SEBI plans for forensic audit of mutual funds

Securities and Exchange Board of India (SEBI) a forensic audit of all 44 mutual funds to focus on Mutual Funds’ due diligence with respect to investments in illiquid securities, management of various risks including concentration, downgrades, early warning signals and liquidity issues of the securities in the portfolio, besides valuation practices and investment strategy of various schemes.

Senior officials of Franklin Templeton MF and its asset management company came under regulatory scrutiny in 2020 for redeeming their personal investments from the beleaguered six debt schemes based on ‘confidential and non-public information.’

Last year, SEBI initiated a probe into the case involving alleged front-running by two fund managers of Axis MF. These fund managers-cum-traders of the fund house allegedly placed orders at a value much higher or lower than the prevailing market price and received kick-backs from certain brokers for indulging in such unethical trading practice.

Over the past decade, the mutual fund industry has grown five-fold with assets under management touching ₹40-lakh crore last December from ₹8-lakh crore in November 2012.

From ₹10-lakh crore in May 2014, mutual funds’ AUM rose to ₹20-lakh crore in a span of just three years in August 2017 and then crossed ₹30-lakh crore in November 2020.

In view of the increasing scale and reach of the mutual fund industry, the role of Trustees’ in protecting unit-holders assumes even greater significance and ensures that AMCs act in the best interests of the unit-holders, said SEBI in its consultation paper.

From the data available, it is observed that in a significant number of folios either the bank account details are not available or the bank account number provided is less than 15- or 16-digit account numbers. Such folios are exposed to fraudulent transactions, said the regulator thrusting more responsibilities on Trustees.

The market regulator has also proposed AMCs to set up a “Unit Holder Protection Committee” across all products and services. This committee will independently review AMC decision from unit-holders’ interest perspective