Market regulator on Friday barred Kotak Mahindra Asset Management, one of the country’s largest mutual fund managers, from launching any fixed maturity plans (FMPs) for six months and fined it for breaking rules and hurting investor interests.
FMPs, a popular investment option in India, are fixed-income funds that invest in debt with maturities similar to the fund’s duration. Data from Value Research, a fund tracking website, showed Kotak had around Rs 70,00 crore in FMP assets as of Friday.
The Securities and Exchange Board of India (SEBI) had been investigating Kotak since 2019 for putting some FMP investor funds into debt instruments of certain stressed companies, and later not paying full proceeds to investors based on those funds’ unit values.
The fund firm failed to conduct due diligence while investing and did not disclose adverse information to its unitholders, SEBI said in its 84-page order, adding that Kotak’s “high handedness and poor due diligence” had hurt investors.
Kotak did not immediately respond to a request for comment. SEBI also ordered the fund manager to refund a part of the investment management and advisory fees it collected from unitholders of certain affected schemes and imposed a penalty of Rs 5 million
The order comes as SEBI keeps a stricter watch on fund manages for violating rules or acting against investor interests. In June, it barred Franklin Templeton in India from launching any new debt schemes for two years after it found “serious lapses and violations” at the firm when it decided to suddenly shut several schemes.
Franklin has appealed against the decision but agreed it would not launch any new debt funds for the time being.