Retail investors invest their hard earned money through mutual funds, trusting the fund house and fund managers to do best in garnering better returns. Fund managers are also paid by investors for their skills, through the fund management charge. But sometimes, the responsibility to investors is forgotten. Axis Mutual Fund is under scrutiny for what is called front-running or tailgating (trading a security before the fund can do so, thus getting an undue advantage of knowing the price movements in advance).
When Outlook Money tried to get some understanding of whether this is a process failure of an individual’s fault, one senior fund manager of a fund house that’s counted among the top five, said this episode was a matter of lack of individual integrity and not process failure. Every fund house has its own set of processes and we all need to work under the defined guidelines, he said.
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Change In Fund Management
It has been alleged that two of Axis Mutual Fund’s fund managers indulged in misusing information. It is not yet clear whether this is a case of front-running or something else as the investigation is still on. The reports are expected within a week. Outlook Money’s attempts to get comments from the fund house did not get any response.
The issue came out in public when Axis Mutual Fund suddenly changed the levels of fund management in seven of its mutual fund schemes in the first week of May. These funds are: Axis Consumption ETF, Axis Banking ETF, Axis NIFTY ETF, Axis Arbitrage Fund, Axis Quant Fund, Axis Technology ETF and Axis Value Fund. All these changes took place after the fund house came under the scanner of the Securities and Exchange Board of India (Sebi) for alleged violations.
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On May 6, 2022, the fund houses issued a clarification, stating: “Axis AMC has been conducting a suo moto investigation over the last two months (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. We take compliance with applicable legal/regulatory requirements seriously, and have zero tolerance towards any instance of non-compliance.”
Some experts believe that this clarification should have come out sooner if they were investigating the matter. “The job of a trustee is to act on behalf of the investors. Then why didn’t the trustee inform investors about the investigation before it came out in public?” asks a CEO of financial product distribution company.
What Should Investors Do?
Experts are of the opinion that investors should not take any hasty decisions. “No one knows what has happened. We will get to know only when the investigation report comes out. Investors should not panic and should remain invested,” says Kaustubh Belapurkar, director, fund research, Morningstar Investment Adviser India.
Outlook Money has picked three Axis Mutual Fund schemes—Axis Bluechip, Axis Mid Cap and Axis Small Cap—in OLM 50, our handpicked list of schemes. None of the fund managers managing these schemes are involved in this issue. We are also keeping an eye on the situation and will keep you posted on new developments and further course of action.
