Mutual Fund Investors lost Rs. 1800 Crore due to exposure of Yes Bank AT-1 Bond
Investors invest in erstwhile Reliance Mutual Fund — now known as Nippon Life India Mutual Fund have collectively lost around Rs.1,830 crore because of due to the fund house’s decision to invest in Additional Tier-1 (AT-1) bonds issued by Yes Bank. These bonds were fully written down, as stated in a notice by the Securities and Exchange Board of India (SEBI) issued in August 2024.
These AT-1 bonds happen to be an instrument of debt and have commonly been issued by banks as an instrument of deepening the capital base. The investment decision for the fund’s investors proved fatal as the funds incurred substantial loss. Concurrently, it has been alleged that the management charges amounting to Rs.88.60 crore for these transactions accrued to the benefit of the fund house as quid pro quo, as received allegedly from Yes Bank.
This investigation of SEBI highlights non-compliance. Here, the findings have revealed that the fund house has excess expenses on some of its schemes, and its trustee did not take enough care to ensure regulatory compliance. The regulator, therefore, has sought an explanation from the fund house asking it why it should not be directed to disgorge the management fees earned from the transactions and face debarment for a suitable period.
The fund house made these transactions when it was still using its old name, before changing it in September 2019. These deals, done between December 2016 and March 2020, are being closely looked at by regulators because they suspect there may have been secret arrangements between the mutual fund, its parent company at the time, and Yes Bank.
SEBI’s investigation is part of a bigger inquiry that also includes the Central Bureau of Investigation (CBI). This larger probe is examining investments totalling Rs.2,850 crore in AT-1 bonds issued by Yes Bank, which were made by companies previously owned by a well-known financial group.
Another such investment is a sum of Rs.950 crore, invested in non-convertible debentures of a firm connected to a former Yes Bank official’s family. The regulator also issued a notice that spelled out how in 2017, Yes Bank provided facilities to the financial group’s subsidiaries in the amount of Rs.3,400 crore, mostly through cash credit and investments in NCDs.
These events raise concerns about how the fund house made its decisions and followed rules. While the fund house has confirmed in a stock exchange statement that it received SEBI’s notice, it has not yet addressed the main allegations in public. Questions sent to the fund house through email for more details had not been answered at the time this was written.
This situation highlights the dangers of investing in risky financial products like AT-1 bonds. It also shows how important it is for asset management companies to have strong rules and checks to keep investors safe. Any legal or regulatory actions that follow could have serious effects on the fund house and the entire mutual fund industry.
