We all know that Securities and Exchange Board of India(SEBI) supervises and regulates the activities of stock market participants. Sebi has the right to take action against any intermediary; stock market participant and on any AMC; if they found any violations. SEBI has the right to withheld the AMC’s activities; It was done recently in the Franklin Templeton amc and now the turn of Kotak AMC.
What’s wrong with Kotak AMC?
Kotak AMC invested investors money in Essel Group and its subsidiaries which were defaulted to repay the due amount. Almost 6 schemes of Kotak AMC failed to repay the investors money from 2019 April- May which were paid later in September 2019.
Though Kotak AMC paid the redemption amount in september 2019; it was against the laws of SEBI. By violating the guidelines of SEBI; Sebi imposes 50Lakh rupees as Penalty as well as barring not to launch new FMP’s for 6 months from hereon!
Reason for SEBI action–
As per sebi guidelines all closed-ended funds including FMP’s(Fixed Maturity Plans)are to be re-paid the investors money on maturity.
Fixed Maturity Plans are no exception to this, as they are available for fixed period only. Upon Maturity the AMC has to repay the investors amount. But here Kotak AMC deferred the payment till september which is violation of sebi guidelines.
So Kotak AMC has no right to issue FMP’S for 6 months from hereon; and is legally bound to repay fine of 50 Lakh rupees.
Compensation to Investors–
Kotak AMC has to repay the advisory fees including investment management schemes of the said 6 FMP’s. Besides this, the compensation should be equivalent to percentage of exposure in essel group shares plus simple interest of 15% applicable from the date of maturity till the repayment date.
From the above, we can conclude that SEBI has taken corrective decision of imposing 50 Lakh as penalty and 6 months barring from new FMP’s launch. Sebi also does justice to investors by instructing to repay simple interest of 15% from maturity date and actual payment date plus percentage of share in the defaulted papers of Essel group.