Sebi on Friday imposed a penalty of Rs 50 lakh on Kotak Mahindra Asset Management Company (AMC) and barred the fund house from launching a fixed maturity plan (FMP) scheme for six months for violating regulatory norms.

The market regulator has directed the fund house to refund a part of the investment management and advisory fees collected from the unitholders of the six FMP schemes along with a simple interest at the rate of 15 per cent per annum.

In a statement, a spokesperson for Kotak Mahindra Group said that all the investors have been fully repaid along with applicable interest in September 2019 and the fund house is committed to protecting investor interest at all times.

The case pertains to six FMP schemes that matured in April and May 2019, which held investments in non-convertible debentures (NCDs) issued by Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd, belonging to the Essel group and secured by pledge of equity shares of Zee Entertainment Enterprises Ltd.

Sebi found lapses on the part of Kotak Mahindra AMC in carrying out a due diligence and a laid-back approach adopted by the fund house in risk assessment while taking investment decisions vis-a-vis the zero coupon non-convertible debentures (ZCNCDs) of Essel Group entities.

The fund house has not analysed various risk parameters — credit risk, liquidity and interest rate risk — while evaluating the proposal to invest in the ZCNCDs of “certain insignificant and financially handicapped entities” of Essel Group such as Konti Infrapower & Multiventures and Edison Utility Works, it said.

Further, the events that took place involving the shares of ZEEL and the Essel Group from January 25, 2019 onwards clearly suggest that there were strong possibilities of default on the part of the two issuer companies to honour the redemption of the ZCNCDs on their maturities, an event which was prevented by the fund house by extending maturity dates of these ZCNCDs.