In case of mis-selling by mutual fund distributors and insurance agents, they end up buying expensive/unsuitable products or churn their portfolios unnecessarily.
However, in the case of front-running in mutual funds, as was the case with HDFC MF and L&T Investment Managers (earlier DBS Cholamandalam, which settled with the market regulator), there is some respite, in penalty.
But clarity is awaited on how they will be compensated.
Front-running refers to dealers leaking information about stock market deals to buy or sell shares before trades of the fund house are executed.
The Securities and Exchange Board of India found 38 instances of front-running by Nilesh Kapadia, a former HDFC MF employee, through 24 trading days between April and July 2007, when three investors -- Rajiv Sanghvi, Chandrakant Mehta and Dipti Mehta -- bought or sold shares before HDFC MF's trades were executed.
The front-running had resulted in a loss of Rs 2 crore (Rs 20 million) to HDFC MF unit holders.
These cases were settled by the fund house through a consent order mechanism, by paying Rs 10-50 lakh (Rs 1-5 million).
But what about retail investors?
In this case, the loss incurred by unit holders of HDFC MF was Rs 2.38 crore (Rs 23.8 million).
While the fund house paid the money to the trustees from its profit and loss account in July 2011, the trustees are awaiting a Sebi directive on how to use the money.
Sources say following the recent detection of another 107 instances of front-running
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