The fund house's decision to invest in Yes Bank's AT-1 bonds, which were later fully written down, resulted in cumulative losses for investors who had invested in certain schemes of the former Reliance Mutual Fund, now known as Nippon Life India Mutual Fund, of almost Rs 1,830 crore.

According to information from a notice issued by capital market regulator SEBI in August 2024, according to a SEBI report accessed by Moneycontrol. Banks issue AT-1 bonds as a form of debt instrument to strengthen their capital base.

While investors made losses on the AT-1 bond investment, the fund house earned as much as Rs 88.60 crore in the form of management fee from the transactions, alleged to have been done as part of a 'quid pro quo' arrangement with Yes Bank, the show cause notice issued in August by Sebi alleged.

Fund house profited 88.60 crore as management fees

Even though investors lost money on their AT-1 bond investments, the fund house made up to Rs 88.60 crore in management fees from the deals, which were purportedly carried out as part of a 'quid pro quo' agreement with Yes Bank, according to the show cause notice that SEBI issued in August.

SEBI sent show cause notice for regulations compliance

In a stock exchange statement, Nippon Life India MF acknowledged receiving the show cause notice; however, the main accusations and the specifics of the investigation were not disclosed. SEBI claimed in its August 8 order that the trustee failed to make sure the AMC complied with regulations and that the AMC incurred excessive costs on a few of its schemes.

These accusations are significant because the capital markets regulator has asked the fund house to explain why it shouldn't be asked to disgorge the management fee it received and risk being barred for a 'suitable period.'