Deputy General Manager
Investment Management Department
SEBI/IMD/MC No.3/10554/2012
May 11, 2012
All Mutual Funds, Asset Management Companies (AMCs)
and Association of Mutual Funds in India (AMFI)
Dear Sir/ Madam,
Sub: Master Circular for Mutual Funds
For effective regulation of the Mutual Fund Industry, Securities & Exchange
Board of India (SEBI) has been issuing various circulars from time to time. In
order to enable the industry and other users to have an access to all the
applicable circulars at one place, Master Circular for Mutual Funds has been
prepared.
This Master Circular is a compilation of all the circulars issued by SEBI on the
above subject, which are operational as on date of this circular.
Yours faithfully,
Rakesh Bhanot
MASTER CIRCULAR FOR MUTUAL FUNDS
BY
S & E B I
ECURITIES XCHANGE OARD OF NDIA
1. This Master Circular includes circulars issued upto March 31, 2012.
2. In case of any inconsistency between the master circular and the
applicable circulars, the contents of the relevant circular shall prevail.
3. Master Circular is a compilation of all the existing/applicable circulars
issued by Investment Management Department of SEBI issued to Mutual
Funds. Efforts have been made to incorporate certain applicable provisions
of existing circulars (as on March 31, 2012) issued by other
Department/Division of SEBI relevant to Mutual Funds.
2 Master Circular for Mutual Funds
INDEX
ABBREVIATIONS ............................................................................. 5
CHAPTER 1 .................................................................................... 7
OFFER DOCUMENT FOR SCHEMES ................................................ 7
CHAPTER 2 .................................................................................. 17
CONVERSION AND CONSOLIDATION OF SCHEMES AND LAUNCH OF
ADDITIONAL PLAN ........................................................................ 17
CHAPTER 3 .................................................................................. 23
NEW PRODUCTS ........................................................................... 23
CHAPTER 4 .................................................................................. 27
RISK MANAGEMENT SYSTEM ....................................................... 27
CHAPTER 5 .................................................................................. 30
DISCLOSURES & REPORTING NORMS ........................................... 30
CHAPTER 6 .................................................................................. 42
GOVERNANCE NORMS .................................................................. 42
CHAPTER 7 .................................................................................. 64
SECONDARY MARKET ISSUES ...................................................... 64
CHAPTER 8 .................................................................................. 68
NET ASSET VALUE........................................................................ 68
CHAPTER 9 .................................................................................. 80
VALUATION .................................................................................. 80
CHAPTER 10 ...............................................................................102
LOADS, FEES AND EXPENSES .....................................................102
CHAPTER 11 ...............................................................................110
DIVIDEND DISTRIBUTION PROCEDURE ......................................110
CHAPTER 12 ...............................................................................113
INVESTMENT BY SCHEMES .........................................................113
CHAPTER 13 ...............................................................................134
ADVERTISEMENTS ......................................................................134
CHAPTER 14 ...............................................................................139
3 Master Circular for Mutual Funds
INVESTOR RIGHTS & OBLIGATIONS ............................................139
CHAPTER 15 ...............................................................................147
CERTIFICATION AND REGISTRATION OF INTERMEDIARIES .......147
CHAPTER 16 ...............................................................................154
TRANSACTION IN MUTUAL FUNDS UNITS ....................................154
CHAPTER 17 ........................................................................... ...160
MISCELLANEOUS ....................................................... ………….....160
FORMATS ------------------------------------------- Refer the attachment
ANNEXURES --------------------------------------- Refer the attachment
4 Master Circular for Mutual Funds
ABBREVIATIONS
American Depository Receipt ADR
Asset Management Company AMC
Asset under Management AUM
Association of Mutual Funds in India AMFI
Authorized Dealer AD
Bombay Stock Exchange BSE
Central Board of Direct Taxes CBDT
Compliance Test Reports CTR(s)
Common Account Statement CAS
Contingent Deferred Sales Charge CDSC
Compound Annual Growth Rate CAGR
Depository Participant DP
External Commercial Borrowings ECB
Financial Action Task Force FATF
Foreign Exchange Management Act FEMA
Foreign Institutional Investor FII
Fixed Maturity Plans FMP(s)
Global Depository Receipt GDR
Gold Exchange Traded Fund GETF
Hindu Undivided Family HUF
International Organization of Securities Commission IOSCO
Investor Service Center ISC
Key Information Memorandum KIM
Know Your Client KYC
Monthly Cumulative Report MCR
Multilateral Memorandum of Understanding MMOU
National Stock Exchange NSE
Net Asset Value NAV
New Fund Offer NFO
Non Performing Assets NPA(s)
5 Master Circular for Mutual Funds
Permanent Account Number PAN
Prevention of Money Laundering Act PMLA
Qualified Foreign Investor QFI
Regulation Reg.
SEBI (Mutual Funds) Regulations 1996 Regulations
Securities and Exchange Board of India the Board
Scheme Information Document SID Offer
Statement of Additional Information SAI Document
Systematic Investment Plan SIP
Systematic Transfer Plan STP
Systematic Withdrawal Plan SWP
Trustee(s) Board of Trustee(s)/
Trustee Company
Uniform Client Code UCC
Unit Confirmation Receipt UCR
6 Master Circular for Mutual Funds
CHAPTER 1
OFFER DOCUMENT FOR SCHEMES
1.1 Filing of Offer Document with the Board1
1.1.1 The Offer Document shall have two parts i.e. Scheme Information
Document (SID) and Statement of Additional Information (SAI). SID
shall incorporate all information pertaining to a particular scheme. SAI
shall incorporate all statutory information on Mutual Fund.
1.1.2 The Mutual Funds shall prepare SID and SAI in the prescribed
formats2. Contents of SID and SAI shall follow the same sequence as
prescribed in the format. The Board of the AMC and the Trustee(s) shall
exercise necessary due diligence, ensuring that the SID/SAI and the
fees paid3 are in conformity with the Mutual Funds Regulations4.
1.1.3 All offer documents (ODs) of Mutual Fund schemes shall be filed with
SEBI in terms of the Regulations5.
1.1.3.1 Filing of Draft SID:
a. Draft SID of schemes of Mutual Funds filed with the Board
shall also be available on SEBI’s website – www.sebi.gov.in for
21 working days from the date of filing.
b. AMC shall submit a soft copy of draft SID to the Board in
HTML or PDF format. For this purpose, AMC shall be fully
1 SEBI Circular No. SEBI/IMD/CIR No.5/ 126096/08 dated May 23,2008 and SEBI Circular
No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009
<2,, For format of SID & SAI, please refer to the Chapter on Formats
3 The filing fees was revised via gazette notification No. LAD-NRO/GN/2009-10/11/167759
on SEBI (Payment of Fees) (Amendment) Regulations, 2009 dated 29 June, 2009, The revised
filing fee was applicable to those scheme(s) whose scheme information document(s) had been
filed with SEBI on or after July 1, 2009.- SEBI Circular No - SEBI / IMD / CIR No. 5 /
169030 / 2009 dated July 8,2009
4 SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997.
5 Regulation 28 (1) of SEBI (Mutual Funds) Regulation 1996
7 Master Circular for Mutual Funds
responsible for the contents of soft copies of the SID. AMC
shall also submit an undertaking to the Board while filing the
soft copy of draft SID certifying that the information contained
in the soft copy matches exactly with the contents of the hard
copy filed with the Board.
c. In case of any inaccurate filing, the SID will be returned and
refiling will be required. 21 working days6 shall be calculated
from the date of refiling;7
d. If any changes to the SID are made after filing, the 21 working
day(s) period will recommence from the date of submission of
the last additional statement(s)8
1.1.3.2 Filing of SAI
a. A single SAI (common for all the schemes) can be filed with
Board along with first draft of SID or can be filed separately.
After incorporating the comments/observations, if any, from
the Board, AMC shall file a soft copy of SAI with the Board in
PDF format alongwith printed copy of the same9, upload the
SAI on its website and on AMFI website.
1.1.3.3 Filing of Final SID
a. Final SID (after incorporating comments of the Board) must
reach the Board before it is issued for circulation. Soft copy of
the final SID in PDF format along with a printed copy should be
filed with Board two working days prior to the launch of the
scheme. AMC shall also submit an undertaking to the Board
6 Regulation 29(3) of SEBI (Mutual Funds) Regulation 1996
,7,,, SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997.
,8,,, SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997, SEBI Circular No.
IIMARP/MF/CIR/07/844/97 dated May 5, 1997.
9 SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009
8 Master Circular for Mutual Funds
while filing the soft copy that information contained in the soft
copy of SID to be uploaded on SEBI website is current and
relevant and matches exactly with the contents of the hard copy
and that the AMC is fully responsible for the contents of the soft
copy of SID. The soft copy of SID should also be uploaded on
AMFI website two working days prior to launch of the scheme 10.
Failure to submit the printed SID to the Board before it is
issued for circulation shall invite penalties under the Mutual
Funds Regulations11.
b. In case of any difference, in nature of material alteration of the
suggestions made by the Board12 between the printed SID and
the SID filed with the Board, immediate withdrawal of the SID
from circulation will be ordered and such withdrawal shall be
publicized by the Board13.
1.2 Updation of SID & SAI
1.2.1 Updation of SID
1.2.1.1 For the schemes launched in the first half of a financial year, the
SID shall be updated within 3 months from the end of the financial
year. However, for the schemes launched in the second half of a
financial year, SID shall be updated within 3 months of the end of
the subsequent financial year. (For example, for a scheme launched
in May, 2008 the SID shall be updated by June 30, 2009 and for a
scheme launched in December 2008, the SID shall be updated by
10 SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009
11 SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997.
, 1 2Regulation 29(2) of the SEBI (Mutual Funds) Regulations, 1996
13
The existing schemes shall adopt the SID and KIM format as soon as possible but not later
than 12 months from the date of issuance of the circular- SEBI/IMD/CIR No. 5/126096/08
dated May 23, 2008. A confirmation in this regard shall be given in the half yearly trustee
report.
9 Master Circular for Mutual Funds
June 30, 2010) Thereafter, the SID shall be updated once every
year.
1.2.1.2 The procedure to be followed in case of changes to the scheme
shall be as under:
a. In case of change in fundamental attributes in terms of
Regulation14, SID shall be revised and updated immediately after
completion of duration of the exit option.
b. In case of other changes:
1. The AMC shall be required to issue an addendum and display it
on its website.
2. The addendum shall be circulated to the entire
distributors/brokers/Investor Service Centre (ISC) so that the
same can be attached to copies of SID already in stock, till the
SID is updated.
3. In case any information in SID is amended more than once, the
latest applicable addendum shall be a part of SID. (For example,
in case of changes in load structure the addendum carrying the
latest applicable load structure shall be attached to all KIM and
SID already in stock till it is updated).
4. A public notice shall be given in respect of such changes in one
English daily newspaper having nationwide circulation as well
as in a newspaper published in the language of region where
the Head Office of the Mutual Fund is situated.
5. The account statements issued to investors shall indicate the
applicable load structure.
1.2.1.3 A copy of all changes made to the scheme shall be filed with Board
within 7 days of the change. A soft copy of updated SID shall be
filed with Board in PDF Format along with printed copy of the
same. AMC shall also submit an undertaking to the Board while
filing the soft copy that information contained in the soft copy of
14 Regulation 18 (15A) of SEBI (Mutual Funds) Regulation, 1996
10 Master Circular for Mutual Funds
SID to be uploaded on SEBI website is current and relevant and
matches exactly with the contents of the hard copy and that the
AMC is fully responsible for the contents of the soft copy of the
SID15.
1.2.2 Updation of SAI
1.2.2.1 A printed copy of SAI shall be made available to the investor(s) on
request. SAI shall be updated within 3 months from end of
financial year and filed with SEBI.
1.2.2.2 Any material changes in the SAI shall be made on an ongoing
basis by way of updation on the Mutual Fund and AMFI website.
SEBI shall be intimated of the changes made in the SAI within 7
days. The effective date for such changes shall be mentioned in
the updated SAI.
1.2.2.3 A soft copy of updated SAI shall be filed with SEBI in PDF format
along with printed copy of the same. AMC shall also submit an
undertaking to SEBI while filing the soft copy that information
contained in the soft copy of SAI to be uploaded on SEBI website
is current and relevant and matches exactly with the contents of
the hard copy and that the AMC shall be fully responsible for the
contents of soft copy of SAI16.
1.3 Validity of SEBI Observations on SID
1.3.1 The AMCs shall file their replies to the modifications suggested by
SEBI on SID as required under Regulation 29 (2), if any, within six
months from the date of the letter. In case of lapse of six-month
period, the AMC shall be required to refile the SID alongwith filing fees.
15 SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009
16 SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009
11 Master Circular for Mutual Funds
1.3.2 The scheme shall be launched within six months from the date of the
issuance of final observations from SEBI. If the AMC intends to launch
the scheme at a date later than six months, it shall refile the SID with
SEBI under Regulation 28 (1) along with filing fees.
1.4 Undertaking from Trustees for new Scheme17
1.4.1 In the certificate submitted by Trustees with regard to compliance of
AMC with Regulations,18the Trustees are required to certify as follows:
“The Trustees have ensured that the (name of the scheme/Fund)
approved by them is a new product offered by (name of the Mutual
Fund) and is not a minor modification of any existing
scheme/fund/product.”
1.4.2 This certification shall be disclosed in the SID along with the date of
approval of the scheme by the Trustees.
1.4.3 This certification is not applicable to close ended schemes except for
those close ended schemes which have the option of conversion into
open ended schemes on maturity.
1.5 Standard Observations
1.5.1 Standard Observations have been prescribed to ensure minimum level
of disclosures in the SID and SAI19.
1.5.2 SEBI may revise the Standard Observations from time to time and in
that case the date of revision shall also be mentioned.
1.5.3 While filing the SID and SAI, AMC shall highlight and clearly mention
the page number of the SAI and SID on which each standard
observation has been incorporated.
17SEBI Cir No IMD/CIR No.5/70559/06 dated June 30,2006
18Regulation 18 (4) of SEBI ( Mutual Funds) Regulations, 1996.
19For Standard Observations, please refer to the Chapter on Formats
12 Master Circular for Mutual Funds
1.6 KIM
1.6.1 Application forms for schemes of mutual funds shall be accompanied
by the KIM in terms of Regulation 29 (4). KIM shall be printed at least
in 7 point font size with proper spacing for easy readability.
1.6.2 Format of KIM
1.6.2.1 Mutual Funds shall prepare KIM in the prescribed format20. The
contents of KIM shall follow the same sequence as prescribed in
the format.
1.6.3 Frequency of updation
1.6.3.1 KIM shall be updated at least once a year and shall be filed with
SEBI.
1.6.3.2 In case of changes in the SID other than changes in fundamental
attribute in terms of Reg 18 (15A), the addendum circulated to all
the distributors/brokers/investor Service Centre (ISC) shall be
attached to KIM till the KIM is updated.
1.6.3.3 In case any information in SID is amended more than once, the
latest applicable addendum shall be a part of KIM (For example,
in case of changes in load structure the addendum carrying the
latest applicable load structure shall be attached to all KIM and
SID already in stock till it is updated).
1.7 Easy Availability of Offer Document
1.7.1 Trustees and AMCs shall ensure that the SID of the schemes and SAI
are readily available with all the distributors/ISCs and confirm the
same to SEBI in the half yearly trustee report.
20 For format of KIM please refer to the Chapter on Formats
13 Master Circular for Mutual Funds
1.8 Selection of Benchmarks21
1.8.1 In case of equity oriented schemes, mutual funds may appropriately
select any of the indices available, (e.g. BSE (Sensitive) Index, S&P
CNX Nifty, BSE 100, BSE 200 or S&P CNX 500 etc.) as a benchmark
index depending on the investment objective and portfolio.
1.8.2 Benchmarks for debt oriented and balanced fund schemes22 developed
by research and rating agencies recommended by the AMFI on a
regular basis shall be used by the Mutual Funds.
1.8.3 In case of sector or industry specific schemes, Mutual Funds may
select any sectoral indices as published by the Stock Exchanges and
other reputed agencies.
1.8.4 These benchmark indices may be decided by the AMC(s) and Trustees.
Any change at a later date in the benchmark index shall be recorded
and reasonably justified23.
1.8.5 Examples of benchmarks are illustrated below24:
1.8.5.1 Growth funds maintaining minimum 65% of their investments in
equities shall always be compared against The Bombay Stock
Exchange Ltd. (BSE) Sensex or The National Stock Exchange Ltd.
(NSE) Nifty or BSE 100 or CRISIL 500 or similar standard indices.
1.8.5.2 Income funds maintaining 65% or more of investments in debt
instruments shall be compared with a suitable index that is a
representative of the fund’s portfolio.
1.8.5.3 Balanced funds with equity investments of 40%-60% shall be
compared with a tailored index having 50% of its weight selected
21SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000, SEBI Circular No.
MFD/CIR/16/400/02 dated March 26, 2002, SEBI Circular No. MFD/CIR/01/071/02
April 15, 2002.
22SEBI Circular No. MFD/CIR/01/071/02 dated April 15, 2002.
,2 3SEBI Circular No. MFD/CIR/16/400/02 dated March 26, 2002. Also please note that for
review of scheme performance with benchmark indices please refer to section on
governance norms.
24SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000
14 Master Circular for Mutual Funds
from any equity index as above and the other 50% from an
appropriate bond return index.
1.8.5.4 Money Market funds or liquid plans can be compared against a
suitable Money Market Instrument or a combination of such
instruments.
1.9 New Fund Offer (NFO) Period25
1.9.1 In case of open ended and close ended schemes (except ELSS
schemes), the NFO should be open for 15 days (from 30 days in case of
Open ended schemes and 45 days of close ended scheme).
1.9.2 The NFO period in case of ELSS schemes shall continue to be governed
by guidelines issued by Government of India.
1.9.3 Mutual Funds/AMCs shall make investment out of the NFO proceeds
only on or after the closure of the NFO period.
