Supreme Court stays SAT order against HSBC MF

NEW DELHI: The Supreme Court has put on hold a May 2011 ruling of the Securities Appellate Tribunal directing HSBC Mutual Fund to compensate unit holders of its gilt fund, who said they suffered losses after the fund house changed the attributes of the scheme without informing them.

A three-judge bench, led by Chief Justice Altamas Kabir, said it is granting the stay on the SAT ruling on the condition that HSBC’s board of trustees gives an undertaking within three weeks that the fund house will pay the compensation should it lose the case.

The bench gave HSBC a month to submit its reply on the allegations that the short-run scheme of five to seven years was changed to 15 years without giving investors an option to exit as per the Securities and Exchange Board of India rules. These investors said the net asset value of the fund eroded when HSBC modified the duration.

The court also asked Sebi to quantify the compensation along with the interest. The unit holders had invested in HSBC Gilt Fund’s short-term plan. The plan’s offer document said the money would be invested in G-sec with the average maturity not exceeding seven years and the modified duration not exceeding five years.

But the investors said that in February 2009, they learnt HSBC had made changes in the scheme, which led to a steep erosion in the value of their investments.