The Wolves Of Dalal Street

27 May, 2022 0 Comments

            The Wolves Of Dalal Street

Lessons to Learn from the Axis MF Front Running Case

The Sensex has been on a roller coaster the past few weeks plummeting and rising – quite an interesting turn of events, but quietly in the background something was happening at Axis Mutual Fund. In the heat of the moment, some of you may have missed it - two fund managers from Axis Mutual Fund were earlier suspended due to a front running case and later on they were terminated completely from Axis AMC.

The Back Story

Two fund managers of Axis MF were alleged in a Front Running case of misusing and taking advantage of AMCs inside information. The news came as a whistle blower without mentioning any name in multiple news media as well as social media. On this, Axis AMC came up with the clarification that they are aware of the issue and a Suo-moto investigation was already carried out in Feb 2022.

Front Running -- This is like ‘insider trading’, where company insiders (promoters/ management team) who have information about stocks and shares misuse / take unethical advantage by trading for personal gain or otherwise in those stocks.

In Asset Management Companies (AMCs), front running can be done by fund managers / persons In charge for trading activity etc., where they are in a position to purchase the shares in their personal or friend’s accounts before purchasing the same shares for the fund / AMC. This allows them to take advantage of the price movement since AMCs would purchase the shares from the market in larger quantities leading to an increase in the share price. This is true especially of Mid & Small cap stocks. And they could also use this privileged information to exit these shares once the price has moved up post the AMC purchase of the larger numbers and take advantage of this price differential for personal gain. Similarly, they could also use this inside information to sell their personal holdings at a higher price before the AMC liquidates these respective shares.

Activities In Axis AMC

As per Axis AMC’s statement as well as media reports, when the management of Axis AMC suspected such activities in February 2022, they started a Suo-moto investigation and suspended two fund managers. These two fund managers were totally managing 7 schemes and these schemes were predominantly into ETFs (Exchange Traded Funds) and Arbitrage funds.

Schemes managed by two suspended fund managers

AUM* (` crore) 
Axis Arbitrage Fund 5,785
Axis Quant Fund 1,530
Axis Value Fund 240
Axis NIFTY ETF 126
Axis Banking ETF 56
Axis Technology ETF 29
Axis Consumption ETF 12

Note: *As on March 31, 2022
Source: Value Research

After the whistle blowing and subsequent chaos in the MF industry, SEBI got involved in the investigation and based on their initial findings, Axis AMC terminated Viresh Joshi (chief dealer and fund manager of a few funds) effective from 18-May-2022 and Deepak Agrawal (Fund Manager) effective from 20-May-2022. Till now, SEBI continues the investigation.

The investigation is also expected to throw light on the impact on the Axis AMCs roster of funds’ NAVs due to this front running incident and activity including whether the impact is across all funds of Axis AMC or limited to only the funds that these two fund managers managed.

A point to be noted here is that there is a precedence. Similar issues have occurred earlier in the MF industry. HDFC AMC in year 2007 and L&T AMC in year 2010 have faced similar issues and similar swift investigations and actions were taken against the individuals to ensure the highest level of compliance. In addition, HDFC AMC had paid back the money to all investors who held investments on respective front running incident occurring dates in 2007.

The impact of any such incidence on Axis AMCs existing funds is not expected. However, post the SEBI’s complete investigation, if any discrepancies are found, the recovered monies are expected to be paid back to all investors (even if it is a very small amount), depending on the funds impacted.

What Should Investors Do?

Front Running and Insider trading are issues which do not come to the limelight very often but when they do, investors lose faith on the management of that organisation. The foremost task is Compliance, and it must be in place all the time. When it comes to managing people’s money, it becomes even more important.

The investors cannot foresee these issues unless they appear in the media. But what they can do is instead of looking only at the fund performance, look for a well-organised institutional management with a good track record, excellent compliance etc. while selecting their MF AMCs

The only thing both investors as well as advisors have control is reasonable diversification of the portfolio across AMCs and not to stick to 1 or 2 AMCs with high allocation. Even though an advisor suggests a specific fund/AMC just because of better performance, allocation percentages to that fund/AMC must be predefined.

If such issues come in the news, investors should exit the mid & smallcap investments from such AMCs as there would be a selling pressure post such issues and mid & smallcap stocks are not highly liquid to repay investors’ money quickly. If selling pressure comes from investors, fund house will be in a pressure to sell the illiquid stocks at any price and may end up selling at a very low price.

We, as investors, advisors, regulators, and the entire MF industry, learn new things when new incidents happen and become stringent in our investment strategies. SEBI also comes up with new regulations in favour of investors’ interest to protect them from such loopholes. We hope that this time as well SEBI will come up with new regulation to curb the front running incidents.


Please remember investing is mostly backing quality businesses run by quality managements that offer a runway for strong cash flow growth, earnings potential, and long-term prospects. Buying them at a “reasonable” price with an eye on the returns is important. Stay invested, stay disciplined and secure your returns.

We urge you to have conversations with financial advisors who have seen and navigated these cyclical rises and falls. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.

We urge you to have conversations with financial advisors who have seen and navigated these cyclical rises and falls. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.

Reach out to us

We can help you understand how to maximise your investment goals or leave a comment below on your thoughts.



Axis MF sacks second fund manager in two days, assigns no reason, BUSINESS STANDARD | HDFC AMC front-running case: Sebi settles case with 2 entities, MINT | Sebi bans 16 entities for front-running activities, THE ECONOMIC TIMES

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