Following the advisory by the Securities and Exchange Board of India (Sebi), HDFC Mutual Fund has started refunding the losses incurred by the HDFC mutual fund unit holders on account of the front-running of trades by certain individuals.
In mails sent out to concerned investors on Saturday, HDFC Asset Management Company said, “Sebi in its investigation identified certain instances of front-running by a former equities dealer of HDFC AMC with certain set of front runners. HDFC AMC has since terminated the services of the said equities dealer. As per the consent terms filed by HDFC AMC with Sebi in the matter and as now advised by Sebi, the total amount of losses, as determined by Sebi, are to be compensated to the relevant unit holders.”
The fund house said that it has remitted the compensation amount into the bank account of the concerned investors.
Front-running refers to an unethical practice of someone trading in shares on the basis of advance information given by a broker, analyst or other executive at a market intermediary before the trades are conducted by that entity. It leads to an increase in the cost of acquisition of shares or reduces the realisation from the sale of shares for the concerned fund house or other market intermediary, thus adversely affecting the interest of common investors.
The issue relates to a front-running case at HDFC MF in 2007 that involved an equities dealer at the fund house — Nilesh Kapadia. Sebi had barred Kapadia and three others — Rajiv Ramniklal Sanghvi, Chandrakant P Mehta and Dipti Paras Mehta — from the markets for 10 years and ordered them to return over Rs 1.75 crore worth of illegal gains.
What is front-running?
* It refers to the unethical practice of trading in shares on basis of information given by a broker or an executive at a market intermediary before the trades are conducted by the entity
* It leads to an increase in the cost of acquisition of shares or reduces the realisation from the sale of shares for the concerned fund house