1.9.4 The mutual fund should allot units/refund of money and dispatch
statements of accounts within five business days from the closure of
the NFO and all the schemes (except ELSS) shall be available for
ongoing repurchase/sale/trading within five business days of
allotment”
1.10 Discontinuation of the nomenclature – ‘Liquid Plus
Scheme(s)’26
1.10.1 The nomenclature “Liquid Plus Scheme(s)” has been discontinued
from January 2009 since it gives a wrong impression of added
liquidity. Mutual funds have been advised to carry out appropriate
change(s) in the nomenclature of their scheme(s) designated as
“Liquid Plus Scheme(s)”.
25SEBI circular no MFD/Cir.No 9/120/2000 dated November 24, 2000. SEBI Circular No.
SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010. The provisions mentioned shall
be applicable for all NFOs launched on or after July 01, 2010.
26
SEBI/IMD/CIR No.13/150975 / 09 dated January 19, 2009
15 Master Circular for Mutual Funds
1.11 Fundamental Attributes27
1.11.1 The words "fundamental attributes"28 are elaborated below:
1.11.1.1 Type of a scheme
a. Open ended/Close ended/Interval scheme
b. Sectoral Fund/Equity Fund/Balance Fund/Income Fund/Debt
Fund/Index Fund/Any other type of Fund
1.11.1.2 Investment Objective(s)
a. Main Objective - Growth/Income/Both.
b. Investment pattern - The tentative Equity/Debt/Money Market
portfolio break-up with minimum and maximum asset
allocation, while retaining the option to alter the asset allocation
for a short term period on defensive considerations.
1.11.1.3 Terms of Issue
a. Liquidity provisions such as listing, repurchase, redemption.
b. Aggregate fees and expenses charged to the scheme.
c. Any safety net or guarantee provided.
27 SEBI Circular No- IIMARP/MF/CIR/01/294/98 dated February 4, 1998
28 Clause (d) of sub-regulation (15) of Regulation 18 of SEBI (Mutual Funds) Regulations,
1996
16 Master Circular for Mutual Funds
CHAPTER 2
CONVERSION AND CONSOLIDATION OF SCHEMES AND
LAUNCH OF ADDITIONAL PLAN
PART I - CONVERSION OF SCHEMES
2.1 Conversion of Close Ended Scheme(s) to Open Ended
Scheme(s)29
2.1.1 Although the procedure for conversion of close ended scheme(s) to
open ended scheme(s) has been clearly enumerated in the Mutual
Funds Regulations30, following requirements are clarified again in the
interests of investors:
2.1.1.1 Since the scheme(s) would reopen for fresh subscriptions,
disclosures contained in the SID shall be revised and updated. A
copy of the draft SID shall be filed with the Board as required under
Regulation 28(1) of the Mutual Funds Regulations along with filing
fees prescribed under Regulation 28(2) of the Mutual Funds
Regulations. Instructions issued by the Board31 for filing of the SID
shall also be followed.
2.1.1.2 A draft of the communication to be sent to unit holders shall be
submitted to the Board which shall include the following:
a. Latest portfolio of the scheme(s) in the prescribed format32
b. Details of the financial performance of the scheme(s) since inception
in the format prescribed in SID33 along with comparisons with
appropriate benchmark(s)34.
29 SEBI Circular No. MFD/CIR No.22/2311/03 dated January 30, 2003.
, 3 , 0 Regulation 33(3) of the SEBI (Mutual Funds), Regulations, 1996.
,3, 1 SEBI Circular No. SEBI/IMD/Cir No 5/126096/08 dated May 23, 2008
32 Refer to format of half yearly portfolio disclosure under chapter on formats.
,
17 Master Circular for Mutual Funds
c. The addendum to the SID detailing the modifications (if any) made
to the scheme(s).
2.1.1.3 The letter to unit holders and revised SID (if any) shall be issued
only after the final observations as communicated by the Board in
terms of Regulation 29(3) of the Mutual Funds Regulations have
been incorporated therein and final copies of the same have been
filed with the Board.
2.1.1.4 Unit holders shall be given at least 30 days to exercise exit option.
During this period, the unit holders who opt to redeem their
holdings in part or in full shall be allowed to exit at the NAV
applicable for the day on which the request is received, without
charging exit load.
33 Please refer to format of SID under chapter on Formats.
34 For examples of Benchmarks, refer to chapter on SID
18 Master Circular for Mutual Funds
<,
PART II – CONSOLIDATION OF SCHEMES
2.2 Consolidation of Schemes35
2.2.1 Any consolidation or merger of Mutual Fund schemes will be treated
as a change in the fundamental attributes of the related schemes and
Mutual Funds shall be required to comply with the Mutual Funds
Regulations in this regard36.
2.2.2 Further, in order to ensure that all important disclosures are made to
the investors of the schemes sought to be consolidated or merged and
their interests are protected; Mutual Funds shall take the following
steps:
2.2.2.1 Approval by the Board of the AMC and Trustee(s):
a. The proposal and modalities of the consolidation or merger shall
be approved by the Board of the AMC and Trustee(s), after they
ensure that the interest of unit holders under all the concerned
schemes have been protected in the said proposal.
2.2.2.2 Disclosures:
a. Subsequent to approval from the Board of the AMC and Trustee(s),
Mutual Funds shall file the proposal with the Board, along with
the draft SID, requisite fees (if a new scheme emerges after such
consolidation or merger) and draft of the letter to be issued to the
unit holders of all the concerned schemes.
b. The letter addressed to the unit holders, giving them the option to
exit at prevailing NAV without charging exit load, shall disclose all
35 SEBI Circular No. SEBI/MFD/CIR No.5/12031/03 dated June 23, 2003.
,3 6 Regulation 18(15A) of the Mutual Funds Regulations.
19 Master Circular for Mutual Funds
relevant information enabling them to take well informed
decisions. This information will include, inter alia:
1. Latest portfolio of the concerned schemes37.
2. Details of the financial performance of the concerned schemes
since inception in the format prescribed in SID38 along with
comparisons with appropriate benchmarks.
3. Information on the investment objective, asset allocation and the
main features of the new consolidated scheme.
4. Basis of allocation of new units by way of a numerical illustration
5. Percentage of total NPAs and percentage of total illiquid assets to
net assets of each individual scheme(s) as well the consolidated
scheme.
6. Tax impact of the consolidation on the unit holders.
7. Any other disclosure as specified by the Trustees.
8. Any other disclosure as directed by the Board.
2.2.2.3 Updation of SID shall be as per the requirements for change in
fundamental attribute of the scheme39.
2.2.2.4 Maintenance of Records:
a. AMC(s) shall maintain records of dispatch of the letters to the unit
holders and the responses received from them. A report giving
information on total number of unit holders in the schemes and
their net assets, number of unit holders who opted to exit and net
assets held by them and number of unit holders and net assets in
the consolidated scheme shall be filed with the Board within 21
days from the date of closure of the exit option40.
37 Refer format of half yearly portfolio disclosure under chapter on Formats
<3 8 Please refer to SID Format under Chapter on Formats
39 Please refer to SID chapter for further details
40
SEBI Circular No- SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009
20 Master Circular for Mutual Funds
2.2.2.5 Merger or consolidation shall not be seen as change in fundamental
attribute of the surviving scheme if the following conditions are
met41:
a. Fundamental attributes42 of the surviving scheme do not change.
The ‘surviving scheme’ means the scheme which remains in
existence after the merger.
b. Mutual Funds are able to demonstrate that the circumstances merit
merger or consolidation of schemes and the interest of the
unitholders of surviving scheme is not adversely affected.
c. After approval by the Boards of AMCs and Trustees, the mutual
funds shall file such proposal with SEBI. SEBI would communicate
its observations on the proposal within the time period prescribed43.
d. The letter to unitholders shall be issued only after the final
observations communicated by SEBI have been incorporated and
final copies of the same have been filed with SEBI.
41 SEBI Circular No- Cir / IMD / DF / 15/ 2010 dated October 22, 2010
42 SEBI Circular No-IIMARP/MF/CIR/01/294/98 dated February 4, 1998
43 Regulation 29(3) of SEBI (Mutual Funds) Regulations, 1996
21 Master Circular for Mutual Funds
PART III – LAUNCH OF ADDITIONAL PLANS44
2.3 Launch of Additional Plans
2.3.1 Additional plans sought to be launched under existing open ended
schemes which differ substantially from that scheme in terms of
portfolio or other characteristics shall be launched as separate
schemes in accordance with the regulatory provisions.
2.3.2 However, plan(s) which are consistent with the characteristics of the
scheme may be launched as additional plans as part of existing
schemes by issuing an addendum. Such proposal should be approved
by the Board(s) of AMC and Trustees. In this regard please note that:
2.3.2.1 The addendum shall contain information pertaining to salient
features like applicable entry/exit loads, expenses or such other
details which in the opinion of the AMC/ Trustees is material. The
addendum shall be filed with SEBI 21 days in advance of opening of
plan(s).
2.3.2.2 AMC(s) shall publish an advertisement or issue a press release at
the time of launch of such additional plan(s).
44 SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009
22 Master Circular for Mutual Funds
CHAPTER 3
NEW PRODUCTS
3.1 Fund of Funds Scheme45
3.1.1 The SID and the advertisements pertaining to Fund of Funds
Scheme46 shall disclose that the investors are bearing the recurring
expenses of the scheme, in addition to the expenses of other schemes
in which the Fund of Funds Scheme makes investments.
3.1.2 AMCs shall not enter into any revenue sharing arrangement with the
underlying funds in any manner and shall not receive any revenue by
whatever means/head from the underlying fund. Any commission or
brokerage received from the underlying fund shall be credited into
concerned scheme’s account47.
3.1.3 Fund of funds mutual fund schemes shall adopt either of the total
expense structures laid out in Regulations48, which Asset
Management Companies shall clearly indicate in the SIDs.
3.1.4 Fund of Fund schemes49, shall, with the approval of trustees, adopt
either of the total expense structures laid out in Regulation50 and
change the total expense structure after giving the unit holders an
option to exit in accordance with Regulation51.
45 SEBI Circular No. MFD/CIR. No.04/11488/2003 dated June 12, 2003.
46 Regulation 2(ma) of the Mutual Funds Regulations introduced vide Gazette Notification No.
S.O 632(E) dated May 29, 2003.
47 SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
48 Regulation 52(6)(a) of SEBI (Mutual Funds) Regulations, 1996
49 existing as on July 29, 2010, Cir/IMD/DF/8/2010 dated August 6, 2010
50 Regulation 52 (6)(a) of SEBI (Mutual Funds) Regulations, 1996
51 Regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996
23 Master Circular for Mutual Funds
3.2 Gold Exchange Traded Fund Scheme52
3.2.1 A Gold Exchange Traded Fund (GETF) Scheme53 shall invest primarily
in:
3.2.1.1 Gold and
3.2.1.2 Gold related instruments54. However investments in gold related
instruments shall be done only after such instruments are specified
by the Board55
3.2.2 Valuation:
3.2.2.1 Gold shall be valued based on the methodology provided in Clause
3A of, Schedule Eight of the Mutual Funds Regulations56.
3.2.3 Determination of Net Asset Value57
3.2.3.1 The NAV of units under the GETF Scheme shall be calculated up to
four decimal points as shown below:
Market or Fair Value of Scheme's investments + Current
Assets - Current Liabilities and Provision
NAV (in ` terms) = ______________________________________________
Number of Units outstanding under Scheme on the
Valuation Date
3.2.4 Recurring Expenses58
52 SEBI Circular No. SEBI/IMD/CIR. No.4/58422/06 dated January 24, 2006, SEBI Circular
No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006, SEBI Circular No. SEBI/IMD/CIR
No.14/84243/07 dated January 15, 2007.
53 Regulation 2(mb) of the SEBI (Mutual Funds) Regulations, 1996 introduced vide Gazette
Notification No. S.O. 38(E) dated January 12, 2006.
54 Regulations 2(mc) of the Mutual Funds Regulations introduced vide Gazette Notification
No. S.O. 38(E) dated January 12, 2006.
55 SEBI Ci rcular No. SEBI/IMD/CIR No. 4/58422/06 dated January 24, 2006.
56 SEBI Circular No. SEBI/IMD/CIR No.14/84243/07 dated January 15, 2007 read with
Gazette Notification F. No. SEBI/LAD/DoP/82534/2006 dated December 20, 2006.
57 SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.
58 SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.
24 Master Circular for Mutual Funds
3.2.4.1 The recurring expenses limits applicable to equity schemes59 shall
be applicable to GETF Scheme(s).
3.2.5 Benchmarks for GETF Scheme60
3.2.5.1 GETF Scheme(s) shall be benchmarked against the price of gold.
3.2.6 Half yearly report by Trustees61
3.2.6.1 Physical verification of gold underlying the Gold ETF units shall be
carried out by statutory auditors of mutual fund schemes and
reported to trustees on half yearly basis.
3.2.6.2 The confirmation on physical verification of gold as above shall also
form part of half yearly report62 by trustees to SEBI.
3.3 Capital Protection Oriented Scheme63
3.3.1 The SID, KIM and advertisements pertaining to Capital Protection
Oriented Scheme64 shall disclose that the scheme is “oriented towards
protection of capital” and not “with guaranteed returns.” It shall also
be indicated that the orientation towards protection of capital
originates from the portfolio structure of the scheme and not from any
bank guarantee, insurance cover etc.
3.3.2 The proposed portfolio structure indicated in the SID and KIM shall
be rated by a Credit Rating Agency registered with the Board from the
view point of assessing the degree of certainty for achieving the
objective of capital protection and the rating shall be reviewed on a
quarterly basis.
59 Regulation 52(6) of the SEBI (Mutual Funds) Regulations, 1996.
60 SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.
61 SEBI Circular No. Cir/IMD/DF/20/2010 dated December 06, 2010
62 Please refer to the Chapter on Formats for the disclosures in the Half Yearly Trustee Report
w.r.t physical verification of Gold. This will be effective from the half yearly report ending
April 2011 by Trustees to SEBI.
6 3 SEBI Circular No. SEBI/IMD/CIR No.9/74364/06 dated August 14, 2006.
64 Regulat ion 2(ea), 33(2A) and 38A of the Mutual Funds Regulations introduced vide Gazette
Notification No. S.O. 1254(E) dated August 3, 2006.
25 Master Circular for Mutual Funds
3.3.3 The Trustees shall continuously monitor the portfolio structure of the
scheme and report the same in the Half Yearly Trustee Reports65 to
the Board. The AMC(s) shall also report on the same in its bimonthly
(CTR(s)66to the Board.
3.3.4 It shall also be ensured that the debt component of the portfolio
structure has the highest investment grade rating.
3.4 Real Estate Mutual Funds67:
3.4.1 A real estate mutual fund scheme68 can invest in real estate assets in
the cities mentioned in:
3.4.1.1 List of Million Plus Urban Agglomerations/Cities; or
3.4.1.2 List of Million Plus Cities
3.4.2 Such list appears in Census Statistics of India (2001) at
www.censusindia.gov.in. A printout of cities which appear in the
foresaid categories taken from the said website is attached for ready
reference at Annexure 4.
65 For format of Half Yearly Trustee Report please refer Chapter on Formats
<6 6 For format of bimonthly CTR please refer Chapter on Formats
67 SEBI Circular No - SEBI/IMD/CIR No.4/124477/08 May 2,2008
68Regulation 49 A(a)(i) of SEBI (Mutual Fund) Regulations, 1996
26 Master Circular for Mutual Funds
CHAPTER 4
RISK MANAGEMENT SYSTEM69
4.1 An Operating Manual70 for Risk Management has been developed to
ensure minimum standards of due diligence and Risk Management Systems
for all the Mutual Funds in various operational areas (for e.g. Fund
Management, Operations, Customer Service, Marketing and Distribution,
Disaster Recovery and Business Contingency, etc.) and is enclosed herewith
as Annexure 2.
4.2 The Risk Management practices covered in the Operating
Manual are under three categories as detailed below:
4.2.1 Existing Industry Practices:
4.2.1.1 Under each head of risk, the Manual covers the exemplary practices
followed by some / most of Mutual Funds in India. However, the
extent and degree of observance of these practices differs among
the Mutual Funds. Mutual Funds shall accordingly develop their
systems and follow these practices.
4.2.2 Practices to be followed on Mandatory Basis:
4.2.2.1 Mutual Funds shall follow the practices which have been indicated
as mandatory in the operating manual. These are Risk Management
function that shall be assigned to Compliance Officer or Internal
Risk Management Committee or to an external agency
a. Disaster Recovery and Business Contingency plans, and
b. Insurance cover against certain risks.
69 SEBI Circular No. MFD/CIR/15/19133/2002 dated September 30, 2002.
70 The Manua l has been developed by AMFI in association with Pricewaterhouse Coopers as a
part of Indo-US Financial Institutions Reforms and Expansion Project.
27 Master Circular for Mutual Funds
4.2.3 Best Practices to be followed by Mutual Funds:
4.2.3.1 Mutual Funds shall adopt these practices as a part of their due
diligence exercise after considering the size of their operations.
4.3 Implementation of the Risk Management System
4.3.1 Mutual Funds shall adopt the following approach to implement the
Risk Management System:
4.3.2 Identification of observance of each recommendation:
4.3.2.1 Mutual Funds shall identify areas of current adherence as well as
non-adherence of various Risk Management practices under each of
the aforesaid three categories. They shall examine the areas where
development or improvement of systems is required.
4.3.2.2 After identifying the same, Mutual Funds shall review the progress
made on implementation of the systems on a monthly basis and
place the progress report in periodical meetings of the Board of the
AMC and Trustees.
4.3.3 Review of Progress of implementation by Board of AMC and Trustee(s):
4.3.3.1 The Board of the AMC and Trustee(s) shall review the progress
made by the Mutual Funds with regard to Risk Management
practices and the same shall be reported to the Board at the time of
sending CTR(s) and Half Yearly Trustee Reports.
4.3.4 Review by Internal Auditors:
4.3.4.1 The review of Risk Management Systems shall be a part of internal
audit and the auditors shall check their adequacy on a continuing
basis. Their reports shall be placed before the Board of the AMC
28 Master Circular for Mutual Funds
and Trustee(s) who shall comment on the adequacy of systems in
the CTRs and Half Yearly Reports filed with the Board.
