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SAT stays Sebi’s penalty on PGIM AMC in inter-scheme transfers


The Securities Appellate Tribunal has stayed the penalty imposed by capital markets regulator Sebi on PGIM Asset Management Company in a case pertaining to flouting of mutual funds norms. Apart from the asset management firm, the regulator had penalised its chief executive officer Ajit Menon and three others — Kumaresh Ramakrishnan, Puneet Pal and Rakesh Suri. These three were the fund managers at the time of violation.

“The effect and operation of the impugned order shall remain stayed in so far as it relates to the appellant (PGIM AMC) subject to deposit 50 per cent of the penalty amount imposed upon the appellant within a period of four weeks,” the tribunal said in an order passed on Monday.

The matter has been listed for admission and final disposal on November 1.



The ruling came after the asset management firm approached the appellate tribunal against a Sebi order passed on June 30 that levied a fine of Rs 25 lakh on PGIM AMC.

Also, the regulator slapped a fine of Rs 5 lakh on Menon and Rs 2 lakh each on Ramakrishnan, Pal and Suri.

According to Sebi, the asset management firm and the officials did not adhere to the provisions of the mutual fund regulations while executing inter-scheme transfers (IST) between open and close-ended schemes of PGIM MF.

While executing ISTs, certain low-quality securities were transferred from close-ended schemes to open-ended schemes.

The swap was done to thwart or arrest the potential redemption pressure.

The entities selectively protect the interest of investors of open-ended schemes, at the cost of investors of close-ended schemes. The investors of close-ended schemes, unlike that of open-ended schemes, could not withdraw their investments before the maturity of the scheme.

”The ISTs which were done by the fund managers during the period of inspection were apparently prejudicial to the interest of close-ended scheme holders and was unfair to both sets of investors (Open and close ended scheme) as the inter scheme transfers were only to window dress the NAV (net asset value) and was inherently not intended to protect the interest of either set of subscribers,” Sebi had said.

The order came after Sebi carried out a thematic inspection on Inter-Scheme Transfers of downgraded debt securities of PGIM India Mutual Fund for the period of August 2018 to February 2019.

A close-ended scheme is related to a specific maturity period. In the case of closed-ended schemes, the net assets and NAV become relevant only towards the period of closure of the scheme, while the NAV of open-ended schemes is very sensitive as the subscribers can seek redemption at any point in time.



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