Kotak fund faces Sebi heat

Mumbai: The Securities and Exchange Board of India has barred Kotak Asset Management Company from launching any new fixed maturity plan (FMP) scheme for six months and also imposed a fine of Rs 50 lakh for failure to exercise due diligence and disclose information having a negative impact on the six FMP schemes to its investors on time.

Kotak AMC has also been directed to refund a part of the investment management and advisory fees collected from the unitholders of the six FMP schemes. has also been directed to refund a part of the investment management and advisory fees collected from the unitholders of the six FMP schemes.

"Sebi noticed that the investors of certain FMP launched by the Kotak Mahindra Mutual Fund were not paid their full proceeds based on the declared net asset value (NAV) of the  said schemes as on their respective maturity dates," said a Sebi order issued on Friday by its whole time member S. K. Mohanty.

Sebi found six FMPs of the fund house where payment were delayed.
All the six FMP schemes  launched by Kotak AMC had  matured during  April-May  2019  wherein the fund house was required to repay the investors immediately thereafter. However, due to extension of maturity of non-convertible debentures (NCDs) of certain issuers belonging to Essel Group, the total asset under management of the six  FMP  schemes  could  not  be  realised  by the fund house and  a  part  of  the  amount was paid at a later stage in two instalments in the month of September 2019.

A Kotak Mahindra Group spokesperson on Friday said, “The Sebi order dated 27th August 2021 on KMAMC, pertains to six FMP schemes that matured in April and May 2019, which held investments in non-convertible debentures  issued by Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiven-tures Pvt Ltd, belonging to the Essel Group and secured by pledge of equity shares of Zee Entertainment Enterprises Ltd. All the investors have been fully repaid along with applicable interest in September 2019. KMAMC is committed to protecting investor interest at all times.”

The Sebi order said, "The noticee,  instead  of  carrying out  a  due  diligence  process  in  an  objective  and professional  manner  by examining the  financials,  their payment  capacity and other antecedents of the issuers in granular details, has instead heavily relied upon the secondary factors such as the reputation and past history of Essel Group and entirely  depended  on  the  collateral  cover  which  also  eventually  proved  to  be grossly   inadequate   to   recover   its   outstanding   investment."