29 Master Circular for Mutual Funds
CHAPTER 5
DISCLOSURES & REPORTING NORMS
PART I - DISCLOSURES
5.1 Half Yearly disclosure of Portfolios71
5.1.1 Mutual Funds shall send a complete statement of Scheme Portfolio to
the unit holders before the expiry of one month from the closure of
each Half Year (i.e. March 31 and September 30), if such statement is
not published by way of advertisement72.
5.1.2 The Scheme Portfolio(s)73 shall also be disclosed on the Mutual Funds’
web sites before the expiry of one month from the closure of each Half
Year (i.e. March 31 and September 30) and a copy of the same shall
be filed with the Board along with the Half Yearly Results74.
5.1.3 Disclosure of derivatives in Half Yearly Portfolios75
5.1.3.1 A format76 for the purpose of uniform disclosure of investments in
derivative instruments by Mutual Funds in half yearly portfolio
disclosure, annual report or in any other disclosures is prescribed.
5.1.3.2 Further, while listing net assets, the margin amounts paid should
be reported separately under cash or bank balances.
71
SEBI Circular No. MFD/CIR No.010/024/00 dated January 17, 2000, SEBI Circular No.
MFD/CIR/9/120/2000 dated November 24, 2000, SEBI Circular No. MFD/CIR
No.10/310/01 dated September 25, 2001, SEBI Circular No. MFD/CIR/14/18337/2002
dated September 19, 2002, SEBI Circular No. IMD/CIR 8/132968/2008 dated July 24,
2008
72Regulation 59A of the Mutual Funds Regulations & SEBI Circular No. MFD/CIR
No.010/024/00 dated January 17, 2000.
73 For format of half yearly portfolio, please refer to the formats chapter
74
SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001.
75 SEBI Circular Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010.
76
For formats on disclosure of derivatives, please refer to the chapter on Formats
30 Master Circular for Mutual Funds
5.2 Unaudited Half Yearly Financials 77
5.2.1 The publication of the unaudited half-yearly results in news paper
and websites shall be made in the format prescribed in Twelfth
Schedule in line with provisions of the Regulations78.
5.2.2 The half yearly results must be published before the expiry of one
month from the close of each half year. Copies of the advertisements
carrying the results must be filed with SEBI within 7 days from the
date of publication79.
5.3 Mailing of Schemewise Annual Report or Abridged
Summary80
5.3.1 Mailing of Schemewise Annual Reports81 or abridged summary thereof
shall be subject to the following:
5.3.1.1 In case of unitholders whose email addresses are available with
the Mutual Fund, the AMCs shall communicate to them stating
that henceforth, the scheme annual reports or abridged summary
would only be sent by email.
5.3.1.2 In case of unitholders whose email addresses are not available with
the Mutual Fund, the AMCs shall communicate to the unitholders
to obtain their email addresses for registration of the same in their
database.
5.3.1.3 The communication in both the above cases shall clearly mention
that the scheme annual accounts or abridged summary would
77 SEBI Circular MFD/CIR/1/200/2001 dated April 20, 2001 & SEBI Circular No. IMD/CIR
No.8/132968/2008 dated July 24, 2008
78
Regulation 59 of SEBI (Mutual Funds) Regulations, 1996.
79 For format of Half Yearly Financials, please refer to the formats chapter
80 SEBI Circular No. IMD/CIR No.8/132968/2008 dated July 24, 2008 and Circular
No.Cir/IMD/DF/16/2011 dated September 8, 2011
81 For format of abridged schemewise report, please refer the formats chapter
31 Master Circular for Mutual Funds
henceforth be sent to these email addresses and not as physical
copies and the communication shall also have an option for the
investors stating that those who still wish to receive the reports as
physical copies may indicate as such.
5.3.1.4 In case of any request from these unitholders as detailed above for
physical copies notwithstanding their registration of email
addresses, AMCs shall provide the same without demur.
5.3.1.5 For the rest of the investors, i.e. whose email addresses are not
available with the mutual fund, the AMCs shall continue to send
physical copies of scheme annual reports or abridged summary.
5.3.1.6 The AMCs shall display the link of the scheme annual reports or
abridged summary prominently on their websites and make the
physical copies available to the investors at their registered offices
at all times. These websites should also be linked with AMFI
website so that the investors and analyst(s) can access the annual
reports of all mutual funds at one place82. However, as per the
Regulations83, a copy of Scheme wise Annual Report shall be also
made available to unitholder(s) on payment of nominal fees.
5.4 Disclosure of large unit holdings84
5.4.1 The number of investors holding over 25 % of the NAV85 in a scheme
and their total holdings in percentage terms shall be disclosed in the
Statement of Accounts issued after the NFO and also in the Half
Yearly and Annual Results86.
82 SEBI Cir No – MFD/CIR/15/041/2002 dated March 14,2002
83 Regulation 56(1) & 56(3) of SEBI (Mutual Funds) Regulations, 1996
84
SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001.
,8 5 For further details, refer Section II – Scheme Governance in the Chapter on Governance
Norms
,8 6 Please refer the Chapter on Formats for requisite formats
32 Master Circular for Mutual Funds
5.5 Portfolio disclosure for debt oriented close-ended and
interval schemes/plans87
5.5.1 AMCs shall disclose the portfolio of such schemes in the prescribed
format88 on a monthly basis on their respective websites.
5.5.2 The said disclosure of the portfolio as on the last day of the month
shall be made on or before 3rd working day of succeeding month. For
example, portfolio as of March 31, 2009 shall be disclosed by April
04, 2009 - April 3, 2009 being a non working day.
5.6 Asset Under Management (AUM) disclosure89
5.6.1 Wherever the Mutual Funds discloses the AUM figures for the fund,
disclosure on bifurcation of the AUM into debt/equity/ balanced etc,
and percentage of AUM by geography (i.e. top 5 cities, next 10 cities,
next 20 cities, next 75 cities and others) shall be made. The Mutual
Funds shall disclose the aforesaid data on their respective websites
& to AMFI and AMFI shall disclose industry wide figures on its
website.
5.7 Commission disclosure90
5.7.1 Mutual Funds / AMCs shall disclose on their respective websites the
total commission and expenses paid to distributors who satisfy one
or more of the following conditions with respect to non-institutional
(retail and HNI) investors
87 SEBI Circular No. IMD/CIR No.15/157701/2009 dated March 19, 2009
88 For portfolio format please refer to Chapter on Formats
89 91 SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011
33 Master Circular for Mutual Funds
5.7.1.1 Multiple point of presence (More than 20 locations)
5.7.1.2 AUM raised over `100 crore across industry in the non
institutional category but including high networth individuals
(HNIs).
5.7.1.3 Commission received of over `1 crore p.a. across industry
5.7.1.4 Commission received of over `50 lakh from a single Mutual
Fund/AMC.
5.7.2 Mutual Funds / AMCs shall also submit the above data to AMFI.
AMFI shall disclose the consolidated data in this regard on its
website.
5.8 Annual report of the AMC 91
5.8.1 Annual report containing accounts of the asset management
companies should be displayed on the website of the mutual funds.
It should also be mentioned in the annual report of the mutual fund
schemes that the unitholders, if they so desire, may request for a
copy of the annual report of the asset management company.
5.9 Submission of bio data of key personnel92
5.9.1 AMCs are required to submit the bio data of all key personnel to
Trustees and the Board. For this purpose, ‘key personnel’ would be
the Chief Executive Officer (CEO), fund manager(s), dealer(s) &
heads of other departments of the AMC93.
91 MFD/CIR/9/120/2000 dated November 24, 2000
92 IIMARP/CIR /08/845/97 DATED May 7,1997,IIMARP/MF/CIR/05/788/97 dated April
28,1997
93 For format of bio-data of key personnel, please refer the Chapter on Formats
34 Master Circular for Mutual Funds
5.10 Disclosure of investor complaints with respect to Mutual
Funds94
5.10.1 Mutual Funds shall disclose95 on their websites, on the AMFI
website as well as in their Annual Reports, details of investor
complaints received by them from all sources. The said details
should be vetted and signed off by the Trustees of the concerned
Mutual Fund.
5.10.2 The Mutual Funds are advised to:
5.10.2.1 Upload the report for the year 2009-10 by June 30, 2010.
5.10.2.2 Upload the report for the following financial years within 2
months of the close of the financial year.
5.10.2.3 Include the report in their annual reports, as part of the Report
of the Trustees, beginning with the annual report for the year
2009-10.
5.11 Brokerage and commission paid to associates96
5.11.1 Regulations97 mandates payment of brokerage or commission if
any, to the sponsor or any of its associates, employees or their
relatives.
5.11.2 Disclosures on brokerage and commission paid to
associates/related parties/group companies of sponsor/Asset
Management Company in the unaudited half yearly financial
results, the abridged scheme wise annual report and the SAI, shall
be made in the format as prescribed98.
94 SEBI Circular No. Cir /IMD/DF/2/2010 dated May 13, 2010
95 For disclosure format please refer to chapter on Formats.
96 SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010
97 Regulation 25 (8) of SEBI (Mutual Funds) Regulations, 1996
98 Please refer to the chapter on Formats
35 Master Circular for Mutual Funds
PART II – REPORTS
5.12 Monthly Cumulative Report (MCR)99
5.12.1 Date and Mode of Submission:
5.12.1.1 MCR100 shall be submitted to the Board by 3rd of each month by
way of an email. Hard copy should also be sent by hand
delivery/courier.
5.12.2 Other Guidelines:
5.12.2.1 Details of the new schemes launched shall be reported in the
MCR for the month in which the allotment is done. For
example, if an NFO closes in the month of July and the
allotment is done in the month of August, then, the details of
the new scheme shall be reported in the MCR for the month of
August that will reach SEBI by 3rd of September.
5.12.2.2 Further, additional report on overseas investment101 by Mutual
Funds in ADRs/GDRs, foreign securities and overseas exchange
traded funds (ETFs) shall also be provided as per the prescribed
format. For format please refer to the chapter on formats.
5.12.2.3 Compliance officers of all the Mutual Funds are advised to take
due care while forwarding the MCR data to SEBI. Compliance
Officers shall confirm that the data forwarded is correct and
does not require any revision.
99 SEBI circular MFD/CIR/07/206/2001 dated July 19, 2001, SEBI circular No IMD/Cir
No.15/87045/2007 dated February 22, 2007, SEBI circular SEBI/IMD/CIR No
3/124444/08 dated April 30, 2008.
100 For format of MCR please refer to Chapter on Formats.
101 SEBI Circular No. SEBI/IMD/CIR NO 15/87045/07 dated February 22,2007
36 Master Circular for Mutual Funds
5.13 New Scheme Report (NSR)102
5.13.1 All Mutual Funds shall submit the NSR to SEBI complete in all
respects within 10 working days from the date of allotment in the
prescribed format103.
5.14 Bi–monthly Compliance Test Reports104
5.14.1 AMCs’ shall do exception reporting on a bi-monthly basis. AMCs’
are required to report only exceptions in the CTR to SEBI, i.e.
AMCs’ shall report for only those points in the CTR where they
have not complied with the same. The details sought in the
annexures of the CTR shall be furnished to the Board in case of
non-compliance only along with exception report. This exception
report shall also be placed before the Trustee(s).
5.14.2 The CTRs105 should be submitted by the AMC to the Board once in
every two months so as to reach within 21 days of completion of
the two months period. As a compliance of SEBI Regulations is a
continuous process, AMCs are advised to incorporate the
modifications/additions under the relevant sections of the format,
based on amendments to the Regulations/guidelines issued in the
future from time to time.
102 SEBI Circular No. SEBI/IMD/CIR NO 13/118899/08 dated February 29, 2008, SEBI
Circular No MFD/CIR/12/16588/02 dated August 28, 2002 & SEBI Circular No
IIMARP/MF/CIR/05/788/97 dated April 28, 1997, SEBI Circular No. IIMARP/10772/93 dated
July 14,1993,
103 For details on format of NSR please refer the Chapter on Formats.
104 SEBI Circular No. SEBI/IMD/CIR NO 6/98057/07 dated July 5, 2007, SEBI Circular No
MFD/CIR/11/36222/2005 dated March 16,2005, SEBI Circular No
IIMARP/MF/CIR/10/1076/97 dated June 05,1997 & SEBI Circular No.MFD/CIR/5/360/2000
dated July 4, 2000,
105For CTR format, please refer the Chapter on Formats.
37 Master Circular for Mutual Funds
5.15 Annual Statistical Report (ASR)106
5.15.1 AMC should submit the annual statistical report to SEBI in the
prescribed format by 30th of April each year107.
5.16 Daily Transaction Report108
5.16.1 All Mutual Funds shall submit details of transactions in secondary
market on daily basis in the prescribed format109. Accordingly,
Mutual Funds are advised to make necessary arrangements with
their custodians for the submission of reports on a daily basis. The
report is to be submitted to the Board in both hard as well as soft
copy.
5.16.2 It must be ensured by the compliance officers of the custodians as
well as that of Mutual Funds that the information submitted is
correct and reaches the Board by 3.00 p.m. on the following
working day (T+1).
5.17 Responsibilities of AMC(s) and Trustees110
5.17.1 All information and documents relating to the compliance process
shall be authenticated and/or adopted by the Board of the AMC(s)
to strengthen the compliance mechanism.
106 IIMARP/CIR /08/845/97 DATED May 7,1997, MFD/CIR/02/110/02 dated April 26,2002,
SEBI Cir No- IMD/CIR No 6/72245/06 dated July 20,2006,
107 For format of ASR refer the Chapter on Formats
Quarterly Movement of Net Assets- SEBI CIR – IIMARP/MF/CIR/05/788/97 dated April 28,
1997 required mutual funds to submit the statement for quarterly movement of net assets.
However, SEBI circular MFD/CIR/12/16588/02 dated August 28,2002 stated that such
Statement of movement of net assets /portfolios are no more to be submitted
108 SEBI Circular No.MFD/CIR/07/384/99 dated December 17, 1999 and
MFD/CIR/08/23026/99 dated December 23, 1999
109 For format of daily transaction report, please refer the chapter on formats
110 SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000, SEBI Circular No.
SEBI/MFD/CIR/10/039/2001 dated February 9, 2001.
38 Master Circular for Mutual Funds
5.17.2 The Trustee(s) shall also review all information and documents
received from the AMC(s) as required under the compliance
process.
5.17.3 AMC(s) shall develop a suitable Management Information System
for reporting to the Trustees. The report shall contain specific
comments on all issues related to the operation of the Mutual
Fund as undertaken by the AMC including those provided in the
format for reporting by AMC to Trustees111.
5.17.4 The half-yearly report on the activities of the mutual fund to be
submitted by the trustees to the Board under the Mutual Funds
Regulations112 shall cover all issues mentioned in the prescribed
format as well as any other issue relevant to the operation of the
Mutual Fund113. The Trustees may mention in their report, if they
so desire, that they have relied on the reports obtained from the
independent auditor or internal/ statutory auditors or the
Compliance Officer as the case may be. The report shall mention
that the Trustees have satisfied themselves about the adequacy of
compliance systems in the Mutual Fund.
5.17.5 AMC(s) and the Trustees shall update the reporting formats
including relevant provisions of amendments made to the Mutual
Funds Regulations and/or guidelines and/or circulars issued by
the Board and shall specifically comment on their compliance.
111 Please refer the formats chapter for format for reporting by AMC to Trustees
112 Regulation 18(23)(a) of SEBI (MF) Regulations, 1996
113 For format of Trustee Report, please refer to the formats chapter.
<<
39 Master Circular for Mutual Funds
5.18 Filing of Annual Information Return by Mutual Funds114
5.18.1 Mutual Funds are required to submit the Annual Information
Return under section 285 BA in the Income-tax Act. As per this
requirement, Trustees of Mutual Funds or such other person
managing the affairs of the Mutual Funds (as may be duly
authorized by the trustees in this behalf) have to report specified
financial transactions in electronic media to Income Tax
Department giving PAN of the transacting parties in an Annual
Information Return (AIR).
5.18.2 Some common errors in these returns have been pointed out by
the Directorate of Income Tax (Systems) as:
5.18.2.1 Not mentioning PAN or mentioning invalid PAN.
5.18.2.2 Entering incomprehensible/ incomplete names of transacting
parties, e.g. names of 2 or 3 letters.
5.18.2.3 Entering incomprehensible/ incomplete addresses of
transacting parties, e.g. ‘Nil’, ‘N/A’, ‘_’, in all address fields,
incomplete postal addresses, names of buildings split into
separate fields, names of two cities in address fields, wrong PIN
codes, etc.
5.18.2.4 Incorrect district and state codes.
5.18.2.5 Incorrect transaction codes.
114
SEBI cir no IMD/CIR No.8/73580/06 dated August 4,2006
It may be noted that Annual Information Returns (AIRs) constitute an important source of
information to Income Tax Department and, as such, it is imperative that the data furnished to
them is complete and accurate in all respects. It is therefore advised that to re-check the
accuracy of the data furnished by your office for the Financial Year 2004-05 and ensure that all
the columns are correctly filled-in and submit a ‘Supplementary Information Report’, if need be,
to the Income Tax Department.
The AIRs for the financial year 2005-2006 are required to be filed before August 31, 2006.
40 Master Circular for Mutual Funds
5.18.2.6 Wrongly showing transaction as of ‘Govt.’ party.
5.18.3 In this regard, AIRs are required to be filed only by the Mutual
Fund and no separate AIR has to be furnished for each scheme of
the Mutual Fund.
41 Master Circular for Mutual Funds
CHAPTER 6
GOVERNANCE NORMS
PART I - FUND GOVERNANCE
6.1 Formation of Audit and Valuation Committees by the
Trustees and/or AMC115
6.1.1 Audit Committee
6.1.1.1 Trustees shall constitute an audit committee, comprising of the
Trustees and chaired by an Independent Trustee to review the
internal audit systems and recommendations of the internal and
statutory audit reports and ensure that the rectifications as
suggested by internal and external auditors are acted upon.
