SEBI initiates action against mutual funds (MFs), bans standstill pacts

SEBI

The market regulator Securities and Exchange Board of India (SEBI) has said that  it will initiate action against mutual funds (MFs) if they found any defaults in cases involving loans against shares to company promoters.

SEBI

The MFs industry is undergoing a crisis that has been attributed to fund managers lending to company promoters via debt schemes. The fund houses have also entered into ‘standstill’ agreements with promoters ‘to not sell the shares for a certain period even when default had been triggered’.

SEBI Chairman Ajay Tyagi said at a press conference here after the regulator’s board meeting said, “SEBI does not approve or recognise any standstill agreement. We will initiate action (against the fund house) once there is a default.”

Tyagi further added that MFs are not banks, and they should, therefore, be investing and not lending. “There has to be more discipline and prudence in the industry to protect investors’ money,” he said.

So far, standstill agreements have affected the payout of the fixed maturity plans (FMPs) of Kotak Mahindra AMC and HDFC AMC. SEBI has initiated action against the two fund houses, regulatory officials said.

One of the fund houses had even stalled redemptions in the affected schemes. Also, MFs recently agreed to not sell Essel Group promoters’ pledged shares till September. Also, an Anil Ambani group company had struck a standstill agreement with 90 percent of its lenders.

 (With Inputs from an English Daily)

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