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Thursday, January 12, 2023

Minimum Public Shareholding (MPS) Rule for Indian equities

Did you know that it is mandatory for all public companies to give a minimum participation to the public? Why was this rule needed? What advantages does it have? Read on...

Thursday, January 05, 2023

Understanding Solvency Ratio

Before you select any insurance provider - be it vehicle, health or life insurer, make sure that you judge the financial strength of the company by looking at its Solvency Ratio.

Friday, November 11, 2022

Investing in International Markets: Pros & Cons

International investing - whether directly via foreign stock exchanges or with mutual funds FOFs (Fund of Funds) is trending with investors. But sane investors are also vary of certain facts before they go ahead with such trendy stuff.

Saturday, October 22, 2022

What is Digital Rupee / e-Rupee / CBDC

Digital Rupee is the new buzzword in town. Let us
understand what it is, and how it is likely to impact the way you transact in future.

Monday, October 03, 2022

Pre-Ordering available for 'Gujarati Edition' of 'Autobiography of a Stock'

After the rousing success of the English edition of 'The Autobiography of a Stock', we are all set to launch the 'Gujarati' edition.

Wednesday, September 28, 2022

Positive Pay: A system to enhance cheque security

Positive Pay System for cheques is an enabler, and we all ought to use it for any high value cheques that we issue.

Wednesday, July 20, 2022

6 Mindset shifts needed to create wealth

Being a millionaire is a rare commodity, because it needs certain mindset shifts rather than smart investing or great entrepreneurship. Lets look at 6 critical mindset shifts without which it is very tough, if not impossible, to create long term wealth.

Saturday, June 04, 2022

28 Humbling Lessons from the book 'The Hidden Life of Trees' by Peter Wohlleben

You will never look at trees the same way after reading this book. Trees and Forests will truly feel a magical world to you.

Friday, May 06, 2022

What is Front Running in Mutual Funds

What is Front Running?
Front running is when a broker has exclusive details of a stock being bought or sold in large quantities and trades that stock to benefit from it. Front-running is also called tail-gating. 

Is Front running legal?
The practice is illegal as well as unethical in India, as in most parts of the world. Front-running is illegal and unethical because it leverages private information that is not publicly available. Its a breach of the confidentiality clause that they signed for.

How Front-Running Works?
Here's a straightforward example of front-running: Say a broker gets an order from a major client to buy 500,000 shares of XYZ Co. Such a huge purchase is bound to drive up the price of the stock immediately, at least in the short term. The broker sets aside the request for a minute and first buys some XYZ stock for their own personal portfolio. Then the client's order is put through. The broker immediately sells the XYZ shares and pockets a profit.

This form of front-running is illegal and unethical. The broker has made a profit based on information that was not public knowledge. The delay in execution may even have cost the client money.

Is Front Running similar to Insider Trading?
Front-running is similar to insider trading, with the minor difference in the case of front running, the broker works for the client's brokerage rather than inside the client's business.

Axis Bank - Recent Example
In a very recent news of 6th May 2022 [click here to read news article], Axis Fund house has suspended two if its fund managers. Both the fund managers have been suspended on allegations of front running. However, there was no confirmation from the fund house. 
The seven funds that have seen the management change are: Axis Consumption ETF, Axis Banking ETF, Axis NIFTY ETF, Axis Arbitrage Fund, Axis Quant Fund, Axis Technology ETF and Axis Value Fund.
None of these funds have ever been recommended in the ELITE Program.

Front Running is illegal and that's why the Axis fund house has taken action. At the moment, mutual fund investors should not make any changes to the schemes. All the funds that have seen the change are managed by multiple managers and hence I don't see a reason to panic right now. Investors should not make any changes to their portfolio till the rumours are confirmed and there is a statement from the fund house.
Even after that, if at all it changes anything for your particular scheme has to be seen, and must be done only in consultation with your financial advisor.


Manoj Arora