6.1.2 Valuation Committee
6.1.2.1 The AMC shall constitute an in-house valuation committee
consisting of senior executives including personnel from
accounts, fund management and compliance departments. This
committee shall, on a regular basis review the systems and
practices of valuation of securities.
6.2 Review and Reporting of Transactions116
6.2.1 Reporting of transactions
6.2.1.1 Transaction(s) by directors of the AMC
115 SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000.
< 1 16 SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000, SEBI Circular No.
MFD/CIR No.010/024/2000 dated January 17, 2000, SEBI Circular No.
SEBI/MFD/CIR/10/039/2001 dated February 9, 2001.
42 Master Circular for Mutual Funds
a. Directors of the AMC shall file with the trustees on a quarterly
basis details of transactions in securities exceeding `1 lac117.
6.2.1.2 Trustee(s) Directors
a. Trustees are required to report to Mutual Funds only those
transactions in securities that exceed `1 lac in value118.
6.2.2 Review of transactions
6.2.2.1 Trustees shall review all transactions of the Mutual Fund with the
associates as defined below on a regular basis and ensure that
Regulations are complied with119.
6.3 Role of Independent Director on the Board of the AMC and
Independent Trustees120
6.3.1 An Independent Trustee shall not be associated in any manner with
the Sponsor(s)121. The independent directors on the Board of the
AMC shall not be associate of, or associated in any manner with, the
sponsor or any of its subsidiaries or the trustees122.
6.3.2 An ‘associate’ shall be defined as:
6.3.2.1 Relatives123 of Sponsor(s) or directors of the Sponsor Company or
relatives of Associate Directors of the AMC(s) and Trustee.
6.3.2.2 Persons providing any type of professional service to the Mutual
Funds, the AMC and the Trustees and the Sponsor(s). Also,
persons having a material pecuniary relationship with the above
117 SEBI Circular No. SEBI/MFD/CIR/10/039/2001 dated February 9, 2001.
1 18 Regulation 18(11) of SEBI (MF) Regulations, 1996 and SEBI Circular No.
MFD/CIR/09/014/2000 dated January 5, 2000.
119 Regulations 18(6) and 18(7) of SEBI (Mutual Funds), Regulations, 1996 and SEBI Circular
No. MFD/CIR No.010/024/2000 dated January 17, 2000.
,,
43 Master Circular for Mutual Funds
mentioned entities that may, in the judgment of the Trustees,
affect their independence.
6.3.2.3 Nominees of the companies who are stakeholders in the Sponsor
company or AMC(s) (even if they are not deemed sponsors by
virtue of holding less than 40% of net worth of AMC(s)).
6.3.3 Cooling off Period
6.3.3.1 An “Associate”124 as defined above cannot be appointed as
Independent Director even after he ceases to be an “Associate”
unless a cooling off period of three years has elapsed from the
date of his disassociation. For example, an employee of the
Sponsor(s) or their associate companies or AMC(s) or Trustees
resigns on December 1, 2001 then he cannot be appointed as an
Independent Director till December 1, 2004. During this
intervening period, he can be appointed only as Associate
Director. However, if he is taken as an Associate Director, say on
December 2, 2001, then he cannot be considered as
“Independent” from December 2, 2004. There must be a cooling
off period of 3 years from the date he ceases to be an Associate
Director.
6.3.4 Mutual Funds are required to have a minimum of 50 per cent. and
two-third independent directors on the Board of the AMC(s) and
Trustees respectively125. In case the composition of the directors
does not meet these requirements, Mutual Funds are required to
120 SEBI Circular No. MFD/CIR/11/354/2001 dated December 20, 2001, SEBI Circular No.
MFD/CIR/13/16799/2002 dated August 29, 2002, SEBI Circular No.
MFD/CIR/17/21105/2002 dated October 28, 2002.
121 Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996.
122 Regulation 21(d) of the SEBI (Mutual Funds) Regulations, 1996.
123 As defined under Section 6 of the Companies Act 1956.
124 Regulation 2(c) of the SEBI (Mutual Funds) Regulations, 1996.
<1 25 Regulation 21(d) and Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996.
44 Master Circular for Mutual Funds
inform the Board along with the steps proposed to ensure
compliance.
6.3.5 AMC(s) or Trustees shall appoint Independent Directors in place of
the resigning director(s) within a period of 3 months from the date of
resignation. Where Mutual Funds are unable to meet this time limit,
they shall report to the Board explaining the reasons for non
compliance. Mutual Funds may maintain a panel of eligible persons
who can be appointed as Independent Directors126 as and when
required. They may also consider appointing more than the required
minimum number of Independent Directors to enhance the
standards of corporate governance and also to meet the regulatory
requirements in case of resignation of an independent director.
6.3.6 On appointment of new directors of the AMC or Trustee, their bio-
data127 shall be filed with the Board for information or approval
respectively.
6.4 Investment and/or for / Trading in Securities by the
employees of the AMC(s) and Trustee(s)128
6.4.1 The Board of the AMC and Trustees shall ensure compliance with
these Guidelines on a continuous basis and shall report any
violations and remedial action taken by them in the periodical
reports submitted to the Board129.
6.4.2 The guidelines enumerated below specify the minimum
requirements that have to be followed. The AMC(s) and Trustees are
free to set more stringent norms for investment and/or trading in
securities by their employees.
126 For biodata of directors (AMC and Trustee), please refer to Chapter on Formats
127 For biodata of directors (AMC and Trustee), please refer to Chapter on Formats
128 SEBI Circular No. MFD/CIR No.4/216/2001 dated May 8, 2001, SEBI Circular No.
SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003.
129 Regulation 25(9) & 23(b) of SEBI (MF) Regulations, 1996
45 Master Circular for Mutual Funds
6.4.3 Guidelines for Investment and/or Trading in Securities by
Employees of AMC(s) and Trustees:
6.4.3.1 Applicability
a. These Guidelines shall be applicable to all employees of AMC(s)
and Trustees and shall form a part of the Code of Conduct for
employees adopted by the AMC(s) and/or Trustees. New employees
shall be bound by these Guidelines from the date of joining the
AMC(s) and/or Trustees.
b. These Guidelines shall cover transactions for sale or purchase of
securities made in the employees’ name, either individually or
jointly, and in the name of the employees’ spouse and/or
dependent children and transactions as a member of HUF.
6.4.3.2 The objectives and principles of these Guidelines are:
a. To ensure that all securities transactions made by employees in
their personal capacity are conducted in consonance with these
Guidelines and in such manner as to avoid any actual or potential
conflict of interest or any abuse of an individual’s position of trust
and responsibility.
b. The employees of AMC(s) and Trustees especially Access Persons
shall not take undue advantage of any price sensitive information
that they may have about any company. Access Person for the
purpose of these Guidelines shall mean the Head of the AMC
(designated as CEO/Managing Director/President or by any other
name), the Fund Managers, Dealers, Research Analysts, all
employees in the Fund Operations Department, Compliance Officer
and Heads of all divisions and/or departments or any other
employee as decided by the AMC(s) and/or Trustees.
46 Master Circular for Mutual Funds
c. To guide employees of AMC(s) and Trustees in maintaining a high
standard of probity that one would expect from an employee in a
position of responsibility.
6.4.4 General
6.4.4.1 Investments Covered:
a. These Guidelines cover transactions for purchase or sale of any
securities such as shares, debentures, bonds, warrants, derivatives
and units of Mutual Fund schemes.
b. These Guidelines do not apply to the following investments by the
employees:
1. Investments in Fixed Deposits with banks and/or
Financial Institutions and/or companies, Life Insurance
Policies, Provident Funds (including Public Provident
Fund) or investment in savings schemes such as National
Savings Certificates, National Savings Schemes, Kisan
Vikas Patra, or any other similar investment.
2. Investments of a non-financial nature such as gold
etc.,130 where there is no likely conflict between the
Mutual Fund’s interest and the employees’ interest.
3. Investments in government securities, Money Market
instruments and Money Market Mutual Fund schemes.
130 Real Estate has been deleted pursuant to the amendment to the Mutual Funds Regulations
launching the Real Estate Mutual Funds Schemes wherein guidelines have been prescribed
for employee investment in Real Estate.
47 Master Circular for Mutual Funds
6.4.4.2 No employee shall pass on information to anybody inducing him
to buy/sell securities which are being bought and/or sold by the
Mutual Fund of which the AMC is the investment manager.
6.4.4.3 Prior approval of personal investment transactions:
a. All access persons except Compliance Officer shall apply in the
form prescribed by the AMC(s) and/or Trustees to the Compliance
Officer for prior approval of transactions for sale or purchase of
securities other than those expressly stated to be exempt under
these guidelines. The Compliance Officer shall apply to the Head of
the AMC(s). The decision of the Compliance Officer shall be final
and binding on the employee.
b. In these Guidelines, in the case of the Compliance Officer’s own
transactions for purchase or sale of securities or disclosure or any
other related matter, the term "Compliance Officer" wherever it
appears, shall be read as "Head of the AMC."
c. The Compliance Officer may coordinate with the Fund
Management Department of the Mutual Fund, wherever necessary,
to clear requests of investment and/or trading in securities by the
employees.
d. The approval of Compliance Officer for carrying out a transaction
of sale or purchase of a security by the access person shall not be
valid for more than seven calendar days from the date of
approval131.
e. If a transaction approved by Compliance Officer has not been
effected within seven132 calendar days from the date of its approval,
131 SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003.
132 SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009
48 Master Circular for Mutual Funds
the access person shall be required to obtain approval once again
from Compliance Officer prior to effecting the transaction.
f. All employees shall refrain from profiting from the purchase and
sale or sale and purchase of any security within a period of 30
calendar days from the date of their personal transaction133.
However, in cases where it is done, the employee shall provide a
suitable explanation to the Compliance Officer, which shall be
reported to the Board of the AMC and the Trustees at the time of
review.
6.4.5 Investments in Shares and/or Debentures and/or Bonds and/or
Warrants and/or Derivatives
Investments in securities shall broadly be classified into investments
through (a) primary markets and (b) secondary markets.
6.4.5.1 Investments through the primary markets:
a. An employee including access person is permitted to apply to a
public issue of shares and/or debentures and/or bonds and/or
warrants of any company, as long as the application is made in the
normal course of the public issue. Such an application may be
made without seeking the clearance from the Compliance Officer.
Employees of AMC(s) and Trustees are prohibited from applying in
any reserved quota such as promoters’ quota, employees’ quota
etc. Employees shall not participate in any private placement of
equity by any company.
b. Notwithstanding anything stated in (a) above, an employee of an
AMC(s) and/or Trustees may apply for shares and/or debentures
and/or bonds and/or warrants in a preferential offer, in cases
where such a preferential offer is being made by a company that
133 SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003.
49 Master Circular for Mutual Funds
belongs to the same industrial group as the company in which the
employee already has an investment, provided that such a
preferential offer is made to all shareholders and/or debenture
holders of such companies. Details of such applications made shall
be intimated to the Compliance Officer.
c. The employees of the AMC(s) and/or Trustees including access
person may apply for any rights offer of any company in which
they are already shareholders. Applications for additional rights
(over and above the normal rights entitlement) shares may be
made by the employees including access person without getting the
clearance from the Compliance Officer. An employee including
access person may also sell and/or renounce his rights entitlement
without getting the clearance from the Compliance Officer.
However, if an access person wishes to purchase the “Rights
renunciations” he shall get the clearance of the Compliance Officer
for the same. Such purchases shall be done only at market prices.
Details of any applications made in any rights issue, whether in
the normal course, or through purchase of rights renunciations,
shall be intimated to the Compliance Officer.
6.4.5.2 Investments through the secondary markets:
a. An access person who wishes to make a secondary market
transaction shall submit a written application to that effect to the
Compliance Officer. Such an application shall specify the name of
the company whose securities the employee wishes to buy and/or
sell, type of security, and the number of shares and/or debentures
and/or bonds and/or warrants and/or derivatives that the access
person wishes to buy/sell.
b. The Compliance Officer shall clear these requests if the following
conditions are met:
50 Master Circular for Mutual Funds
1. If the shares and/or debentures and/or bonds and/or warrants
of the company or derivatives specified by the access person are
not held by any scheme of the Mutual Fund of which the AMC is
the investment manager;
2. If such shares and/or debentures and/or bonds and/or
warrants of the company or derivatives specified by the
employee are held by any scheme of the Mutual Fund of which
the AMC is the investment manager, there should be a “cooling
off” period of 15 calendar days. The Compliance Officer shall
ensure that the last transaction in that particular security was
done by the Mutual Fund at least 15 calendar days prior to the
date of the written application by the access person. In other
words, an application for a purchase /sale transaction on a
personal basis would be cleared only if the Mutual Fund has not
transacted in that particular security for at least 15 calendar
days.
c. The Compliance Officer shall keep a track of the transactions of the
employees and transactions of the Mutual Fund to ensure that
there is no conflict of interest between them i.e. the Compliance
Officer should track whether the Mutual Fund has transacted in
the same securities either before or after the employee’s
transaction(s).
d. The Compliance Officer shall maintain a record of all requests for
pre clearance regarding the purchase or sale of a security, including
the date of the request, the name of the access person, the details
of the proposed transaction and whether the request was approved
or denied and waivers given, if any, and its reasons.
51 Master Circular for Mutual Funds
e. No employee shall purchase any security (including derivatives) on
a “Carry Forward” basis or indulge in “Short Sale” of any security
(including derivatives) i.e. employees who effect any purchase
transaction(s) shall ensure that they take delivery of the securities
purchased, before selling them.
f. Any transaction of Front Running by any employee directly or
indirectly is strictly prohibited. For this purpose, “Front Running”
means any transaction of purchase and/or sale of a security carried
by any employee whether for self or for any other person, knowing
fully well that the AMC also intends to purchase and/or sell the
same security for its Mutual Fund operations. To ascertain that the
employee had no prior knowledge of the Mutual Fund's intended
transactions, the Compliance Officer may take a declaration in this
regard from the employee. Such declaration may be included in the
application form itself.
g. Any transaction of self dealing by any employee either directly or
indirectly, whether alone or in concert with another person is
prohibited. For this purpose, “Self Dealing’ means trading in the
securities based on price sensitive information to which the
employee has access by virtue of his office. Declaration to this effect
may be taken from the employee while clearing the proposals for
investment.
h. The employees shall not insist or suggest to the concerned brokers
to charge reduced brokerage, or accept any contract with a clause
on reduced brokerage charge.
6.4.6 Investments in units of Mutual Fund Schemes
6.4.6.1 Access persons as well as other employees do not require prior
permission of the Compliance Officer for purchase or sale of units
52 Master Circular for Mutual Funds
of Mutual Fund schemes. However, details of each such
transaction, excluding transactions in Money Market Mutual
Fund schemes shall be reported by them to the Compliance
Officer within 7 calendar days from the date of transaction.
6.4.6.2 In case of investments in SIP of any Mutual Fund scheme, the
employees may report only at the time of making the first
installment of the SIP.
6.4.6.3 Notwithstanding anything mentioned earlier, in the following
cases employees of AMC & Trustees shall not purchase or sell /or
repurchase or redeem units of any scheme, including Money
Market Mutual Fund scheme of their Mutual Fund:
a. There is a likelihood of a change in the investment objectives of the
concerned Mutual Fund Scheme(s) and this has not been
communicated to the investors;
b. There is a likelihood of a rights and/or bonus issue in the
concerned Mutual Fund Scheme(s) and this has not been
communicated to the investors;
c. The concerned Mutual Fund Scheme is contemplating to issue
dividend to the unit holders and this has not been communicated
to the investors;
d. There is a likelihood of a change in the accounting policy, or a
significant change in the valuation of any asset, or class of assets
and the same has not been communicated to the investors;
e. There is a likelihood of conversion of a close ended scheme to an
open ended scheme and vice versa and this has not been
communicated to the investors.
53 Master Circular for Mutual Funds
6.4.7 Periodic Disclosures
6.4.7.1 All access persons shall submit, in the form prescribed by the
Mutual Fund of which the AMC is the investment manager, details
of their personal transactions of purchase or sale of securities to
the Compliance Officer. The details to be submitted are as follows:
a. Details of transactions effected for purchase and/or sale
of securities including transactions in rights
entitlements through the secondary market within 7
calendar days from the date of transaction;
b. Details of allotment received against application for
public and rights issues within 7 calendar days from the
date of receipt of the allotment advice;
c. A statement of holding in securities as on March 31
within 30 calendar days from the end of every financial
year ending March 31.
6.4.7.2 All employees other than access persons shall submit, in the form
prescribed by the Mutual Fund, to the Compliance Officer:
a. Details of each of their transactions for purchase or sale
of securities including allotment in public and rights
issues within 7 calendar days in tandem with SEBI
(Insider Trading) Regulations.
b. A statement of holding in securities as on March 31
within 30 calendar days (in tandem with SEBI (Insider
Trading) Regulations) from the end of every financial
year ending March 31.
54 Master Circular for Mutual Funds
c. A declaration shall also be included in the reporting
form on the lines of clause 6.4.5.2. (f) and 6.4.5.2. (g)
regarding Front Running and Self Dealing.
6.4.8 Review by the Board of Directors of AMC and the Trustee(s)
6.4.8.1 The Board of the AMC and the Trustees shall review the
compliance of these Guidelines in their periodic meetings. They
shall review the existing procedures and recommend changes in
procedures based on the AMCs experience, industry practices
and/or developments in applicable laws and regulations. They
shall report compliance and any violations and remedial action
taken by them in their reports submitted to the Board.
6.5 Responsibilities of AMC & Trustees134
6.5.1 For effective discharge of their responsibilities under the Mutual
Funds Regulations, the AMC(s) shall provide infrastructure and
administrative support to the Trustees. The Mutual Fund may
decide to appoint independent auditors and/or may have separate
full fledged administrative set up for the Trustees. However, the
expenditure incurred in this regard shall be within the limits as
specified in Regulation 52(6) of the Mutual Funds Regulations.
AMC(s) shall place correspondence and reports submitted to SEBI
before the Trustees.
