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Axis Mutual Fund investors spooked by Viresh Joshi scam must wait and watch, say experts

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Axis Mutual Fund investors spooked by Viresh Joshi scam must wait and watch, say experts

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Axis MF sacked its chief dealer Joshi on May 18, after suspending him and another fund manager Deepak Agarwal earlier this month for alleged irregularities, including front-running transactions on his personal account. The experts say refrain from taking hasty decisions.

Axis Mutual Fund investors spooked by Viresh Joshi scam must wait and watch, say experts

Retail investors who have put in their hard-earned money in Axis Mutual Fund are in a fix. With the asset management company (AMC) terminating the services of its chief trader and fund manager, Viresh Joshi, investors are worried if they should hold or redeem their funds.

Experts believe investors should track the development and stay alert but refrain from taking hasty decisions.

As of March 31, Axis managed assets worth Rs 2.5 lakh crore under various schemes.

What’s happening at Axis Mutual Fund?

Viresh Joshi of Axis Mutual Fund

Axis Mutual Fund, which is the seventh-biggest asset manager in the country in terms of pooled cash under management, sacked its chief dealer Joshi on May 18 after suspending him and another fund manager Deepak Agarwal earlier this month for alleged irregularities, including front-running transactions on his personal account.

Although Axis MF did not provide a reason for the sacking, it said in a statement that the AMC had been conducting an internal investigation since February with the help of external advisors. Joshi’s employment was terminated further to the ongoing investigation, the statement read.

What is front-running?

Front-running is an illegal market practice in which dealers, traders and mutual fund employees purchase a stock based on advance exclusive information about a large transaction that is likely to take place, affecting the price.

Market regulator Securities and Exchange Board of India (SEBI) has penalised several fund houses and fund managers for front-running.

"Axis Mutual Fund taking strict action against serious fraudulent practices by an ex-employee involved in front-running shall be viewed as a relief for those making investments in mutual funds. However, the risk of losing securities and funds still remains as such irregularities by fund managers may cause crores of rupees of loss," Rachit Chawla, founder of Finway FSC, told CNBC TV18.

What should investors do?

Taking a hasty decision due to the suspension of a fund manager will not help investors, experts said.

"Since neither SEBI nor the fund house has come out with any guidance for investors, it would be ideal to wait and stay alert about the developments in the funds they have purchased," Adhil Shetty, CEO of BankBazaar.com, told CNBC TV18.

“If you redeem, there’s a cost. You will incur capital gains taxes and any applicable exit loads. So, while you track the developments, also understand the implications of redemption,” Shetty said.

“No one knows what has happened. We will get to know only when the investigation report is out,” Kaustubh Belapurkar, director of Fund Research, Morningstar Investment Adviser India, told Outlook Money. Investors should not panic and remain invested, he said.

According to Shetty, there has been a tendency to move towards index/passive funds across the globe. Fund managers don’t have an active role to play in these low-cost schemes.

“This doesn’t rule out front-running entirely. But this is more a corporate governance issue which has been a matter of public discourse, especially in the context of start-ups. Investors should aim to be with institutions with strong corporate governance practices," he said.

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