Capital markets regulator Sebi has imposed a penalty totalling Rs 36 lakh on five entities -- including PGIM Asset Management Company and its chief executive officer Ajit Menon -- for flouting mutual funds norms while executing Inter-Scheme Transfers (ISTs). Apart from these, the regulator has penalised Kumaresh Ramakrishnan, Puneet Pal and Rakesh Suri. They were the fund managers at the time of the violation of the rule.
In its order, Sebi noted that five entities did not adhere to the provisions of the mutual fund regulations while executing ISTs between open and close-ended schemes of PGIM MF. While executing ISTs, certain low-quality securities were transferred from close-ended schemes to open-ended schemes.
The swap was done to thwart or arrest the potential redemption pressure.
It, further, said that they selectively protect the interest of investors of open-ended schemes, at the cost of investors of close-ended schemes. The investors of close-ended schemes, unlike that of open-ended schemes, could not withdraw their investments before the maturity of the scheme. ''The ISTs which were done by the Fund Managers during the period of inspection were apparently prejudicial to the interest of close-ended scheme holders and was unfair to both sets of investors (Open and close ended scheme) as the inter scheme transfers were only to window dress the NAV (net asset value) and was inherently not intended to protect the interest of either set of subscribers,'' Sebi said.
Through such acts, they violated the provisions of mutual fund rules.
Individually, Sebi has levied a fine of Rs 25 lakh on PGIM Asset Management Company, Rs 5 lakh on Menon and Rs 2 lakh each on Ramakrishnan, Pal and Suri. The order came after Sebi carried out a thematic inspection on Inter-Scheme Transfers of downgraded debt securities of PGIM India Mutual Fund for the period of August 2018 to February 2019. A close-ended scheme is related to a specific maturity period. In the case of close-ended schemes, the net assets and NAV become relevant only towards the period of closure of the scheme, while the NAV of open-ended scheme is very sensitive as the subscribers can seek redemption at any point in time.
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