The Assets and Exchange Board of India (SEBI) has prohibited Kotak Mahindra Asset Management Company from establishing any new Fixed Maturity Plan (FMP) scheme and fined Rs 50 lakh for allegedly failing to refund investors in six FMP schemes that had invested in Essel Group securities.
The regulatory watchdog claimed in an 84-page judgment issued by SEBI whole-time member S K Mohanty that the fund house failed to conduct adequate due diligence while permitting the maturity duration of some instruments to be prolonged beyond the scheme’s expiry date.
Investors in certain FMP schemes of the fund house were not given their entire proceeds based on the announced NAV of the aforementioned schemes as of their respective maturity dates, prompting the SEBI investigation.
The fund house permitted investment in the zero-coupon non-convertible debentures (ZCNCDs) of two Essel Group businesses – Konti Infrapower & Multiventures and Edison Utility Works – without examining the issuers’ credit quality, according to the SEBI decision.
It also claimed that the fund house extended the maturity period of the instruments after the issuers pledged shares of Zee Entertainment Enterprises and the collateral value fell below the minimum prescribed level, despite the fact that the issuers had pledged shares of Zee Entertainment Enterprises.