134 MFD/CIR/09/014/2000 dated January 5, 2000
55 Master Circular for Mutual Funds
6.6 Applicability of Insider Trading Regulations135
6.6.1 Securities and Exchange Board of India (Insider Trading)
(Amendment) Regulations, 2002 shall be followed strictly by the
trustee companies, asset management companies and their
employees and directors.
135 SEBI Cir MFD/CIR/05/432/2002 June 20, 2002
56 Master Circular for Mutual Funds
PART II -SCHEME GOVERNANCE
6.7 Minimum Number of investors136
6.7.1 Applicability for an open-ended scheme
6.7.1.1 The Scheme/Plan shall have:
a. a minimum of 20 investors and
b. no single investor shall account for more than 25% of
the corpus of the Scheme/Plan(s).
6.7.1.2 If either/both of such limit(s) is breached during the NFO of the
Scheme, it shall be ensured that within a period of three months
or the end of the succeeding calendar quarter from the close of the
NFO of the Scheme, whichever is earlier, the Scheme complies
with these two conditions.
6.7.1.3 In case the Scheme / Plan(s) does not have a minimum of 20
investors in the stipulated period, the provisions of Regulation137
would become applicable automatically without any reference
from SEBI and accordingly the Scheme / Plan(s) shall be wound
up and the units would be redeemed at applicable NAV.
6.7.1.4 If there is a breach of the 25% limit by any investor over the
quarter, a rebalancing period of one month would be allowed and
thereafter the investor who is in breach of the rule shall be given
15 days notice to redeem his exposure over the 25 % limit. Failure
on the part of the said investor to redeem his exposure over the 25
% limit within the aforesaid 15 days would lead to automatic
136 SEBI Circular No. SEBI/IMD/CIR No.10/22701/03 dated December 12, 2003, SEBI
Circular No. SEBI/IMD/CIR No.1/42529/05 dated June 14, 2005.
<<,
57 Master Circular for Mutual Funds
redemption by the Mutual Fund on the applicable Net Asset Value
on the 15th day of the notice period.
6.7.1.5 The two conditions mentioned above shall also be complied within
each subsequent calendar quarter thereafter, on an average basis,
as specified by SEBI.
6.7.1.6 The Fund shall adhere to the requirements prescribed by SEBI
from time to time in this regard.
6.7.2 Applicability for a Close ended scheme/Interval scheme
6.7.2.1 The Scheme(s) and individual Plan(s) under the Scheme(s) shall
have:
a. A minimum of 20 investors and
b. No single investor shall account for more than 25% of
the corpus of the Scheme(s)/Plan(s).
6.7.2.2 These conditions will be complied with immediately after the close
of the NFO itself i.e. at the time of allotment.
6.7.2.3 In case of non-fulfillment with the condition of minimum 20
investors, the Scheme(s)/Plan(s) shall be wound up in accordance
with Regulation138 automatically without any reference from SEBI.
6.7.2.4 In case of non-fulfillment with the condition of 25% holding by a
single investor on the date of allotment, the application to the
extent of exposure in excess of the stipulated 25% limit would be
liable to be rejected and the allotment would be effective only to
the extent of 25% of the corpus collected. Consequently, such
137 Regulation 39(2)(c) of the SEBI (MF) Regulations, 1996
138 Reg. 39 (2) (c) of SEBI (MF) Regulations, 1996
58 Master Circular for Mutual Funds
exposure over 25% limits will lead to refund within 6 weeks of the
date of closure of the New Fund Offer.
6.7.2.5 For interval scheme the aforesaid provision will be applicable at
the end of NFO and specified transaction period.
6.7.2.6 Requisite disclosure in this regard shall be made in the SID.
6.7.3 Determination of breach:
6.7.3.1 The average shall be calculated, at the end of each quarter, on the
basis of number of investors at the end of the business hours of
the scheme on a daily basis.
6.7.3.2 To determine breach of 25% holding limit by an investor, net
assets under the scheme shall be calculated daily and the daily
holding limit shall be determined accordingly. At the end of the
quarter, average daily holding by each investor shall be calculated
and any breach of the 25% holding limit will be accordingly
determined.
6.7.4 Applicability
6.7.4.1 These Guidelines are applicable at the Portfolio level.
6.7.4.2 These Guidelines are not applicable to Exchange Traded Funds
(ETFs).
6.7.5 Redemptions
6.7.5.1 Redemptions effected pursuant to these Guidelines shall be
completed within 10 days from the day of winding up of the
scheme(s) and/or plan(s).
59 Master Circular for Mutual Funds
6.7.6 Reporting to the Board
6.7.6.1 Compliance with these Guidelines shall be reported in Compliance
Test Reports (CTRs) and Half Yearly Trustee Reports.
6.8 Scheme Performance Review
6.8.1 AMCs and Trustees shall review the performance of their schemes
on periodic basis139. Such review can take place by comparing the
performance of the schemes with benchmark indices as well as in
light of the performance of the entire Mutual Funds industry by
relying on data published from time to time by independent research
agencies and financial newspapers and journals. Corrective action if
required may be taken in case of unsatisfactory performance. Its
compliance should be reported in the bimonthly CTRs of AMCs and
half-yearly reports of the Trustees to SEBI (while reporting
compliance of Regulation 25(2) on exercise of due diligence in
investment decisions).
139 SEBI Circular No. dated July 27, 2000 & SEBI Cir 16/400/02 dated March 26, 2002.
60 Master Circular for Mutual Funds
PART III -SYSTEMS AUDIT OF MUTUAL FUNDS140
6.9 Mutual funds shall have a systems audit conducted by an independent
CISA/CISM qualified or equivalent auditor.
6.10 The systems audit should be comprehensive encompassing audit of
systems and processes inter alia related to examination of integration of
front office system with the back office system, fund accounting system
for calculation of net asset values, financial accounting and reporting
system for the AMC, Unit-holder administration and servicing systems
for customer service, funds flow process, system processes for meeting
regulatory requirements, prudential investment limits and access rights
to systems interface.
6.11 Mutual Funds/ AMCs should get the above systems audit conducted once
in two years.
6.12 The Systems Audit Report and compliance status should be placed before
the Trustees of the mutual fund.
6.13 The systems audit report/findings along with trustee comments should be
communicated to SEBI.
6.14 For the financial years April 2008 – March 2010, the systems audit should
be completed by September 30, 2010.
140 SEBI Circular No SEBI/IMD/CIR No. 9/176988/2009 dated September 16, 2009
61 Master Circular for Mutual Funds
PART IV – ROLE OF MUTUAL FUNDS IN CORPORATE
GOVERNANCE OF PUBLIC LISTED COMPANIES141
6.15 Mutual Funds should play an active role in ensuring better corporate
governance of listed companies.
6.16 AMCs shall disclose their general policies and procedures for exercising
the voting rights in respect of shares held by them on the website of the
respective AMC as well as in the annual report distributed to the unit
holders from the financial year 2010-11.
6.17 AMCs are required to disclose on the website of the respective AMC as well
as in the annual report distributed to the unit holders from the financial
year 2010-11, the actual exercise of their proxy votes in the AGMs/EGMs
of the investee companies in respect of the following matters.
6.17.1 Corporate governance matters, including changes in the state of
incorporation, merger and other corporate restructuring, and anti
takeover provisions.
6.17.2 Changes to capital structure, including increases and decreases of
capital and preferred stock issuances.
6.17.3 Stock option plans and other management compensation issues;
6.17.4 Social and corporate responsibility issues.
6.17.5 Appointment and Removal of Directors.
6.17.6 Any other issue that may affect the interest of the shareholders in
general and interest of the unit-holders in particular.
141 SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
62 Master Circular for Mutual Funds
6.18 The format142 for disclosure of voting by mutual funds in general meetings
of listed companies is provided.
142 For disclosure of voting by mutual funds in general meetings of listed companies, please
refer to the chapter on formats
63 Master Circular for Mutual Funds
CHAPTER 7
SECONDARY MARKET ISSUES
7.1 Non Applicability of Listing Deposit143
7.1.1 The requirement of collecting listing deposit as specified under
Circular Letter No. SE/12936 dated April 6, 1992 shall not be
applicable to Mutual Fund schemes seeking listing on the Stock
Exchanges.
7.2 Payment of Margins144
7.2.1 The applicable margins shall be paid as per the guidelines issued by
SEBI and as directed by stock exchanges from time to time.
7.3 Unique Client Codes145
7.3.1 Mutual Funds are not permitted to operate in the securities market
without furnishing a valid Unique Client Code (UCC).146 Mutual
Funds are required to obtain UCC from the Bombay Stock Exchange
Ltd. (BSE) or The National Stock Exchange Ltd. (NSE) whenever a
new scheme(s) or plan(s) (wherever the portfolio of the plans is
different) is launched147. Such UCC should be obtained before
143 SEBI Circular No. SMD-II(N)/2113/94 dated April 12, 1994. Further, in this regard,
circulars issued by SEBI from time to time may be considered.
<1 44 SEBI Circular No. MFD/CIR/9/230/2001 dated August 14, 2001
145 SEBI Circular No. MFD/CIR No.8/290/01 dated July 30, 2001, SEBI Circular No.
SEBI/SMD/SE/11/2003/31/03 dated March 31, 2003, SEBI Circular No.
SEBI/IMD/CIR No.01/1756/04 dated January 27, 2004, SEBI Circular No.
MRD/DoP/SE/Cir-35/2004 dated October 26, 2004, SEBI Circular No. SEBI/IMD/CIR
No.2/46603/05 dated August 10, 2005. Further, in this regard, circulars issued by SEBI
from time to time may be considered
146 SEBI Circular No. SMDRP/Policy/Cir-39/2001 dated July 18, 2001.
147 SEBI Circular No. SEBI/IMD/CIR No.01/1756/04 dated January 27, 2004.
64 Master Circular for Mutual Funds
commencing the trading on behalf of the scheme(s)/plan(s). At the
time of entering an order, the UCC pertaining to the parent Mutual
Fund shall be provided and the allocation to individual schemes
shall be done in the post closing session.148 The UCC can be shared
with the unit holders to facilitate tax benefits linked to payment of
Securities Transaction Tax (STT).
7.4 Trading in Exchange Traded Derivatives Contracts149
7.4.1 For trading in Exchange Traded Derivatives Contracts, following
should be observed:
7.4.1.1 Mutual Fund schemes can participate in derivatives market as per
the guidelines issued by SEBI in this regard from time to time.150
7.4.1.2 The Mutual Funds shall be treated at par with a registered FII in
respect of position limits in index futures, index options, stock
options and stock futures contracts. The Mutual Funds will be
considered as trading members like registered FIIs and the
schemes of Mutual Funds will be treated as clients like sub-
accounts of FIIs.
7.4.1.3 Appropriate disclosures shall be made in the offer document
regarding the extent and manner of participation of the schemes
of the Mutual Funds in derivatives and the risk factors, which
should be explained by suitable numerical examples.
148 SEBI Circular No. MRD/DoP/SE/Cir-35/2004 dated October 26, 2004.
149 SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005; SEBI Circular No.
DNPD/Cir-30/2006 dated January 20, 2006, SEBI Circular No. SEBI/DNPD/Cir-31/2006
dated September 22, 2006.
150 SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005.
65 Master Circular for Mutual Funds
7.4.1.4 The participation of existing schemes of the Mutual Funds in the
derivatives market shall be subject to the following conditions:
a. The extent and the manner of the proposed participation in
derivatives shall be disclosed to the unit holders.
b. The risks associated with such participation shall be disclosed and
explained by suitable numerical examples.
c. Positive consent shall be obtained from majority of the unit
holders.
d. An exit option shall be provided to the dissenting unit holders.
Such option shall be kept open for a period of one month prior to
the scheme commencing trading in derivatives.
e. No exit load shall be charged to the unit holders exercising such
exit options.
7.4.1.5 Positions limits as specified by SEBI for Mutual Funds and its
schemes from time to time shall be applicable151.
7.5 Trading in Interest Rate Derivatives152
7.5.1 Mutual Fund schemes are permitted to undertake transactions in
Forward Rate Agreements and Interest Rate Swaps with banks, PDs
& FIs as per applicable RBI Guidelines153, mutual funds can also
trade in interest rate derivatives through the Stock Exchanges
subject to requisite disclosures in the SID154.
151 Please refer SEBI Circular No DNPD/Cir – 29/2005 Dated September 14, 2005 for position
limits and subsequent circulars issued in this regard from time to time.
152 SEBI Circular No. SEBI/MFD/CIR No.03/158/03 dated June 10, 2003.
153 RBI Circular dated November 1, 1999.
154 SEBI Circular No. SEBI/MFD/CIR No.03/158/03 dated June 10, 2003.
66 Master Circular for Mutual Funds
7.6 Transactions of mutual funds in Government Securities in
dematerialised form155
7.6.1 According to Regulation156, the Mutual Funds having an aggregate of
securities worth `10 crore or more are required to settle their
transactions only through dematerialised securities. All Mutual
Funds should enter into transactions relating to government
securities only in dematerialised form.
155 SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002
156 Regulation 44(1A) of SEBI (Mutual Funds) Regulations, 1996
67 Master Circular for Mutual Funds
CHAPTER 8
NET ASSET VALUE157
8.1 Disclosure of Net Asset Value158
8.1.1 The NAV of schemes shall be published on a daily basis by the
Mutual Funds at least in two daily newspapers159.
8.1.2 NAV and sale/repurchase price of all Mutual Fund schemes except
for Fund of Fund Schemes shall be updated on AMFI’s website and
the Mutual Funds’ websites by 9 p.m. of the same day160.
8.1.3 Fund of Fund Schemes shall have an extended time up to 10 a.m.
the following business day in this regard161 and the NAVs shall be
published in newspapers with an asterisk to indicate the one day
time lag/or the actual time lag.
8.1.4 Delay beyond 10 a.m. of the following business day in case of Fund
of Fund schemes and 9 p.m. on the same day for all other schemes
shall be explained in writing to AMFI and the Board and shall also
be reported in the CTR(s)162 in terms of number of days of non
adherence of time limit for uploading NAV on AMFI’s website and the
reasons for the same. Corrective steps taken by AMC to reduce the
number of occurrences shall also be disclosed163.
157 Regulation 48(1) of SEBI (Mutual Funds) Regulations, 1996
158 SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997, SEBI Circular No.
MFD/CIR No.11/171/01 dated February 9, 2001, SEBI Circular No.
MFD/CIR/13/087/2001 dated March 28, 2001; SEBI Circular No. SEBI/IMD/CIR
No.5/63714/06 dated March 29, 2006, SEBI Circular No. SEBI/IMD/CIR
No.5/96576/2007 dated June 25, 2007, SEBI Cir No. SEBI/IMD/Cir No.12/147132/08
dated December 11,2008
<1 59 Regulation 48(2) of SEBI (Mutual Funds) Regulations, 1996
160 SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.
161 SEBI Circular No. SEBI/IMD/CIR No.5/96576/2007 dated June 25, 2007.
162 For format of CTR, please refer to chapter on formats
,1,, 63 SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.
,,
68 Master Circular for Mutual Funds
8.1.5 In case the NAVs are not available before the commencement of
business hours on the following day due to any reason, Mutual
Funds shall issue a press release giving reasons for the delay and
explain when they would be able to publish the NAVs164.
8.2 Rounding off NAVs165
8.2.1 To ensure uniformity, Mutual Funds shall round off NAV up to four
decimal places for index funds and all types of debt & liquid/money
market schemes.
8.2.2 For all equity oriented and balanced fund schemes, Mutual Funds
shall round off NAVs up to two decimal places. However, Mutual
Funds can round off the NAVs up to more than two decimal places
in case of equity oriented and balanced fund schemes also, if they so
desire166. Relevant disclosure in this regard shall be made in the
SID/SAI167.
8.3 Uniform Cut off Timings for applicability of Net Asset
Value of Mutual Fund scheme(s) and/ or plan(s)168
8.3.1 Mutual Funds should follow the Guidelines enumerated below with
respect to uniform Cut -off Timings:
8.3.2 Definitions:
8.3.2.1 In these Guidelines, unless the context otherwise requires:
a. ‘Cut-off Timing’, in relation to an investor making an application to
a Mutual Fund for purchase or sale of units, shall mean, the outer
164 SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.
,1 65 SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002, SEBI Circular No.
MFD/CIR/11/16159/2002 dated August 22, 2002.
,1, 66 SEBI Circular No. MFD/CIR/11/16159/2002 dated August 22, 2002.
,1 67 SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002.
168 SEBI Circular No. SEBI/IMD/CIR No. 11/78450/06 dated October 11, 2006.
,
69 Master Circular for Mutual Funds
limit of timing within a particular day which is relevant for
determination of the NAV applicable for his transaction;
b. ‘International scheme’ means a Mutual Fund scheme having
substantial investments in foreign securities valued as per time
zones other than Indian Standard Time zone;
c. ‘Liquid fund schemes and plans’ shall mean the schemes and
plans of a Mutual Fund as specified in the guidelines169 issued by
SEBI in this regard170.
8.3.3 Applicability
8.3.3.1 The Guidelines on Cut off Timings for applicability of Net Asset
Value of Mutual Fund scheme(s) and/ or plan(s) shall be
applicable to all schemes and plans of Mutual Funds except:
a. International schemes and
b. Transactions in Mutual Fund units undertaken on a recognized
Stock Exchange.
8.3.4 Fixation of uniform Cut-off Timings
8.3.4.1 Mutual Funds shall reckon the Cut-off Timings for their schemes
and plans in compliance with these Guidelines and the same shall
be uniformly implemented for all investors.
8.3.4.2 Mutual Funds shall ensure that each payment instrument for
subscription or purchase of units is deposited in a bank
expeditiously by utilization of the appropriate banking facility, so
as to comply with the requirement in Clause 8.3.4.1 above.
169 Please refer to the Section on liquid schemes
170 SEBI Circular No.SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009
70 Master Circular for Mutual Funds
8.3.4.3 AMCs shall compensate any loss occasioned to any investor or to
the scheme and/or plan on account of non compliance with
Clause 8.3.4.2 above.
