No pre-IPO placement for HDFC Mutual Fund distributors

The mutual fund house, which manages assets over Rs 3 trillion, had made a private placement of shares worth Rs 1.5 billion to 140 distributors

The Securities and Exchange Board of India (Sebi) has directed HDFC Asset Management Company (AMC) to cancel the shares allotted to distributors ahead of its much-awaited initial public offering (IPO), according to sources. Sebi wants the money repaid to the distributors at the rate of 12 per cent interest per annum.

The mutual fund (MF) house, which manages assets over Rs 3 trillion, had made a private placement of shares worth Rs 1.5 billion to 140 distributors. This had not gone down well with other industry participants as they felt this could compromise distributors' ability to give unbiased advice to their clients.

"The distributor will be biased towards the fund house due to their equity holding. The distributor should be loyal to the customer and be able to serve his requirements without any bias. Such a practice could lead to mis-selling as still a large portion of MF assets come via distributors,” said a top official with a rival fund house, who spoke with Business Standard earlier.

HDFC MF’s private placement offering to “empaneled distribution partners” was open for subscription between April 21 and April 26. Sources said the offering saw huge demand and the fund house subsequently allotted shares to 140 distributors. 

The shares allotted to distributors were subject to a one-year lock-in period.

Neither Sebi nor HDFC MF could be reached for comments.