Regulation: KM Abraham’s investor-unfriendly order
June 7, 2011
SEBI found HSBC Mutual Fund guilty, but a whole-time director of SEBI allowed the Fund to get away
A dogged two-year battle by senior citizen Venkat Subramanian and his wife Anuradha Venkatasubramanian with HSBC Mutual Fund against a mindless order of the Securities and Exchange Board of India (SEBI) holds out hope for those who choose to fight dodgy decisions by market intermediaries and regulators.
In the October–November 2008 period, the senior-citizen couple invested a hefty Rs2.52 crore in a ‘safe short-term plan’ of HSBC Gilt Fund with an average portfolio maturity of seven years, as opposed to a ‘long-term plan’ that is also offered with a 20-year average maturity portfolio. In February 2009, they noticed that the monthly statement showed a sharp 10% dip in the net asset value (NAV) in just three days. On inquiry, they learnt that HSBC had unilaterally wound up its ‘long-term’ plan and merged it in the ‘short-term’ one, whose term was enhanced to 15 years. It also changed the benchmark index from ‘I sec Si-Bex’ to ‘I sec composite index’ and dropped ‘short-term’ from the name.
The couple demanded an exit option at NAV before the merger, but were refused. In March 2009, they exited the scheme but filed a complaint. SEBI’s whole-time member Dr KM Abraham heard the case and issued a strange order which provided no relief to the investors, forcing them to file an appeal. In May, the Securities Appellate Tribunal (SAT) said in its order that it was “really amazed that the whole-time member” had failed to issue directions to HSBC Mutual Fund even after recording a finding that it had changed the scheme in a way that affected unit-holders’ interest, and also had not complied with the SEBI regulation to offer them an exit option at the NAV prevailing before the merger. The SAT order, in favour of the investors says, “We are satisfied that the whole-time member grossly erred in not issuing the appropriate directions in this regard.”
This happy situation is, however, marred by the fact that SAT did not think it fit to ask the Fund to cover the investors’ cost of fighting their way through a SEBI complaint and then an appeal. In effect, even this positive order will not force any introspection at SEBI about its duty to protect investors.
(This article was first published in the Moneylife magazine edition dated 2 June 2011 that was available on the stands from 19 May 2011.)