8.3.5 Cut-off Timings for liquid fund schemes and plans
For determining the applicable NAV171:
8.3.5.1 The following cut-off timings shall be observed by a mutual fund
in respect of purchase of units in liquid fund schemes and their
plans, and the following NAVs shall be applied for such purchase:
a. where the application is received upto 2.00 p.m. on a day and
funds are available for utilization before the cut-off time without
availing any credit facility, whether, intra-day or otherwise – the
closing NAV of the day immediately preceding the day of receipt of
application;
b. where the application is received after 2.00 p.m. on a day and
funds are available for utilization on the same day without availing
any credit facility, whether, intra-day or otherwise – the closing
NAV of the day immediately preceding the next business day ; and
c. irrespective of the time of receipt of application, where the funds
are not available for utilization before the cut-off time without
availing any credit facility, whether, intra-day or otherwise – the
closing NAV of the day immediately preceding the day on which the
funds are available for utilization.
8.3.5.2 For allotment of units in respect of purchase in liquid schemes, it
shall be ensured that:
a. Application is received before the applicable cut-off time.
171 SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010
71 Master Circular for Mutual Funds
b. Funds for the entire amount of subscription/purchase as per the
application are credited to the bank account of the respective
liquid schemes before the cut-off time.
c. The funds are available for utilization before the cut-off time
without availing any credit facility whether intra-day or otherwise,
by the respective liquid schemes.
8.3.5.3 For allotment of units in respect of switch-in to liquid schemes
from other schemes, it shall be ensured that:
a. Application for switch-in is received before the applicable cut-off
time.
b. Funds for the entire amount of subscription/purchase as per the
switch-in request are credited to the bank account of the respective
switch-in liquid schemes before the cut-off time.
c. The funds are available for utilization before the cut-off time
without availing any credit facility whether intra-day or otherwise,
by the respective switch-in schemes.
8.3.5.4 The following Cut-off Timings shall be observed by Mutual Funds
with respect to repurchase of units in liquid fund schemes and
plans and the following NAVs shall be applied for such
repurchase:
a. Where the application is received up to 3.00 pm – the closing NAV
of day immediately preceding the next business day; and
b. Where the application is received after 3.00 pm – the closing NAV
of the next business day.
72 Master Circular for Mutual Funds
8.3.5.5 Mutual Funds shall calculate NAV for each calendar day for their
liquid fund schemes and plans.
a. Explanation: “Business Day” does not include a day on which the
Money Markets are closed or otherwise not accessible.
8.3.6 Cut-off Timings for schemes and plans other than liquid fund
schemes and plans
8.3.6.1 A Mutual Fund shall reckon only prospective NAV, in accordance
with this clause, in respect of all their schemes and plans i.e. for
other than liquid fund schemes and plans
8.3.6.2 The following Cut-off Timings shall be observed by Mutual Funds
in respect of purchase of units in other schemes and plans and
following NAVs shall be applied for such purchase:
a. Where the application is received up to 3.00 pm with a local
cheque or demand draft payable at par at the place where it is
received – closing NAV of the day on which the application is
received;
b. Where the application is received after 3.00 pm with a local cheque
or demand draft payable at par at the place where it is received –
closing NAV of the next business day; and
c. Where the application is received with an outstation cheque or
demand draft which is not payable on par at the place where it is
received – closing NAV of day on which the cheque or demand draft
is credited.
8.3.6.3 In respect of purchase of units in Income/ Debt oriented schemes
(other than liquid fund schemes and plans) with amount equal to
or more than `1 crore, irrespective of the time of receipt of
73 Master Circular for Mutual Funds
application, the closing NAV of the day on which the funds are
available for utilization shall be applicable172.
a. For allotment of units in respect of purchase in income/debt
oriented mutual fund schemes/plans other than liquid schemes, it
shall be ensured that173:
i. Application is received before the applicable cut-off time (3 pm).
ii. Funds for the entire amount of subscription/purchase as per
the application are credited to the bank account of the
respective schemes before the cutoff time (3 pm).
iii. The funds are available for utilization before the cut-off time (3
pm) without availing any credit facility whether intra-day or
otherwise, by the respective scheme.
b. For allotment of units in respect of switch-in to income/debt
oriented mutual fund schemes/plans other than liquid schemes
from other schemes, it shall be ensured that:
i. Application for switch-in is received before the applicable cut-off
time.
ii. Funds for the entire amount of subscription/purchase as per
the switch-in request are credited to the bank account of the
respective switch-in income/debt oriented mutual fund
schemes/plans before the cut-off time.
iii. The funds are available for utilization before the cut-off time
without availing any credit facility whether intra-day or
otherwise, by the respective switch-in income/debt oriented
mutual fund schemes/plans.
8.3.6.4 The following Cut-off Timings shall be observed by Mutual Funds
in respect of repurchase of units in its other schemes and their
172 SEBI Circular No SEBI/IMD/CIR No. 11/142521/08 dated October 24, 2008
173 SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010
74 Master Circular for Mutual Funds
plans, and the following NAVs shall be applied for such
repurchase:
a. Where the application is received up to 3.00 pm – closing NAV of
the day on which the application is received; and
b. An application received after 3.00 pm – closing NAV of the next
business day.
8.3.7 Switch and Sweep Transactions
8.3.7.1 Paragraphs 8.3.5 and 8.3.6 shall apply to ‘switch in’ transactions
as if they were purchase transactions and to ‘switch out’
transactions as if they were repurchase transactions.
8.3.7.2 Paragraphs 8.3.5 and 8.3.6 shall apply to ‘sweep’ transactions as
if they were purchase transactions and to ‘reverse sweep’
transactions as if they were repurchase transactions.
8.3.7.3 In case of ‘switch’ transactions from one scheme to another, the
allocation shall be in line with redemption payouts.
8.3.8 Time Stamping
8.3.8.1 Application from investors shall be received by Mutual Funds only
at official points of acceptance, addresses of which shall be
disclosed in the SID and on Mutual Funds’ websites.
8.3.8.2 Cut off timings as prescribed under Paragraphs 8.3.5 and 8.3.6
shall apply with reference to the point of time at which the
applications are received at such official points of acceptance.
75 Master Circular for Mutual Funds
8.3.8.3 Time stamping machines at all official points of acceptance shall
be in compliance with the requirements mentioned in Section 8.4.
8.3.9 Compliance Reporting
8.3.9.1 Status of compliance with these Guidelines shall be reported to
the Board in the CTR(s)174 of the AMC(s) and the Half Yearly
Trustee Reports175.
8.3.9.2 The Half Yearly Trustee Reports shall contain a declaration on
whether the Trustees are satisfied with the systems and
procedures of the Mutual Fund designed for the purpose of
compliance with these Guidelines.
8.3.9.3 Further, the substance of these Guidelines shall be disclosed to
investors in the SID or in any addendum thereto.
8.3.9.4 Encumbrance of the scheme property176
Regulations177 provides that the AMC shall not acquire any of the
assets out of the scheme property which involves the assumption
of any liability which is unlimited or which may result in
encumbrance of the scheme property in any way. AMC’s are
advised to strictly adhere to the said provision.
8.4 Requirements with respect to time stamping machines
[pursuant to Clause 8(3)]
174 for CTR format, please refer to the chapter on formats
, 1 ,,,, 75 For Trustee report, please refer to the chapter on formats
,1 76 SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010
177 Fourth Schedule of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996
76 Master Circular for Mutual Funds
8.4.1 For every machine, running serial number shall be stamped from
the first number to the last number as per its capacity before
repetition of the cycle.
8.4.2 Every application for purchase shall be stamped on the face and the
corresponding payment instrument shall be stamped on the back
indicating the date and time of receipt and running serial number.
The application and the payment instrument shall contain the same
serial number.
8.4.3 Every application for redemption shall be stamped on the face
thereof and on the investor’s acknowledgment copy (or twice on the
application if no acknowledgment is issued) indicating the date and
time of receipt and running serial number.
8.4.4 Different applications shall not be bunched together with the same
serial number.
8.4.5 Blank papers shall not be time stamped. Genuine errors, if any,
shall be recorded with reasons and the corresponding applications
requests shall also be preserved.
8.4.6 The time stamping machine shall have a tamper proof seal and the
ability to open the seal for maintenance or repairs must be limited to
vendors or nominated persons of the mutual fund, to be entered in a
proper record.
8.4.7 Breakage of seal and/or breakdown of the time stamping process
shall be duly recorded and reported to the Trustees.
8.4.8 Every effort should be made to ensure uninterrupted functioning of
the time stamping machine. In case of breakdown, the Mutual
Funds shall take prompt action to rectify the situation. During the
breakdown period, Mutual Funds shall adopt an alternative time
77 Master Circular for Mutual Funds
stamping method that has already been approved by the Board of
the AMC and the Trustee(s). An audit trail shall be available to
check and ensure the accuracy of the time stamping process during
the said period.
8.4.9 Any alternate mode of application that does not have any physical or
electronic trail shall be converted into a physical piece of information
and time stamped in accordance with these Guidelines.
8.4.10 Mutual Funds shall maintain and preserve all applications/
requests, duly time stamped as aforesaid, at least for a period of
eight years178 to be able to produce them as and when required by
the Board or auditors appointed by the Board.
8.5 Uniformity in calculation of sale and repurchase price179
8.5.1 The following method is being prescribed
8.5.1.1 To streamline the calculation of sale and repurchase price of
mutual fund units180,
8.5.1.2 To avoid variation in the amounts payable to investors and/or
number of units allotted to them, and
8.5.1.3 To make the calculations more comprehensible to the investors.
178 Regulation 50(2) of SEBI (Mutual Funds) Regulations, 1996
179 SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002 & SEBI Circular No.
SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009
,1, 80 Regulation 49(3) of the SEBI (Mutual Funds) Regulations, 1996.
78 Master Circular for Mutual Funds
8.5.2 Exit loads shall be charged as a percentage of the NAV i.e. applicable
load as a percentage of NAV will be subtracted from the NAV to
calculate the repurchase price.
8.5.3 The formula for the same is as follows:
8.5.3.1 Sale Price = Applicable NAV
8.5.3.2 Repurchase Price = Applicable NAV *(1 – Exit Load, if any)
79 Master Circular for Mutual Funds
CHAPTER 9
VALUATION
9.1 Definitions181
9.1.1 Non Traded Securities182
9.1.1.1 When a security (other than Government Securities) is not traded
on any Stock Exchange for a period of thirty days prior to the
valuation date, the scrip shall be treated as a non traded security.
9.1.2 Thinly Traded Securities
9.1.2.1 Thinly traded equity/ equity related securities:183
a. When trading in an equity and/or equity related security (such as
convertible debentures, equity warrants etc.) in a month is both
less than `5 lacs and the total volume is less than 50,000 shares,
the security shall be considered as thinly traded security and
valued accordingly.
b. In order to determine whether a security is thinly traded or not, the
volumes traded in all recognized Stock Exchanges in India may be
taken into account.
c. For example, if the volume of trade is 1,00,000 and value is
`4,00,000, the shares do not qualify as thinly traded. Also if the
volume traded is 40,000, but the value of trades is `6, 00,000, the
shares do not qualify as thinly traded.
181 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000, SEBI Circular No.
MFD/CIR/14/088/2001 dated March 28, 2001 and SEBI Circular No.
M FD/CIR/14/442/2002 dated February 20, 2002.
182 <, SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.
,1 83 SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001.
80 Master Circular for Mutual Funds
d. Where a Stock Exchange identifies the thinly traded securities by
applying the above parameters for the preceding calendar month
and publishes or provides the required information along with the
daily quotations, the same can be used by the Mutual Funds.
e. If the shares are not listed on the Stock Exchanges which provide
such information, then Mutual Funds shall make their own
analysis in line with the above criteria to check whether such
securities are thinly traded or not and then value them
accordingly.
9.1.3 Thinly traded Debt Securities184
9.1.3.1 A debt security (other than Government Securities) shall be
considered as a thinly traded security if, on the valuation date,
there are no individual trades in that security in marketable lots
(currently applicable) on the principal Stock Exchange or any
other Stock Exchange.
9.2 Valuation of Securities
9.2.1 Traded Securities:185
9.2.1.1 When a security (other than debt securities) is not traded on any
Stock Exchange on a particular valuation day, the value at which
it was traded on the selected Stock Exchange, as the case may be,
on the earliest previous day may be used provided such date is
not more than thirty days prior to valuation date.
9.2.1.2 When a debt security (other than Government Securities) is not
traded on any Stock Exchange on any particular valuation day,
184 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.
,1 85 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.
81 Master Circular for Mutual Funds
the value at which it was traded on the principal Stock Exchange
or any other Stock Exchange, as the case may be, on the earliest
previous day may be used provided such date is not more than
fifteen days prior to valuation date. When a debt security (other
than Government Securities) is purchased by way of private
placement, the value at which it was bought may be used for a
period of fifteen days beginning from the date of purchase.
9.2.2 Non-Traded /and/or Thinly Traded Securities:186
9.2.2.1 AMCs shall value non traded and/or thinly traded securities “in
good faith” based on the Valuation norms prescribed below:
9.2.3 Non-traded/ and/or thinly traded equity securities:
9.2.3.1 Based on the latest available Balance Sheet, Net Worth shall be
calculated as follows:
a. Net Worth per share = [Share Capital+ Reserves (excluding
Revaluation Reserves) – Miscellaneous expenditure and Debit
Balance in Profit and Loss Account] / Number of Paid up Shares.
b. Average Capitalization rate (P/E ratio) for the industry based upon
either BSE or NSE data (which shall be followed consistently and
changes, if any, noted with proper justification thereof) shall be
taken and discounted by 75 per cent i.e. only 25 per cent. Of the
industry average P/E shall be taken as Capitalization rate (P/E
ratio). Earnings per share (EPS) of the latest audited annual
accounts shall be considered for this purpose.
c. The value as per the Net Worth value per share and the capital
earning value calculated as above shall be averaged and further
186 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.
82 Master Circular for Mutual Funds
discounted by 10 per cent. for illiquidity so as to arrive at the fair
value per share.
d. In case the EPS is negative, EPS value for that year shall be taken
as zero for arriving at capitalised earning.
e. In case where the latest Balance Sheet of the company is not
available within nine months from the close of the year, unless the
accounting year is changed, the shares of such companies shall be
valued at zero.
f. In case an individual security accounts for more than 5 per cent. of
the total assets of the scheme, an independent valuer shall be
appointed for the valuation of the said security. To determine if a
security accounts for more than 5 per cent. of the total assets of
the scheme, it shall be valued by the procedure above and the
proportion which it bears to the total net assets of the scheme to
which it belongs will be compared on the date of valuation187.
g. In case trading in an equity security is suspended up to thirty
days, then the last traded price shall be considered for valuation of
that security. If an equity security is suspended for more than
thirty days, then the AMC(s) or Trustees shall decide the valuation
norms to be followed and such norms shall be documented and
recorded.
9.2.4 Non traded/thinly Traded Debt security
9.2.4.1 A thinly traded debt security as defined above shall be valued as
per the norms for non traded debt security.
187 SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001
83 Master Circular for Mutual Funds
a. Valuation188 of money market and debt securities with residual
maturity of upto 60189 days:
1. All money market and debt securities, including floating rate
securities, with residual maturity of upto 60 days shall be
valued at the weighted average price at which they are traded on
the particular valuation day. When such securities are not
traded on a particular valuation day they shall be valued on
amortization basis. It is further clarified that in case of floating
rate securities with floor and caps on coupon rate and residual
maturity of upto 60 days then those shall be valued on
amortization basis taking the coupon rate as floor.
b. Valuation of money market and debt securities with residual
maturity of over 60190 days:
1. All money market and debt securities, including floating rate
securities, with residual maturity of over 60 days shall be valued
at weighted average price at which they are traded on the
particular valuation day. When such securities are not traded on
a particular valuation day they shall be valued at benchmark
yield/ matrix of spread over risk free benchmark yield obtained
from agency(ies) entrusted for the said purpose by AMFI.
2. The approach in valuation of non traded debt securities is based
on the concept of using spreads over the benchmark rate to
arrive at the yields for pricing the non traded security.
3. The Yields for pricing the non traded debt security would be
arrived at using the process as defined below.
188 SEBI Circular No. SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010
189 SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012
190 SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012
84 Master Circular for Mutual Funds
Step 1: A Risk Free Benchmark Yield is built using the
government securities as the base. Government securities are
used as the benchmarks as they are traded regularly; free of
credit risk; and traded across different maturity spectrums every
week.
Step 2: A Matrix of spreads (based on the credit risk) are built for
marking up the benchmark yields. The matrix is built based on
traded corporate paper on the wholesale debt segment of an
appropriate stock exchange and the primary market issuances.
The matrix is restricted only to investment grade corporate paper.
Step 3: The yields as calculated above are Marked-up/Marked-
down for ill-liquidity risk
Step 4: The Yields so arrived are used to price the portfolio.
9.3 Methodology:
9.3.1 Construction of Risk Free Benchmark191
9.3.1.1 Using Government of India dated securities; the Benchmark shall
be constructed as below:
a. Government of India dated securities will be grouped into various
duration buckets such as 0.164-0.25 yrs192, 0.25- 0.5 yrs193, 0.5-1
year, 1-2 years, 2-3 years, 4-5 years, 5-6 years and 6 years and the
volume weighted yield would be computed for each bucket. These
duration buckets may be changed to reflect the market value more
closely by any agency suggested by AMFI giving benchmark yield/
matrix of spreads over benchmark yield.
191 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.
192,, SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012
193 SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010
85 Master Circular for Mutual Funds
b. The benchmark as calculated above will be set at least weekly, and
in the event of any significant movement in prices of Government
Securities on account of any event impacting interest rated on any
day such as a change in the Reserve Bank of India (RBI) policies,
the benchmark will be reset to reflect any change in the market
conditions.
