Mutual Fund Scandal SCAM: What is Front-Running?
Front-running is an unethical practice where a broker or fund manager uses non-public information about upcoming large trades by institutions to make personal profits. For example:
- A mutual fund plans to purchase a large quantity of a stock.
- Knowing this in advance, a broker or manager buys the stock before the fund does, causing the price to rise.
- When the mutual fund makes the purchase at the inflated price, the broker or manager sells their shares at a profit.
This practice manipulates the market, disadvantages the fund and its investors, and benefits the individual involved.
What Happened in the Axis Mutual Fund Scandal?
Allegations and Actions:
Two Axis Mutual Fund managers, Joshi and Agarwal, were allegedly involved in front-running. Both managers have been suspended and accused of manipulating trades involving funds under their management.
Scam Scale:
The alleged scam involves ₹500 crores, with insider trading activities worth an additional ₹100-200 crores. These managers reportedly managed assets worth around ₹700 crores and led luxurious lifestyles, including properties in Mumbai and expensive cars, such as Lamborghinis.
Impacted Funds:
- Axis Bluechip Fund
- Axis Banking ETF
- Axis Nifty ETF
- Axis Arbitrage Fund
How Does This Impact You as an Investor?
Reputation Damage:
While the scandal tarnishes Axis Mutual Fund’s reputation, its financial impact on the fund house might be limited since the overall market sentiments are already subdued.
Regulator Intervention:
SEBI (Securities and Exchange Board of India) is expected to act swiftly to ensure accountability and prevent such incidents in the future.
Portfolio Review:
If your holdings include reputable companies like Reliance, TCS, Infosys, or HDFC Bank, the direct impact on your returns may be minimal.
What Should Investors Do?
If you’re worried about your investments in Axis Mutual Fund, here are some steps you can take:
- Don’t Panic-Sell: Avoid impulsive decisions based on the news. Assess your portfolio holdings carefully.
Mutual Fund Scandal SCAM: What is Front-Running?
Front-running is an unethical practice where a broker or fund manager uses non-public information about upcoming large trades by institutions to make personal profits. For example:
- A mutual fund plans to purchase a large quantity of a stock.
- Knowing this in advance, a broker or manager buys the stock before the fund does, causing the price to rise.
- When the mutual fund makes the purchase at the inflated price, the broker or manager sells their shares at a profit.
This practice manipulates the market, disadvantages the fund and its investors, and benefits the individual involved.
How Does This Impact You as an Investor?
Reputation Damage:
While the scandal tarnishes Axis Mutual Fund’s reputation, its financial impact on the fund house might be limited since the overall market sentiments are already subdued.
Regulator Intervention:
SEBI (Securities and Exchange Board of India) is expected to act swiftly to ensure accountability and prevent such incidents in the future.
Portfolio Review:
If your holdings include reputable companies like Reliance, TCS, Infosys, or HDFC Bank, the direct impact on your returns may be minimal.
What Should Investors Do?
If you’re worried about your investments in Axis Mutual Fund, here are some steps you can take:
- Don’t Panic-Sell: Avoid impulsive decisions based on the news. Assess your portfolio holdings carefully.
- Review Fund Performance: Check the funds you’re invested in for performance consistency. If the portfolio includes strong, stable companies, there’s less need for concern.
- Consider Diversification: Reduce your dependence on a single fund house. Diversify your investments across multiple AMCs (Asset Management Companies) to mitigate risks.
- Monitor Regulatory Updates: Keep an eye on SEBI’s actions against Axis Mutual Fund. Regulatory measures may improve transparency and help rebuild trust.
- Seek Professional Advice: Consult a financial advisor if you’re unsure about your next steps. They can help you realign your portfolio based on market conditions and personal financial goals.
Why is Axis Mutual Fund Underperforming?
Axis Mutual Fund, which was one of the best-performing fund houses during 2020-2021, has seen a reversal in its fortunes over the past three years. Almost all its funds, barring a few exceptions, have delivered poor returns.
Key Reasons for Underperformance:
- Lack of Portfolio Updates: Axis Mutual Fund has shown a tendency to rely heavily on the same set of companies it invested in years ago. Many of these companies, such as Avenue Supermarts, Bajaj Finance, and Divi's Laboratories, were high-growth companies at the time but have since underperformed.
- Stagnant Fund Management: There have been no significant changes in fund managers since 2016. This has resulted in a lack of fresh perspectives and strategies in portfolio management.
- Missed Opportunities: The fund house has failed to capitalize on new high-performing companies or multibaggers that have emerged in recent years.
Which Axis Mutual Funds are Underperforming?
Several funds in the Axis Mutual Fund portfolio have shown consistently poor returns across different time horizons. Here are some examples:
- Axis Midcap Fund: Poor performance across 1, 3, and even 10-year periods.
- Axis Bluechip Fund: A large-cap fund delivering only 13% annual returns over the last 10 years, unable to beat the Nifty 50 index.
- Axis Tax Saver Fund (ELSS): Returns of just 9.5% over 3 years and 14% over 10 years, underperforming its category.
- Axis Flexicap Fund: Among the worst performers in its category, unable to consistently beat its benchmark index.
Are There Any Axis Mutual Funds Still Performing Well?
While most funds are struggling, a couple of Axis Mutual Funds still stand out:
- Axis Growth Opportunities Fund: One of the best-performing funds in its category, delivering 25% returns over 5 years. The 1-year and 2-year performances also remain strong, though the 3-year performance shows some lagging.
- Axis Small Cap Fund: While it has been performing well compared to its category average over 10 years, its performance in the past 1, 3, and 5 years has started to decline.