the news of malpractice by the two institutions
broke out, other mutual funds referred the issue to AMFI.
In its response, AMFI sought to settle the matter once
and for all by issuing an advisory note to all its members.
The note advises them to resist from following unethical
practices and instead allot units based on the norms specified
in their offer documents.
It further reads: It is essential that all members strictly follow the exit and entry norms as disclosed in the offer documents of the scheme and no deviations are made. Any such deviation from the offer document and the normal practices on such occasions would not only affect the image of the industry but will also be viewed seriously by the regulator.
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