SEBI: Investors in Nippon Life India Mutual Fund Face ₹1,800 Crore Loss

Investors in select schemes of the former Reliance Mutual Fund, now rebranded as Nippon Life India Mutual Fund, reportedly faced collective losses amounting to nearly ₹1,830 crore due to the fund’s decision to invest in Yes Bank’s Additional Tier-1 (AT-1) bonds, which were subsequently written off entirely. This information comes from details in a notice issued by the Securities and Exchange Board of India (SEBI) in August 2024, as reported by Moneycontrol.

AT-1 bonds, often issued by banks, serve as instruments to bolster their capital reserves.

While the investors incurred significant losses from these AT-1 bond investments, the mutual fund reportedly earned around ₹88.60 crore in management fees from the transactions, which SEBI’s notice alleged were part of a "quid pro quo" arrangement with Yes Bank.

Nippon Life India Mutual Fund acknowledged receipt of the SEBI show-cause notice through a stock exchange disclosure. However, the specific allegations and investigation details were not disclosed publicly. In its August 8 order, SEBI stated that the Asset Management Company (AMC) had incurred excess expenses on certain schemes, and the fund trustee failed to ensure compliance with regulations by the AMC.

These allegations are critical, as SEBI has questioned why the fund house should not be required to refund the management fees earned and face suspension for a suitable period.

Notably, the SEBI show-cause notice follows a broader investigation involving multiple agencies, including the Central Bureau of Investigation (CBI), examining investments totaling approximately ₹2,850 crore made in Yes Bank’s AT-1 bonds by entities previously owned by Reliance Capital.

In December 2024, Moneycontrol also reported that Nippon Life India MF was under CBI scrutiny for investing ₹950 crore in non-convertible debentures (NCDs) of Morgan Credit Private Limited, a company linked to the Rana Kapoor family.

An email inquiry sent to Nippon India Mutual Fund regarding the matter remained unanswered at the time of publication, with the article to be updated upon receiving a response from the fund house.

The transactions under regulatory review took place when Reliance Capital owned the asset management company and related entities such as Reliance Home Finance and Reliance Commercial Finance. In September 2019, Reliance Mutual Fund was rebranded as Nippon India Mutual Fund.

The roots of the case date back to December 2016–March 2020, during which certain dealings between Yes Bank and companies associated with Reliance Capital attracted regulatory attention. Investigators aim to determine whether there were quid pro quo agreements in these transactions.

As per SEBI’s findings, the erstwhile Reliance Mutual Fund and Reliance Capital collectively invested ₹2,850 crore in Yes Bank’s AT-1 bonds, with a portion of this sum directed toward NCDs issued by Morgan Credit Private Limited. SEBI’s notice further alleged a quid pro quo arrangement wherein Yes Bank, in January 2017, extended a ₹500 crore facility to Reliance Home Finance—comprising cash credit/working capital loans and investments in its NCDs.

Subsequently, in October 2017, Yes Bank provided an additional ₹2,900 crore in funding through investments in NCDs issued by Reliance Capital, Reliance Home Finance, and Reliance Commercial Finance.