Risk Alert: Why is Axis MF under Fire? Here’s all you need to know

Axis Mutual Fund has recently sacked two fund managers - Chief trader and fund manager Viresh Joshi and Asst. fund manager Deepak Agarwal. These actions have been taken in light of the recent allegations of front-running, illegal gains using shell companies and executing trades that were detrimental to the interests of the unitholders.

What is Front-running?

• You see, when the fund manager decides to buy stocks in a scheme, the manager tells the chief dealer, “Hey I need X amount of Y stocks by the end of this week”. The dealer then works with multiple stock brokers to get the buy trade executed.

• Relying on the Fund Manager’s expertise, the dealer has all the information of what stocks are to be bought & in what quantity (usually high stakes running into hundreds of Crores), he can estimate by how much the prices would eventually move up by and the profit he could pocket from it.

• So, if the dealer buys the same stock in his personal capacity before the MF does and sells it when prices go up because of the huge buy order by the mutual fund house, this essentially is called front running.

These are serious allegations. So what did Axis MF do?

• Axis MF on its own conducted an internal audit as soon as this information was released & identified the lapses back in the month of Feb. But no further actions were taken then since the probe is still ongoing.

• Currently, as the news has been out. Axis MF hired 2 external auditors to look into the irregularities & SEBI is also waiting for the auditor's report to take further actions

• Both the alleged fund managers have been suspended and will no longer be a part of any of the Axis Mutual Fund schemes, and could be even barred from the markets, depending on the result of the probe.