SEBI Investigates ₹1,800 Crore Losses in Mutual Fund Scheme

Investors in schemes of the erstwhile Reliance Mutual Fund, now Nippon Life India Mutual Fund, have faced cumulative losses of nearly ₹1,830 crore. The losses stem from the fund house’s investment in AT-1 bonds of YES Bank, which were eventually written down. This information was revealed in a show-cause notice issued by the Securities and Exchange Board of India (SEBI) in August 2024, as per the report.

AT-1 Bonds and Allegations of Impropriety

AT-1 bonds, a type of debt instrument issued by banks, were among the investments made by the fund house. While these investments generated ₹88.60 crore in management fees for the fund, SEBI’s notice raised concerns about a possible quid pro quo arrangement with YES Bank. The regulator suggested that improper benefits might have been exchanged between the entities.

Fund House’s Response and Regulatory Concerns

Nippon Life India Mutual Fund has acknowledged receiving the SEBI notice but has refrained from disclosing specific allegations or details of the ongoing investigation. According to SEBI, the fund house incurred excess expenses on multiple schemes, and the trustee failed to ensure compliance with regulatory norms.

Potential Penalties Outlined by SEBI

The show-cause notice detailed potential actions, including disgorgement of management fees earned and debarment for a specified period. The fund house’s handling of these investments has triggered broader regulatory concerns, drawing attention from multiple agencies, including the Central Bureau of Investigation (CBI).

Broader Probe into Reliance Mutual Fund’s Investments

The SEBI investigation is part of a larger probe into ₹2,850 crore invested in YES Bank’s AT-1 bonds by entities previously owned by Reliance Capital. Additionally, Nippon Life India Mutual Fund is under scrutiny for investing ₹950 crore in non-convertible debentures (NCDs) of Morgan Credit Private Limited, a company linked to the Rana Kapoor family.

Timeline of Transactions Under Investigation

The transactions in question occurred between December 2016 and March 2020, a period when Reliance Capital owned Reliance Mutual Fund and several other entities involved in the transactions, including Reliance Home Finance and Reliance Commercial Finance.

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