ICICI Prudential Mutual Fund (MF) has received an order from the Securities and Exchange Board of India (SEBI) to refund Rs. 2.4 billion with an annual interest of 15 percent to five schemes of the MF which invested in its IPO.
The directives were issued to ICICI Pru MF for an alleged violation of the MF code of conduct for making a large investment in the initial public offering (IPO) of its group firm ICICI Securities. The investment from ICICI securities allowed the IPO to meet a minimum subscription requirement, without which it could have failed.
The market regulator ordered the fund house to refund the amount to the investors with an annual interest rate of 15 percent. The IPO had attracted investments in five schemes. The order for compensating the investors who have redeemed their units since the date of allotment of shares in the IPO was also issued to the MF house.
SEBI argued that the fund house has violated the SEBI (Mutual Funds) Regulations, 1996 which includes violation of the code of conduct.
Integrity and avoiding conflict of interest is one of the key requirements in SEBI's code of conduct. It has issued detailed regulations to avoid conflict of interest in managing the affairs of the schemes. It states that the AMC shall carry out the business and invest in accordance with the investment objectives stated in the offer documents. A fund house must take investment decisions solely to protect the interests of its unitholders.
ICICI Prudential MF under five of its schemes - ICICI Prudential Balanced Advantage Fund, ICICI Prudential Balanced Fund, ICICI Prudential Banking and Financial Services Fund, ICICI Prudential Focused Blue chip Equity Fund, and ICICI Prudential Value Fund Series 19 – had applied for an IPO. The price per share was set at Rs. 520 and fund house was allotted 12.3 million shares totaling Rs. 6.40 billion in the qualified institutional buyer (QIB) category.
SEBI highlighted that the MF had applied for Rs. 4 billion on the first day, and later made an additional last-minute investment of Rs. 2.4 billion which allowed them to qualify for issuing an IPO.