Mutual Funds Accused Of Funding Badla

The Securities and Exchange Board of India (Sebi) is investigating the alleged involvement of some mutual funds in badla financing.

Under Sebi Mutual Fund Regulations 1996, mutual funds are not allowed to take part in badla financing.

Sebi sources said the capital market watchdog has been informed about the involvement of some mutual funds in badla finance.

However, there is no concrete evidence as yet, added the Sebi sources.

"We have received information from the market about the involvement of some mutual funds in badla financing. We have not been able to use our inputs to produce any concrete evidence," a Sebi insider said.

 

Sebi officials declined to reveal details on the matter.

The Association of Mutual Funds in India (Amfi) has, however, refuted the charge that some mutual funds were involved in badla financing.

The sources said there was no information regarding the involvement of a specific mutual fund in badla financing. "There are compulsory audits to be conducted and inspections to be carried out by Sebi.

It can easily be identified if a fund has actually done so," the Sebi source added.

According to brokers, it is not easy for a mutual fund to engage in badla financing without being identified as all badla transactions are transparent.

A dealer at a leading institutional brokerage which is active in the badla market said: "It is difficult to establish that a mutual fund was involved in badla financing as the fund may actually have transacted securities through its normal trading mechanism.

If it has happened, it would be in a very convoluted manner. We are aware that mutual funds are keen to invest in badla finance. However, they are not interested in circumventing existing regulations."

According to a Sebi source, reputed companies take part in badla financing.

"The present carryforward system is transparent. It is a good money-making opportunity for participants, and mutual funds are losing out," the source added.

Amfi has been asking Sebi to allow mutual funds to lend funds for badla transactions.

Sebi is currently investigating a mutual fund for its role in the recent payment crisis.

However, Sebi officials say the investigation has nothing to do with the involvement of mutual funds in badla financing.