The Securities and Exchange Board of India (Sebi) has imposed a total penalty of ₹2 crore on JM Financial Asset Management, its trustee company, its former chief executive Bhanu Katoch and four other individuals for violating mutual fund rules.
The regulator had observed an unusual jump in in the net asset value (NAV) of a few debt funds including JM Low Duration Fund. The jump was largely due to the sale of the securities of the defaulted Dewan Housing Finance Corporation (DHFL) which had matured in 2019.
On June 23, 2020, Sebi allowed transactions in matured downgraded securities, which paved the way for the sale of defaulted securities.
Since the defaulted securities carried a nil valuation in the schemes, the entire sale value qualified as a gain for the fund and hence, there was a jump in the NAVs of the schemes.
Six schemes of JM Financial Mutual Fund were holding defaulted Securities of DHFL.
On July 6, 2020, these defaulted securities were sold by JM Financial Mutual Fund to AK Capital for ₹11.18 crore.
Following the sale of the defaulted securities, the schemes of JM Financial Mutual Fund witnessed an unusual increase in their NAV.
Sebi observed that between June 23 and July 3, 2020, JM Financial Asset Management chief executive Katoch, his mother, wife, head of institutional sales Deepen Doshi and his mother had subscribed to these schemes during this period. The regulator alleged that these individuals subscribed to the units of the relevant schemes holding defaulted securities of DHFL before the change in valuation of the defaulted securities based on unpublished information, which amounted to an act of unfair trade practice.
