Should I redeem from Axis Mutual Funds because of the Front-Running Scam?

Many experts on YouTube and CNBCTV18 say you should wait and watch for updates on the Axis Mutual Fund Scam. However, I believe you should redeem it as soon as possible, and I will share why I think that way.

However, before sharing my view about what you should be doing about the Axis Mutual Fund scam, let me share what it is all about.

What is Axis Mutual Fund Scam?

Axis Mutual Fund House, on 18th May, terminated the fund manager, Viresh Joshi, with immediate effect.

The official statement has no details of terminating a fund manager, but Mint reported that it is based on a preliminary report on the front-running scam.

Read the full story on Mint here.

What is a Front-Running Scam?

To understand the scam, we have first to understand the front-running.

Front running is when someone uses confidential considerable order information to their advantage.

The fund manager will know in advance what stock the fund is about to buy for mutual funds. So if a fund house is buying security, its price is likely to go higher.

If the fund manager shares such information with others, they are likely to make undue profit from it.

As per many online news reports, Viresh Joshi and Deepak Agarwal have been charged with the allegations of front-running. Some reports even include their immediate managers as well.

What Should Retail Investors Do Now?

Now we have a preliminary idea of the Axis Mutual Fund Scam. Instead of going into the details of the scam, my concern is what we should be doing now.

First, we should know what funds are impacted by the above scam. So, the funds that the sacked fund managers managed are:

• Axis Arbitrage
• Axis Banking ETF
• Axis Consumption ETF
• Axis Nifty ETF
• Axis Quant Fund
• Axis Technology ETF
• Axis Value Fund

So if you are an investor in any of the above funds, you should redeem immediately.

However, I will also redeem anything and everything from Axis Fund House.

I have the view that we invest in the team. So when your team has integrity issues, my idea is to book out even if it means taking hasty decisions.

Further, what if the incident leads to a Franklin Templeton-like lock-in?

Once it is locked in, you are locked in.

So, I think every retail investor should decide right now, and it should be to book out.

What if There is No Scam?

I know the question may arise what if these reports are false.

My first argument is, what do you as a retail investor lose?

You may have to pay an exit load, 10% Long-term and 15% short term Capital Gains tax depending on the profits on your investment.

I am sure it is worth the cost.

The second argument that I have is that 4 of them are ETFs, and other fund houses have alternative ETFs available. So all the funds have an alternative better fund. So there is nothing unique you are being offered as an investor in Axis Mutual Fund.

Check out the best Nifty ETF for 2022, and Axis Nifty ETF is not even on the list of better ETFs.

Similar is the case with other ETFs.

I have updated all my best mutual fund articles for 2022, where Axis funds were considered the alternative fund.

I want to invest and not worry too much about it as an investor. With so little time, why should I be bothering my mind to keep up with news of a fund house when I have alternatives available.

Final Thoughts

I only have tax saving investment in Axis LT Eqt Dir-G, and I am already locked in for another two years. Apart from that, I don’t have any Axis mutual fund in my portfolio.

If I had, I would have redeemed it because it frees up my total investment amount at the cost of tax and exit load. However, this is my personal choice, and this is how I prefer going about my investment journey.

I am sure many will not agree, but this is how I would have reacted, and I think I should be honest in sharing what I would do. I recommend doing the same to someone who asks me.

The choice is yours, but be prepared for the worst and hope for the best. Then, take a decision that helps you sleep well.