9.3.2 Building a Matrix of Spreads for Marking-up the Benchmark Yield194
9.3.2.1 Mark up for credit risk over the risk free benchmark YTM as
calculated in 9.3.1 above, will be determined using the trades of
corporate debentures/bonds of different ratings. All trades on
appropriate stock exchange during the fortnight prior to the
benchmark date will be used in building the corporate YTM and
spread matrices. Initially these matrices will be built only for
corporate securities of investment grade. The matrices are
dynamic and the spreads will be computed every week. The matrix
will be built for all duration buckets for which the benchmark GOI
matrix is built to effectively link the corporate matrix with the GOI
securities matrix. Accordingly:
a. All traded paper (with minimum traded value of `1 crore) will be
classified by their ratings and grouped into 7 duration buckets; for
rated securities, the most conservative publicly available rating will
be used;
b. For each rating category, average volume weighted yield will be
obtained both from trades on the appropriate stock exchange and
from the primary market issuances
c. Where there are no secondary trades on the appropriate stock
exchange in a particular rating category and no primary market
194 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.
86 Master Circular for Mutual Funds
issuances during the fortnight under consideration, then trades on
appropriate stock exchange during the 30 day period prior to the
benchmark date will be considered for computing the average YTM
for such rating category;
d. If the matrix cannot be populated using any or all of the above
steps, then credit spreads from trades on appropriate stock
exchange of the relevant rating category over the AAA trades will be
used to populate the matrix;
e. In each rating category, all outliers will be removed for
smoothening the YTM matrix;
f. Spreads will be obtained by deducting the YTM in each duration
category from the respective YTM of the GOI securities;
g. In the event of lack of trades in the secondary market and the
primary market the gaps in the matrix would be filled by
extrapolation. If the spreads cannot be extrapolated for the reason
of practicality, the gaps in the matrix will be filled by carrying the
spreads from the last matrix.
h. Accordingly, all Mutual Funds shall provide transaction details of
various types of debt securities like NCDs, Mibor linked floaters
and CPs on daily basis in the prescribed format enclosed at
Annexure 3 to the agency recommended by AMFI. Submission of
data would help in daily matrix generation, would improve
uniformity and accuracy of valuation in the Mutual Funds
industry195.
9.3.3 Mark-up/Mark-down Yield
9.3.3.1 The Yields calculated would be marked-up/marked-down to
account for the illiquidity risk, promoter background, finance
company risk and the issuer class risk. As the level of illiquidity
risk would be higher for non rated securities the marking process
195 SEBI Circular No. MFD/CIR.No 23 / 066 /2003 dated March 7,2003
87 Master Circular for Mutual Funds
for rated and non rated securities would be differentiated as
follows:
a. Adjustments for Securities rated by external rating agencies196
Category Discretionary mark
up/mark down
+ -
Rated instruments with 100 bps 50 bps
duration upto 2 years
Rated instruments with 75 bps 25 bps
duration over 2 years
1. The rationale for the above discount structure is to take
cognizance of the differential interest rate risk of the securities.
This structure will be reviewed periodically.
b. Adjustments for Internally Rated Securities197
1. To value an un-rated security, the fund manager shall assign
an internal credit rating, which will be used for valuation.
Since un-rated instruments tend to be more illiquid than rated
securities, the yields would be marked up by adding
discretionary discount as under:
Category Discretionary discount
Unrated instruments Discretionary discount of upto
with duration upto 2 +50 bps over and above
years mandatory discount of +50 bps
Unrated instruments Discretionary discount of upto
2. T
with duration over 2 +50 bps over and above
h
years mandatory discount of +25 bps
196 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.
197 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.
,,,,,
88 Master Circular for Mutual Funds
e benchmark yield/ matrix of spreads over risk free
benchmark yield obtained from any agency suggested by
AMFI, must be applied for valuation of securities on the day of
release of such bench mark yield/ matrix of spreads by the
aforesaid agency.198
9.3.3.2 Chief Executive Officer (whatever his designation may be) of the
AMC shall give prior approval to the use of discretionary mark up
or down limit
9.4 Valuation of securities with Put/Call Options:199
9.4.1 The option embedded securities would be valued as follows:
9.4.1.1 Securities with call option
a. The securities with call option shall be valued at the lower of the
value as obtained by valuing the security to final maturity and
valuing the security to call option. In case there are multiple call
options, the lowest value obtained by valuing to the various call
dates and valuing to the maturity date is to be taken as the value
of the instrument.
9.4.1.2 Securities with Put option
a. The securities with put option shall be valued at the higher of the
value as obtained by valuing the security to final maturity and
valuing the security to put option. In case there are multiple put
options, the highest value obtained by valuing to the various put
dates and valuing to the maturity date is to be taken as the value
of the instruments.
198 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.
,1 99 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.
89 Master Circular for Mutual Funds
9.4.1.3 Securities with both Put and Call option on the same day
a. The securities with both Put and Call option on the same day
would be deemed to mature on the Put/Call day and would be
valued accordingly.
9.5 Valuation of Government Securities
9.5.1 Government securities will be valued at prices for government
securities released by an agency suggested by AMFI to ensure
uniformity in calculation of NAVs200.
9.6 Illiquid Securities201
9.6.1 Aggregate value of “illiquid securities” under a scheme, which are
defined as non-traded, thinly traded and unlisted equity shares,
shall not exceed 15 per cent of the total assets of the scheme and
any illiquid securities held above 15 per cent. of the total assets
shall be assigned zero value.
9.6.2 All Mutual Funds shall disclose as on March 31 and September 30
the scheme wise total illiquid securities in value and percentage of
200 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.
< 2 ,, 01 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.
1. Provided that in case any scheme has illiquid securities in excess of 15% of total
assets as on September 30, 2000 then such a scheme shall within a period of two
years bring down the ratio of illiquid securities within the prescribed limit of 15
per cent. in the following time frame:
a. All the illiquid securities above 20 per cent. of total assets of the scheme shall
be assigned zero value on September 30, 2001.
b. All the illiquid securities above 15 per cent. of total assets of the scheme shall
be assigned zero value on September 30, 2002.
2. In respect of closed ended funds, for the purposes of valuation of illiquid
securities, the limits of 15 per cent. and 20 per cent. applicable to open ended
funds should be increased to 20 per cent. and 25 per cent. respectively.
3. Where a scheme has illiquid securities as at September 30, 2001 not exceeding
15% in the case of an open-ended fund and 20% in the case of closed fund, the
concessions of giving time period for reducing the illiquid security to the
prescribed limits would not be applicable and at all time the excess over 15% or
20% shall be assigned nil value
90 Master Circular for Mutual Funds
the net assets while disclosing Half Yearly Portfolios to the unit
holders. In the list of investments, an asterisk mark shall be given
against all such investments which are recognised as illiquid
securities.
9.6.3 Mutual Funds shall not be allowed to transfer illiquid securities
among their schemes.
9.7 Guidelines for Identification and Provisioning for Non
Performing Assets (Debt Securities)202
9.7.1 Definition of a Non Performing Asset (NPA)
9.7.1.1 An ‘asset’ shall be classified as NPA if the interest and/or
principal amount have not been received or remained outstanding
for one quarter from the day such income and/or installment was
due.
9.7.2 Effective date for classification and provisioning of NPAs
9.7.2.1 The definition of NPA may be applied after a quarter past due date
of the interest. For e.g. if the due date for interest is 30.06.2000, it
will be classified as NPA from 01.10.2000.
9.7.3 Treatment of income accrued on the NPA and further accruals
9.7.3.1 After the expiry of the 1st quarter from the date the income has
fallen due, there will be no further interest accrual on the asset
i.e. if the due date for interest falls on 30.06.2000 and if the
interest is not received, accrual will continue till 30.09.2000 after
which there will be no further accrual of income. In short, taking
202 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.
91 Master Circular for Mutual Funds
the above example, from the beginning of the 2nd quarter there will
be no further accrual on income.
9.7.3.2 On classification of the asset as NPA from a quarter past due date
of interest, all interest accrued and recognized in the books of
accounts of the Mutual Fund till the date shall be provided for.
For e.g. if interest income falls due on 30.06.2000, accrual of
interest will continue till 30.09.2000 even if the income as on
30.06.2000 has not been received. Further, no accrual will take
place from 01.10.2000 onwards. Full provision will be made for
interest accrued and outstanding as on 30.06.2000.
9.7.4 Provision for NPAs – Debt Securities
9.7.4.1 Both secured and unsecured investments, once they are
recognized as NPAs, call for provisioning in the same manner
and where these are related to close ended schemes, the phasing
would be such that to ensure full provisioning prior to the closure
of the scheme or the scheduled phasing which ever is earlier.
9.7.4.2 The value of the asset shall be provided in the following manner or
earlier at the discretion of the Mutual Fund. Mutual Funds will
not have discretion to extend the period of provisioning. The
provisioning against the principal amount or installments shall be
made at the following rates irrespective of whether the principal is
due for repayment or not.
a. 10 percent of the book value of the asset shall be provided for after
6 months past due date of interest i.e. 3 months form the date of
classification of the asset as NPA.
b. 20 percent of the book value of the asset should be provided for
after 9 months past due date of interest i.e. 6 months from the
date of classification of the asset as NPA.
92 Master Circular for Mutual Funds
c. Another 20 percent of the book value of the assets shall be
provided for after 12 months past due date of interest i.e. 9 months
from the date of classification of the asset as NPA.
d. Another 25 percent of the book value of the assets shall be
provided for after 15 months past due date of interest i.e. 12
months from the date of classification of the asset as NPA.
e. The balance 25 percent of the book value of the asset shall be
provided for after 18 months past due date of the interest i.e. 15
months from the date of classification of the assets as NPA.
9.7.4.3 Book value for the purpose of provisioning for NPAs shall be taken
as a value determined as per the prescribed valuation method.
9.7.4.4 This can be explained by an illustration:
a. Let us consider that interest income is due on a half yearly basis
and the due date falls on 30.06.2000 and the interest is not
received till 1st quarter after due date i.e. 30.09.2000. The
provisioning will be done in the following phased manner:
10% provision 01.01.2001 6 months past due date of
interest i.e. 3 months from the
date of classification of asset
as NPA (01.10.2000)
20% provision 01.04.2001
20% provision 01.07.2001
25% provision 01.10.2001
25% provision 01.01.2002
b. Thus, one and half years past the due date of income or one year
and three months from the date of classification of the ‘asset’ as an
NPA, the ‘asset’ will be fully provided for. If any installment is fallen
due, during the period of interest default, the amount of provision
shall be the installment amount or above provision amount,
whichever is higher.
93 Master Circular for Mutual Funds
9.7.5 Reclassification of assets
9.7.5.1 Upon reclassification of assets as ‘performing assets’:
a. In case a company has fully cleared all the arrears of interest, the
interest provisions can be written back in full.
b. The asset will be reclassified as performing on clearance of all
interest arrears and if the debt is regularly serviced over the next
two quarters.
c. In case the company has fully cleared all the arrears of interest,
the interest not credited on accrual basis shall be credited at the
time of receipt.
d. The provision made for the principal amount can be written back
in the following manner
1. 100% of the asset provided for in the books will be written back
at the end of the 2nd quarter where the provision of principal was
made due to the interest defaults only.
2. 50% of the asset provided for in the books will be written back at
the end of the 2nd quarter and 25% after every subsequent
quarter where both installments and interest payment were in
default earlier.
3. Explanation: The words “2nd quarter” wherever appear, shall
mean 2nd calendar quarter.203
e. An asset is reclassified as 'standard asset' only when both, the
overdue interest and overdue installments are paid in full and
there is satisfactory performance for a subsequent period of 6
months.
203 SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001.
94 Master Circular for Mutual Funds
9.7.6 Receipt of past dues:
9.7.6.1 When the Mutual Fund has received income/ principal amount
after their classifications as NPAs:
a. For the next 2 quarters, income shall be recognized on cash basis
and thereafter on accrual basis. The asset will be continued to be
classified as NPA for these two quarters.
b. During this period of two quarters although the asset is classified
as NPA no provision needs to be made for the principal if the same
is not due and outstanding.
c. If part payment is received towards principal, the asset continues
to be classified as NPA and provisions are continued as per the
norms set at 9.7.4 above any excess provision will be written back.
9.7.7 Classification of Deep Discount Bonds as NPAs
9.7.7.1 Investments in Deep Discount Bonds can be classified as NPAs, if
any two of the following conditions are satisfied:
a. If the rating of the Bond comes down to Grade ‘BB’ (or its
equivalent) or below
b. If the company is defaulting in their commitments in respect of
other assets, if available.
c. Full Net worth erosion.
9.7.7.2 Provision should be made as per the norms set at 9.7.4 above as
soon as the asset is classified as NPA.
9.7.7.3 Full provision can be made if the rating comes down to Grade ‘D’
(or its equivalent).
9.7.8 Reschedulement of an asset
9.7.8.1 In case a company defaults in payment of either interest or
principal amount and the Mutual Fund has accepted a
95 Master Circular for Mutual Funds
rescheduling of the schedule of payments, then the following
practice shall be adhered to:
a. In case it is a first reschedulement and only payment of interest is
in default, the classification of the asset as NPA shall be continued
and existing provisions shall not be written back. This practice
shall be continued for two quarters of regular servicing of the debt.
Thereafter, this be classified as ‘performing asset’ and the interest
provided can be written back.
b. If the reschedulement is done due to default in interest and
principal amount, the asset shall continue as NPA for a period of 4
quarters, even though the asset is continued to be serviced during
these 4 quarters regularly. Thereafter, the asset can be classified
as ‘performing asset’ and all the interest provided till such date
shall be written back.
c. If the reschedulement is done for a second/ third time or
thereafter, the characteristics of NPA should be continued for eight
quarters of regular servicing of the debt. The provision shall be
written back only after the asset is reclassified as ‘performing
asset’.
9.7.9 Disclosure in the Half Yearly Portfolio Reports
9.7.9.1 Mutual Funds shall make scrip wise disclosures of NPAs on Half
Yearly basis along with the Half Yearly Portfolio Disclosure in the
format prescribed204.
9.7.9.2 The total amount of provisions made against the NPAs shall be
disclosed in addition to the total quantum of NPAs and their
proportion to the assets of the Mutual Fund scheme. In the list of
investments and asterisk mark shall be given against such
investments which are recognized as NPAs. Where the date of
204 For formats of Half yearly disclosure, please refer to the Chapter on Formats
96 Master Circular for Mutual Funds
redemption of an investment has lapsed, the amount not
redeemed shall be shown as ‘Sundry Debtors’ and not investment,
provided, that where an investment is redeemable by installments,
that will be shown as an investment until all installments have
become overdue.
9.8 Investment in Unlisted Equity Shares205
9.8.1 To ensure uniformity in calculation of NAV the following guidelines
are issued:
9.8.1.1 Methodology for Valuation - unlisted equity shares of a company
shall be valued "in good faith" as below:
a. Based on the latest available audited balance sheet, Net Worth
shall be calculated as the lower of item (1) and (2) below:
1. Net Worth per share = [Share Capital + Free Reserves (excluding
revaluation reserves) - Miscellaneous expenditure not written off
or deferred revenue expenditure, intangible assets and
accumulated losses] / Number of Paid up Shares.
2. After taking into account the outstanding warrants and options,
Net Worth per share shall again be calculated and shall be =
[Share Capital + consideration on exercise of Option and/or
Warrants received/receivable by the Company + Free Reserves
(excluding Revaluation Reserves) - Miscellaneous expenditure
not written off or deferred revenue expenditure, intangible assets
and accumulated losses] / Number of Paid up Shares plus
Number of Shares that would be obtained on conversion and/or
exercise of Outstanding Warrants and Options.
205 SEBI Circular No. MFD/CIR/03/526/2002 dated May 9, 2002.
97 Master Circular for Mutual Funds
3. The lower of (1) and (2) above shall be used for calculation of Net
Worth per share and for further calculation in (c) below.
b. Average capitalisation rate (P/E ratio) for the industry based upon
either BSE or NSE data (which shall be followed consistently and
changes, if any, noted with proper justification thereof) shall be
taken and discounted by 75 per cent. i.e. only 25 per cent of the
industry average P/E shall be taken as capitalisation rate (P/E
ratio). Earnings per share (EPS) of the latest audited annual
accounts will be considered for this purpose.
c. The value as per the Net Worth value per share and the capital
earning value calculated as above shall be averaged and further
discounted by 15 per cent for illiquidity so as to arrive at the fair
value per share.
9.8.1.2 The above valuation methodology shall be subject to the following
conditions:
a. All calculations shall be based on audited accounts.
b. If the latest Balance Sheet of the company is not available within
nine months from the close of the year, unless the accounting year
is changed, the shares of such companies shall be valued at zero.
c. If the Net Worth of the company is negative, the share would be
marked down to zero.
d. In case the EPS is negative, EPS value for that year shall be taken
as zero for arriving at capitalised earning.
e. In case an individual security accounts for more than 5 per cent of
the total assets of the scheme, an independent valuer shall be
appointed for the valuation of the said security. To determine if a
security accounts for more than 5 per cent of the total assets of the
98 Master Circular for Mutual Funds
scheme, it shall be valued in accordance with the procedure as
mentioned above on the date of valuation.
9.8.2 At the discretion of the AMCs and with the approval of the Trustees,
unlisted equity shares may be valued at a price lower than the value
derived using the aforesaid methodology.
9.8.3 Due Diligence
9.8.3.1 Mutual Funds shall not make Investment in unlisted equity
shares at a price higher than the price obtained by using the
aforesaid methodology. However, this restriction is not applicable
for investment made in the Initial Public Offers (IPOs) of the
companies or firm allotment in public issues where all the
regulatory requirements and formalities pertaining to public
issues have been complied with by the companies and where the
Mutual Funds are required to pay just before the date of public
issue.
99 Master Circular for Mutual Funds
9.8.3.2 The Board of the AMC and Board of Trustees shall lay down the
parameters for investing in unlisted equity shares. They shall pay
specific attention as to whether due diligence was exercised while
making such investments and shall review the performance of
such investments in their periodical meetings206.
9.8.4 Reporting of Compliance
9.8.4.1 Comments on compliance of these Guidelines shall be indicated
by the AMCs and Trustees in their CTRs207 and Half Yearly
Reports208 filed with the Board.
9.9 Valuation of securities not covered under the current
valuation policy209:
9.9.1 In case of securities purchased by mutual funds do not fall within
the current framework of the valuation of securities then such
mutual fund shall report immediately to AMFI regarding the same.
