Axis Mutual Fund under Sebi lens over suspected violations

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Mumbai: India’s markets regulator Sebi is investigating a case of serious violations in the running of Axis Mutual Fund. Axis MF has in turn briefed the board of Axis Bank that it has removed the two fund managers from managing any of its funds pending investigations, two people with direct knowledge of the matter said.

The suspected violation is a practice called front-running, which can involve a fund manager buying or selling securities through their personal accounts ahead of the fund itself making those transactions. Because funds deal in large volumes, their actions tend to have an impact on the price and a front runner can make gains or avoid losses.

The officials involved in the case under investigation are Viresh Joshi and Deepak Agarwal. Joshi was the head dealer and fund manager of five of the mutual fund schemes at Axis Mutual Fund. Agarwal was equity research analyst and fund manager for three mutual fund schemes.

“These two officials were removed from active management of any of the schemes, pending investigations. They were removed earlier this week. The bank’s board has also been briefed,” said the first of the two people quoted above.

“Chandresh Nigam, CEO of Axis Mutual Fund may also be asked to go on leave. Though this has not been finalised yet,” this person added.

According to disclosures on Value Research, these two Axis Mutual fund officials are no longer associated with any of the fund’s schemes. Joshi used to manage Axis Arbitrage Fund, Axis Banking ETF, Axis Nifty ETF, Axis Technology ETF and Axis Consumption ETF. Agarwal managed Axis Consumption ETF, Axis Quant Fund and Axis Value Fund.

Axis Bank and Axis Mutual Fund did not respond to queries till the time of publishing this story.

“Sebi detected the case of front running in the last two years. The prelim investigation points to front running in as many as 9 scrips and ill-gotten gains to the tune of 170 crore,” said the second of the two people, who also spoke on the condition of anonymity.

Axis Mutual Fund manages 2.59 lakh crore worth of assets.

“Sebi is conducting the audit for a period starting 2017-2021,” said the second person.

“Sebi considers front running to be one of the most serious offences and in recent years has even brought amendments to its regulations relating to fraudulent and unfair trading practices to prohibit front running by intermediaries and individuals. Even the entities who have direct or indirect access to non-public information regarding a big client order or pending mutual fund trades have been included in the wide language of the law. Mutual fund regulations were also amended to bring in a strict Code of Conduct to pin the responsibility on fund managers, MD & CEO and the Board of the AMC to ensure that such matters are reported to Sebi and are not hushed up inside through internal examinations.” said Sumit Agrawal, founder, Regstreet Law Advisors and a former Sebi officer.

This is a developing story.

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