Nippon Life India MF investors lost over Rs 1,800 crore due to Yes Bank AT-1 bond exposure, says Sebi

While Nippon Life India MF has already confirmed in a stock exchange statement that it has received a show cause notice by SEBI, the key allegations stated in the notice and the probe details were not made public.

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26 Aug, 2025 12:21

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Investors who had put money in certain schemes of erstwhile Reliance Mutual Fund — now known as Nippon Life India Mutual Fund — suffered cumulative losses of nearly Rs 1,830 crore due to the fund house's decision to invest in AT-1 bonds of Yes Bank, which were later fully written down, Moneycontrol learns based on details of a notice by capital market regulator Sebi issued in August 2024.

AT-1 bonds are a type of debt instrument issued by banks to shore up 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.

Nippon Life India MF had confirmed receiving the show cause notice in a stock exchange statement, but the key allegations and the probe details were not made public. In its order dated August 8, Sebi had said that the AMC bore excess expenses on few of its schemes, and the trustee did not ensure that the AMC complied with regulations.

These allegations assume significance as the capital markets regulator has sought an explanation from the fund house as to why it should not be called upon to disgorge the management fee it earned and face debarment for an 'appropriate period'.

Incidentally, the show cause notice issued to the fund house post a regulatory investigation is part of a larger multi-agency probe, which includes the Central Bureau of Investigation (CBI) as well, and is looking at cumulative investments worth around Rs 2,850 crore made by firms formerly owned by Reliance Capital in AT1 bonds issued by Yes Bank.

In December 2024, Moneycontrol had reported that Nippon Life India MF is under CBI scanner for investing Rs 950 crore in non-convertible debentures (NCDs) of Morgan Credit Private Limited, a company owned by the Rana Kapoor family.

An email query sent to Nippon India MF remained unanswered till the time of publishing of the story, and will be updated if and when the fund house responds.

Meanwhile, the transactions that are under the regulatory scanner happened at a time when Reliance Capital was the parent entity of the asset management company and some of the other companies involved in the probe – Reliance Home Finance, Reliance Commercial Finance.

The name of the fund house was changed from Reliance Mutual Fund to Nippon India Mutual Fund in September 2019.

The roots of the matter go back to the period between December 2016 and March 2020, when certain transactions between Yes Bank and companies then owned by Reliance Capital attracted regulator’s attention. The probe is intended to unearth if there were any 'quid pro quo' arrangements.

Basis the probe, the show-cause notice issued by Sebi alleged that the then Reliance Mutual Fund and Reliance Capital invested a cumulative amount of Rs 2,850 crore in AT1 bonds issued by Yes Bank.  A part of these investments was made in NCDs issued by Morgan Credit Private Limited.

According to Sebi, there was a quid pro quo arrangement as Yes Bank provided a facility of Rs 500 crore in January 2017 to Reliance Home Finance – partly by way of cash credit / working capital demand loan and rest by way of investment in NCDs issued by Reliance Home Finance.

Later, in October 2017, Yes Bank provided another facility of Rs 2,900 crore in the form of investments in NCDs issued by Reliance Capital, Reliance Home Finance and Reliance Commercial Finance.