MFs not liable for bad calls; L&T MF case sets template
Transparency matters, especially where investor money is concerned. But, not all fund houses are transparent about all their decisions. In March, market regulator Securities and Exchange Board of India (Sebi) shot off a show-cause notice to L&T Mutual Fund, seeking justification for some of its fund management decisions.
Sebi stated that the asset management company (AMC) did not record detailed reasons by way of data, facts and opinions while making its buy-sell decisions. Yet, in its final adjudication on Wednesday, the regulator stepped back from imposing any fine on the firm. But the order opens the hood on internal decision-making at one of India’s large and prominent mutual fund houses.
While L&T Mutual Fund was acquired by HSBC Mutual Fund in November 2022, Sebi’s show-cause notice pertains to decisions taken by the firm between 1 April 2019 and 31 March 2021. As per the notice, L&T MF used certain standard phrases such as “investment purchase“, “switching to better opportunities", “booking profits". “increasing exposure", “decreasing exposure", etc. in support of its buying or selling of a security. Sebi pointed out three instances of such shoddy decisions at the fund house.
Hindustan Zinc
L&T Value Fund bought shares of Hindustan Zinc on 7 August 2020 and sold them just around a month later, on 17 September, incurring a loss of ₹1.6 crore. The reason given by the fund house for the rapid exit mentioned was ‘on account of better opportunities and raising cash.’
Responding to the notice, the AMC pointed to uncertainty regarding the delisting of Vedanta shares, the Supreme Court decision allowing arbitration proceedings against the government for Vedanta taking full control of Hindustan Zinc, etc. which led to
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