India’s markets regulator is examining whether fund managers at Axis Mutual Fund may have engaged in “front-running” or trading securities through their personal accounts ahead of the fund’s transactions on behalf of unitholders, two people familiar with the matter said.
Axis Mutual Fund has briefed the board of Axis Bank that it has suspended the two fund managers until the investigation is completed, two people with direct knowledge of the matter said. Because funds make large transactions, their actions tend to impact the price, and a person can profit or avoid losses with prior knowledge of such transactions.
The fund managers under probe are Viresh Joshi and Deepak Agarwal. Joshi was head dealer and fund manager of five mutual fund schemes at Axis Mutual Fund, while Agarwal was the equity research analyst and fund manager for three mutual fund schemes.
“These two officials were removed from active management of any of the schemes, pending investigations. They were removed earlier this week,” one of the two people cited above said.
In a statement, the asset management firm confirmed the fund managers were suspended, without naming them.
“Axis AMC has been conducting a suo moto investigation over the last two months (since February). The AMC has used reputed external advisers to aid the probe,” a spokesperson for Axis Mutual Fund said in a statement. “As part of the process, two fund managers have been suspended pending investigation of potential irregularities. We take compliance with applicable legal/regulatory requirements seriously and have zero tolerance towards any instance of non-compliance.”
Agarwal did not respond to a text message seeking comment, while Joshi did not immediately respond to a message on the Linkedin website.
Value Research data shows Joshi and Agarwal are no longer named as fund managers of any of Axis MF’s schemes. Joshi used to manage Axis Arbitrage Fund, Axis Banking ETF, Axis Nifty ETF, Axis Technology ETF and Axis Consumption ETF. Agarwal managed Axis Consumption ETF, Axis Quant Fund and Axis Value Fund.
“Sebi detected the case of front-running. The preliminary investigation points to front-running in as many as nine scrips and ill-gotten gains to the tune of ₹170 crore,” the second person said, also requesting anonymity.
Axis Mutual Fund manages ₹2.59 trillion worth of assets.
A third person with direct knowledge of the matter said: “The Axis Mutual Fund board submitted its preliminary probe report to Sebi on Thursday where the fund house has flagged the issues of code of conduct violations against Agarwal and disproportionate assets against Joshi.”
“The board of Axis MF had a review…to understand how they worked during work from home,” the person said. “The investigation is still going on. One more consultant was appointed to find out whether there was front-running and the quantum of gains made since technical analysis could not ascertain it,” he added, also requesting anonymity.