Axis Mutual Fund scam: What we know so far and how experts interpret it

Axis Mutual Fund, India’s seventh-largest fund house, has been in the eye of the storm ever since front-running allegations surfaced against two of its fund managers — Viresh Joshi and Deepak Agarwal — where the former also acted as the chief dealer. Axis Mutual Fund announced the suspension of both of its fund managers last week after an investigation.

The accusations against both Joshi and Agarwal include front-running and price rigging. When a mutual fund dealer tries to profit from the knowledge of orders that a fund house has lined up, it is referred to as front-running.

While the probe against the two accused personnel began in February, no action was initiated against them until last week. On May 8, the fund house’s Managing Director and Chief Executive Officer, Chandresh Nigam, announced the probe in a communication to its distributors and investors. He highlighted that the probe in question was being conducted by two external agencies appointed by the Axis Mutual Fund.

Nigam assured investors of the “highest governance standards, stringent protocols and best-in-class processes for fund management.” He mentioned that the suspension of the two fund managers was done as preliminary action.

In an interview with CNBC-TV18, JN Gupta, former SEBI ED and MD of Stakeholders Empowerment Services, urged Axis Mutual Fund to bring out more transparency concerning the scam in question. He mentioned that he isn’t aware of the extent of the problem but believes that both the persons named are responsible for the said fraud.

“We do not know what has been the impact on the fund's performance because of this action. If it has been a negligible impact, investors will probably not lose confidence. But that is where the problem is. Transparency needs to be brought into the thing as soon as possible,” Gupta said.

Meanwhile, Shriram Subramanian from InGovern, reckons that Axis Mutual Fund will come out with more details soon. He said that the fund house only came out with disclosures after the media pointed it out.

He said, “It is surprising that it was actually the chatter on Twitter and by media etc., which put the onus on Axis to come out with the disclosure. Axis itself did not proactively come out with any disclosure. The fund managers have been suspended only now, two months since the investigation is supposed to have started. And investors are still unclear as to what the reason is and why the investigation was triggered. So, the statement put out by Axis is very insipid. I would expect Axis to come up with much more granular details on what triggered the investigation.”

Subramanian feels that the damage this fraud has done will take a while to clear out. He believes that mutual funds will find it tough to gain back the confidence and trust of people.