Sebi Scrutinising Indprakash Plan, Row On Cards

The Securities and Exchange Board of India (Sebi) is examining legal options with regard to the IndPrakash scheme launched by Indian Bank Mutual Fund. According to sources, a fresh row is likely to erupt between the capital market watchdog and the fund.

'Ind Prakash' was launched by Indian Bank Mutual Fund, the mutual fund arm of the public sector Indian Bank in May 1992.

The offer document stated under the head 'return on investment' had two plans. Plan A included an 'indicative' rate of return to the investor payable annually, while Plan B offered a cumulative rate of return based on the indicative return (see table).

 

Officials at IndBank Fund Management, the AMC for the fund, have taken a view that the return under the scheme was merely 'indicative' and not an 'assured' return.

"The return under Ind Prakash scheme, as envisaged, is only indicative and not an assured return. Besides, the indicative returns have not been guaranteed by the mutual fund or the sponsor bank, nor has any representation been made to the public by either of them which purports to be a warranty or guarantee for a return. It was made clear to investors through the offer document that their investment is subject to market risks," an official at IndBank Fund is reported to have told investors.

Sebi is examining the original offer document. "We have yet to take a view on the matter. All legal implications will be taken into account before any action is taken on the matter," a Sebi source said. While the fund has managed to pay some return to the investors till 1995-96, it was not able do so for the past two years. Officials at IndBank were not available for comment. However, the reply forwarded to investors indicates that the change in the investment valuation method due to revised Sebi (Mutual Fund) Regulation, 1996 makes it mandatory for the fund to mark investments to the market.

The scheme ended with a net deficit of Rs 23.04 cr in 1996-97 and dividend for the year could not be distributed. During the financial year, 1997-98, the scheme did not have sufficient surplus for distribution of dividend. An aggrieved investor (identity withheld) told Business Standard that the language used by the fund in the offer document sounds like a promised return.