What is the Axis Mutual Fund Scam and Are Investor's Money Safe?

Recently, news about a potential scam at Axis Mutual Funds garnered significant attention in the media. The primary allegations involved front running, a practice where fund managers gain a personal benefit from having early information about upcoming trades. However, it is important to understand that while this practice is illegal, it may not necessarily impact the unit holders directly.

Investigations and Clarification

Axis Asset Management and the Securities and Exchange Board of India (SEBI) are conducting necessary investigations into the alleged irregularities. At this time, it is advisable for investors to not worry too much about their investments in Axis Mutual Funds.

Given that two fund managers were suspended and an investigation is ongoing, it is crucial to understand the details of the allegations to avoid misinformation. In this article, we will explore what exactly happened, the suspected fund managers, and what actions investors can take.

Axis Mutual Fund Overview

Axis Mutual Fund is a joint venture between Axis Bank and Schroders. As of February 2022, the mutual fund manages over Rs 2.6 Lac Crores of assets under management (AUM). While it is a significant player in the industry, recent allegations have raised questions about its integrity.

Irregularities Allegations: Front Running

One of the main irregularity allegations revolves around front running. Front running is when a broker or fund manager uses insider information to trade for personal benefit before the mutual fund executes its trade.

Here’s an example to explain how front running works:

The mutual fund house analyzes stocks and plans to purchase or sell them on a specific date. This can cause price fluctuations. Brokerage firms with this information can gain an advantage by buying the stocks in advance or selling them before the mutual fund. This leads to the mutual fund buying at a higher price after the stock price has already increased, thereby benefiting the fund managers at the expense of the investors.

According to reports, one of the fund managers driving a luxurious sports car has sparked suspicions, further highlighting the lifestyle concerns associated with this irregularity.

Involved Fund Managers and Managed Schemes

The two fund managers involved in the alleged irregularities are:

Mr. Viresh Joshi - Head Trader and Fund Manager, handling five mutual funds. Mr. Deepak Agarwal - Equity Research Analyst and Fund Manager, handling three funds.

These fund managers manage the following schemes:

Axis Arbitrage Fund Axis Banking ETF Axis Consumption ETF Axis Nifty ETF Axis Quant Fund Axis Technology ETF Axis Value Fund

Impact on Mutual Fund Schemes

Given that the irregularities seem to be a personal benefit from trading, the mutual fund schemes themselves may not be directly impacted. Any loss would more likely occur if other individuals had access to the information and also benefitted from it. This is more of a concern for small-cap funds with lower trading volumes where the risk is higher.

Precautions for Investors

To mitigate risks, investors should:

Diversify investments across different AMC (Asset Management Companies) and market caps (Largecap, Midcap, Smallcap). Invest in a variety of funds, preferably around 5 to 7, to reduce the impact of any single fund's performance. Check the performance and track record of the funds before investing.

Should Investors Exit Axis Mutual Fund Schemes?

As of now, there is no explicit evidence of significant damage to the mutual fund schemes. The suspension of the fund managers and ongoing investigations suggest a potential corporate governance issue.

Given the current market volatility and recent NAV corrections, Axis Mutual Fund investors holding these schemes are advised to:

Continue their current holdings until further clarity is available. If they have Systematic Investment Plans (SIPs), they can pause or divert these investments to other funds. Monitor news and updates closely to make informed decisions.

For more information and tips, follow us on social media platforms like Facebook, Twitter, and Telegram.