The Supreme Court on Monday stayed the Securities Appellate Tribunal (SAT) order that directed asset management company HSBC Mutual Fund to compensate the losses suffered by some of its investors in one of its debt schemes.
The matter assumes importance as various fund houses have been found violating Sebi regulations in this regard. A Bench, headed by chief justice Altamas Kabir, issuing notice to a number of investors, stayed SAT’s order on a condition that the Board of Trustees of HSBC Mutual Fund should undertake to pay compensation as decided by the court.
Asking the asset management company to make good the losses in the same scheme, SAT had in May last year ordered HSBC Mutual Fund to provide an exit route to its investors in HSBC Gilt Fund – Short Term Plan – where the fund house had modified the fundamental attributes without informing its unit holders.
Similar order was passed in the present set of appeals on July 5 last year.
The fund house had argued that the May order could not have been implemented in the present appeals as the investors had already exited the scheme before March 12, 2009, when the change made in the scheme came into force.
In 2009, two investors, Subramanian Venkat and his wife Anuradha Venkatasubramanian, had approached Sebi seeking its intervention, but the regulator had merely let off the fund house with a warning. Later, they moved the tribunal alleging that HSBC Mutual Fund had denied them an opportunity to exit their investments after it changed the fundamental attributes of the scheme. They alleged that the value of investments in the scheme had eroded because of abrupt changes in the investment objectives.
Both unit holders had invested Rs.2.52 crore in HSBC Gilt Fund, a short-term plan, in October and November 2008 with a five year modified duration.
The scheme which was meant for investment in government securities with an average maturity of 5-7 years as mentioned by the offer document was changed to a term investment not exceeding 15 years.
The market regulator rules mandate fund houses to inform investors of any changes in the policy whether fundamental or otherwise, which would affect the interest of the investors. Sebi had earlier warned HSBC Mutual Fund, its chief executive officer and the trustees to comply with the regulatory norms for asset management companies.
Ruling in favour of the investors, SAT set aside Sebi’s order and directed the fund house to compensate the losses. After this, other investors also moved SAT seeking similar order.