Further, at the time of investment AMCs shall ensure that the total
exposure in such securities does not exceed 5% of the total AUM of
the scheme.
9.9.2 AMFI has been advised that the valuation agencies should ensure
that the valuation of such securities gets covered in the valuation
framework within six weeks from the date of receipt of such
intimation from mutual fund.
9.9.3 In the interim period, till AMFI makes provisions to cover such
securities in the valuation of securities framework, the mutual funds
shall value such securities using their proprietary model which has
206 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.
207 For CTR format please refer to the chapter on formats
208 For Half Yearly Reports, please refer to the chapter on formats
100 Master Circular for Mutual Funds
been approved by their independent trustees and the statutory
auditors.
9.10 Dissemination of information:
9.10.1 All mutual funds shall provide transaction details, including inter
scheme transfers, of money market and debt securities on daily
basis to the agency entrusted for providing the benchmark yield/
matrix of spread over risk free benchmark yield. Submission of
data210 would help in daily matrix generation and would improve
uniformity and accuracy of valuation in the mutual funds industry.
9.10.2 The AMCs shall also disclose all details of debt and money market
securities transacted (including inter scheme transfers) in its
schemes portfolio on its website and the same shall be forwarded to
AMFI for consolidation and dissemination as per format211. These
disclosures shall be made settlement date wise on daily basis with a
time lag of 30 days212.
9.11 Consistency
9.11.1 All AMC’s shall ensure that similar securities held under its various
schemes shall be valued consistently.
9.12 The aforesaid valuation would be applicable with effect from August 1,
2010. However, those mutual funds which voluntarily propose to
implement the valuation under the aforesaid circular before August 1,
2010 are permitted to do so.
209 SEBI/IMD/CIR No.16/193388/2010 dated February 02, 2010 and Cir/IMD/DF/4/2010
dated June 21, 2010
210 SEBI Circular No.MFD/CIR/23 /066 / 2003 dated March 7, 2003. For disclosure of
transaction details, please refer to the chapter on Formats
211 For format please refer to the chapter on formats
212 SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012
101 Master Circular for Mutual Funds
CHAPTER 10
LOADS, FEES, CHARGES AND EXPENSES
10.1 Limits on fees and expenses charged to schemes213
10.1.1 Mutual Funds may charge certain expenses to a scheme, as
specified under Regulations.214 Apart from the these expenses, any
other expense as may be approved by SEBI under clause (xiii) of
Sub Regulation 52(4) can also be charged to the Mutual Fund
schemes. Other expenses directly attributable to a scheme may be
charged with the approval of trustees within the overall limits as
provided in the Regulation 52(6).215
10.1.2 The following expenses cannot be charged to the schemes of Mutual
Funds:
10.1.2.1 Penalties and fines for infraction of laws.
10.1.2.2 Interest on delayed payment to the unit holders.
10.1.2.3 Legal, marketing, publication and other general expenses not
attributable to any scheme(s).
10.1.2.4 Fund Accounting Fees.
10.1.2.5 Expenses on investment management/general management.
213 SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997, SEBI Circular
No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998, SEBI Circular No.
MFD/CIR/9/120/2000 dated November 24, 2000.
214 Regulation 52(4) of the Mutual Funds Regulations,1996
215 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.
102 Master Circular for Mutual Funds
10.1.2.6 Expenses on general administration, corporate advertising and
infrastructure costs.
10.1.2.7 Depreciation on fixed assets and software development
expenses.
10.1.2.8 Such other costs as may be prohibited by the Board.
10.1.3 The expenditure and/or fee payable by Mutual Funds to the
Depositories may either be capitalized or included as part of
recurring expenditure within the limits prescribed under Regulation
52(6) of the Mutual Funds Regulations216.
10.1.4 Further, each item of expenditure accounting for more than 10% of
total expenditure shall be disclosed in the accounts or the notes
thereto of the schemes217.
10.1.5 Provision of charging of additional management fees by the Asset
Management Companies in case of schemes launched on no load
basis218.
10.1.5.1 AMC shall not collect any additional management fees referred
to in Regulation219.
10.1.5.2 Mutual Fund Schemes to be launched including those for which
observation letter have been issued under Regulation220 would
be required to carry out the changes in SID and file the same
with SEBI before the launch.
216 SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998.
, 2 ,, 17 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.
218 SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
219 Regulation 52(3) of SEBI Mutual Funds Regulation, 1996 and SEBI Circular No.
SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009
220 Regulation 29 of SEBI (Mutual Funds) Regulations, 1996
103 Master Circular for Mutual Funds
10.2 Restriction on paying brokerage or commission221
10.2.1 In case of investments made by the Sponsor(s), no brokerage or
commission shall be paid.
10.3 Restriction on charging Service Tax222
10.3.1 AMC(s) can charge Service Tax, as per applicable Taxation Laws, to
the scheme(s) within the limits prescribed under Regulations223
10.4 Empowering investors through transparency in payment
of commission and load structure224
10.4.1 In order to empower investors in deciding the commission paid to
distributors in accordance with the level of service received, it has
been mandated that:
10.4.1.1 There shall be no entry load225 for all Mutual Fund schemes.
10.4.1.2 The scheme application forms shall carry a suitable disclosure to
the effect that the upfront commission to distributors will be paid
by the investor directly to the distributor, based on his
assessment of various factors including the service rendered by
the distributor.
10.4.1.3 Of the exit load or CDSC charged to the investor, a maximum of
1% of the redemption proceeds shall be maintained in a separate
account which can be used by the AMC for marketing and selling
221 SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001, SEBI Circular No.
MFD/CIR No.5/153/2001 dated May 24, 2001.
222 SEBI Circular No. MFD/CIR/04/430/2002 dated June 19, 2002.
223 Reg.52(6) of the SEBI (Mutual Funds) Regulations, 1996.
224, 219 SEBI Circular No SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009
104 Master Circular for Mutual Funds
expenses including distributor’s/ agent’s commissions and any
balance shall be credited to the scheme immediately. The load
balances are maintained as ‘liabilities’ in the books of the scheme
and are not included in the net asset value (NAV). The usage226 of
the load account shall be subject to the following:
a. The load balance shall be segregated into two accounts in
the books of accounts of the scheme - one to reflect the
balance as on July 31, 2009 and the other to reflect
accretions since August 01, 2009.
b. However, not more than one- third of load balance as on
July 31, 2009 shall be used in any financial year. It is
clarified though the unutilized balances can be carried
forward, yet in no financial year the total spending can be
more than one third of the load balances on July 31, 2009.
c. The accretions after July 31, 2009 can be used by mutual
funds for marketing and selling expenses including
distributor’s/agent’s commissions without any restrictions
mentioned in Para (b) above.
10.4.1.4 The distributors should disclose all the commissions (in the form
of trail commission or any other mode) payable to them for the
different competing schemes of various Mutual Funds from
amongst which the scheme is being recommended to the
investor.
225 Waiver of load for direct applications - Vide SEBI Circular No. SEBI/IMD/CIR
No.10/112153/07 dated December 31, 2007,SEBI mandated w.e.f January 4,2009 no entry
load shall be charged for applications received directly by the AMC(s) through internet or
submitted directly to the AMC(s) or Collection Center/Investor Service Centre and not routed
through any distributor or agent or broker. This waiver was applicable to both additional
purchases under the same folio and ‘switch in’ to a scheme from other schemes also done
directly by the investor. AMCs shall follow the provisions pertaining to informing the
unitholders upon a change in load structure as per clause 3(d) of standard observations.
226 SEBI Circular No.CIR/IMD/DF/4/2011 dated March 9, 2011
105 Master Circular for Mutual Funds
10.4.2 The above guidelines became applicable for:
10.4.2.1 Investments in mutual fund schemes (including additional
purchases and switch-in to a scheme from other schemes) w.e.f
August 1, 2009
10.4.2.2 Redemptions from mutual fund schemes (including switch-out
from other schemes) w.e.f August 1, 2009
10.4.2.3 New mutual fund schemes launched on or after August 1, 2009
10.4.2.4 Systematic Investment Plans (SIP) registered on or after August
1, 2009227.
10.4.3 The AMCs are required to bring the contents of these guidelines to
the notice of their distributors and monitor compliance.
10.5 Transaction Charges228
10.5.1 A transaction charge per subscription of `10,000/- and above be
allowed to be paid to the distributors of the Mutual Fund products.
However, there shall be no transaction charges on direct
investments. The transaction charge shall be subject to the
following:
10.5.1.1 For existing investors in a Mutual Fund, the distributor may
be paid `100/- as transaction charge per subscription of
`10,000/- and above.
10.5.1.2 As an incentive to attract new investors, the distributor may
be paid `150/- as transaction charge for a first time investor in
Mutual Funds.
228 SEBI Circular no. CIR/IMD/DF/13/2011 dated August 22, 2011
106 Master Circular for Mutual Funds
10.5.1.3 The terms and conditions relating to transaction charge shall
be part of the application form in bold print.
10.5.1.4 The transaction charge, if any, shall be deducted by the
AMC from the subscription amount and paid to the
distributor; and the balance shall be invested.
10.5.1.5 The statement of account shall clearly state that the net
investment as gross subscription less transaction charge and
give the number of units allotted against the net investment.
10.5.1.6 Distributors shall be able to choose to opt out of charging the
transaction charge. However, the ‘opt-out’ shall be at
distributor level and not investor level i.e. a distributor shall
not charge one investor and choose not to charge another
investor.
10.5.1.7 The AMCs shall be responsible for any malpractice/mis-selling
by the distributor while charging transaction costs.
10.5.1.8 There shall be no transaction charge on subscription below
`10,000/-
10.5.1.9 In case of SIPs, the transaction charge shall be applicable
only if the total commitment through SIPs amounts to
`10,000/- and above. In such cases the transaction charge
shall be recovered in 3-4 installments.
10.5.1.10 There shall be no transaction charge on transactions other
than purchases/ subscriptions relating to new inflows.
10.5.2 Mutual Funds shall institute systems to detect if a distributor is
splitting investments in order to enhance the amount of
transaction charges and take stringent action including
recommendations to AMFI to take appropriate action.
107 Master Circular for Mutual Funds
10.5.3 Mutual Funds/AMCs shall carry out an exercise of de-duplication
of folios across all Mutual Funds within a period of 6 months from
August 22, 2011.
10.5.4 The upfront commission229 to distributors shall continue to be paid
by the investor directly to the distributor by a separate
cheque based on his assessment of various factors including the
service rendered by the distributor.
10.6 No Load on Bonus Units and Units allotted on
Reinvestment of Dividend230
AMC(s) shall not charge entry and/or exit load on bonus units and
units allotted on reinvestment of dividend. Necessary disclosures in
this regard shall be made in the SID filed with the Board231
10.7 Filing fees 232
10.7.1 Revised filing fee233 as per the SEBI (Payment of Fees) Amendment
Regulations 2009 would be applicable to those scheme(s) whose
SID has been filed with SEBI on or after July 01, 2009.
10.8 Exit load parity
10.8.1 While charging exit loads, no distinction among unit holders
should be made based on the amount of subscription234. While
complying with the same, Mutual Funds should ensure that “any
229 SEBI circular no. SEBI/IMD/CIR No.4/168230/09, dated June 30, 2009
230 ,231 SEBI Circular No. SEBI/IMD/CIR No. 14/120784/08 dated March 18, 2008
232 SEBI Cir No. SEBI / IMD / CIR No. 5 / 169030 / 2009 dated July 8, 2009
233 Gazettee Notification No. LAD-NRO/GN/2009-10/11/167759 on SEBI (Payment of Fees)
(Amendment) Regulations, 2009 dated 29 June, 2009
234 SEBI Circular No. SEBI / IMD / CIR No. 6 /172445/ 2009 dated August 7,2009 All
Mutual Funds shall ensure compliance with this circular on or before August 24, 2009
108 Master Circular for Mutual Funds
imposition or enhancement in the load shall be applicable on
prospective investments only.235
10.8.2 Further, the parity among all classes of unit holders in terms of
charging exit load shall be made applicable at the portfolio level.236
235 SEBI Circular No - SEBI / IMD / CIR No. 7 /173650 / 2009 dated August 17,2009 and
SEBI circular No. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 (clause 16 of the
standard observations)
236 SEBI Circular No - SEBI / IMD / CIR No. 7 /173650 / 2009 dated August 17,2009
109 Master Circular for Mutual Funds
CHAPTER 11
DIVIDEND DISTRIBUTION PROCEDURE
237, 238
11.1 Regulations239 permit Mutual Funds to distribute returns including
dividend. To introduce uniform practices in dividend distribution, the
following guidelines should be followed:
11.2 These guidelines are applicable to all Mutual Fund schemes/plans which
intend to declare the dividend irrespective of their dates of launch.240
11.2.1 Unlisted Scheme(s)/ Plan(s)
11.2.1.1 The Trustees shall decide the quantum of dividend and the
record date in their meeting241. Dividend so decided, shall be
paid, subject to availability of distributable surplus.
11.2.1.2 Record date shall be the date which will be considered for the
purpose of determining the eligibility of investors whose names
appear on the register of unit holders for receiving dividends.
The NAV shall be adjusted to the extent of dividend distribution
and statutory levy, if applicable, at the close of business hours
on record date.
11.2.1.3 Within one calendar day of the decision of the Trustees with
respect to the dividend to be distributed, the AMC(s) shall issue
a notice to the public communicating the decision including the
237 SEBI Circular No. SEBI/IMD/CIR No.1/64057/06 dated April 4, 2006.
238 For details on advertisement on dividend please refer to Chapter on ‘Advertisements’
239 Regulation 53(a) of the SEBI (Mutual Funds) Regulations, 1996
240 SEBI Circular No SEBI/IMD/CIR No. 3/65370/06 dated April 21,2006
241 Clause 20 of Third Schedule of SEBI (Mutual Funds) Regulations, 1996
110 Master Circular for Mutual Funds
record date. The record date shall be five calendar days from the
issue of public notice.
11.2.1.4 Before the issue of such notice, no communication whatsoever
indicating the probable date of dividend declaration shall be
issued by any Mutual Fund or its distributors of its products.
11.2.1.5 Such notice shall be given in at least one English daily
newspaper having nationwide circulation as well as in a
newspaper published in the language of the region where the
head office of the Mutual Fund is situated.
11.2.1.6 The notice shall, in font size 10, bold, categorically state that
pursuant to dividend distribution, NAV of the scheme would fall
to the extent of payout and statutory levy (if applicable).
11.2.2 Liquid / Debt Schemes with frequent dividend distribution
11.2.2.1 The requirement of giving notice is not mandatory for scheme(s)/
plan(s)/ option(s) with dividend distribution frequency ranging
from daily up to monthly distribution if requisite disclosures in
this regard are made in the SID.
11.2.3 Listed Schemes/Plans
11.2.3.1 Listed scheme(s)/ plan(s) shall follow the requirements stipulated
in the Listing Agreement for dividend declaration and
distribution.
11.3 Non availability of Unit Premium Reserve for dividend
distribution242
242 SEBI circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
111 Master Circular for Mutual Funds
11.3.1 Regulations243 provide the accounting policies to be followed for
determining distributable surplus and accounting the sale and
repurchase of units in the books of the Mutual Fund. The format
for Scheme Balance Sheet (including Abridged) provides for
disclosure of Unit Premium Reserve.
11.3.2 Unit Premium Reserve, which is part of the sales price of units that
is not attributable to realized gains, cannot be used to pay
dividend. Therefore:
11.3.2.1 When units of an open-ended scheme are sold, and sale price is
higher than face value of the unit, part of sale proceeds that
represents unrealised gains shall be credited to a separate
account (Unit Premium Reserve) and shall be treated at par with
unit capital and the same shall not be utilized for the
determination of distributable surplus.
11.3.2.2 When units of an open-ended scheme are sold, and sale price is
less than face value of the unit, the difference between the sale
price and face value shall be debited to distributable reserves
and the dividend can be declared only when distributable
reserves become positive after adjusting the amount debited to
reserves as per Regulations244.
243 Ninth and Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996
244 Paragraph 2(a) (ix) of Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996
112 Master Circular for Mutual Funds
CHAPTER 12
INVESTMENT BY SCHEMES245
12.1 Investments by Index Funds:246
12.1.1 Investments by index funds shall be in accordance with the
weightage of the scrips in the specific index as disclosed in the
SID247 In case of sector or industry specific scheme, the upper
ceiling on investments may be in accordance with the weightage of
the scrips in the representative sectoral index or sub index as
disclosed in the SID or 10% of the NAV of the scheme, whichever is
higher.
12.2 Investments by Liquid Schemes and plans248
12.2.1 The ‘liquid fund schemes and plans’ shall make investment in
/purchase debt and money market securities with maturity of upto
91 days only 249. This shall also be applicable in case of inter
scheme transfer of securities 250
12.2.1.1 Explanation:
245
Investments in Money Market instruments (MMIs)
In case of the existing schemes ( i.e. existing on date of issue of SEBI Circular No - SEBI /
IMD / CIR No.3 / 166386 / 2009 dated June 15, 2009) where the investments in money
market instruments of an issuer are not in compliance with the Gazette Notification No. LAD
– NRO/GN/2009-10/07/165404 dated June 5, 2009, AMC shall ensure compliance within a
period of 3 months from the date of notification.
<2< 46
SEBI Circular No - MFD/CIR/09/014/2000 dated January 5, 2000
247 See Clause 10, Seventh Schedule of Mutual Funds Regulations.
<2 48 SEBI Circular No - SEBI/IMD/CIR No.13/150975 / 09 dated January 19, 2009
249 With effect from February 01, 2009 make investment in /purchase debt and money
market securities with maturity of upto182 days only.
250
Transition provision:
Inter-scheme transfers of securities having maturity upto 365 days and held in other schemes as
on February 01, 2009 shall be permitted till October 31, 2009. With effect from November 1,
2009 the requirements stated at paragraph 12.2.1 above shall apply to such inter-se scheme
transfers also.
<
113 Master Circular for Mutual Funds
a. In case of securities where the principal is to be repaid in a single
payout the maturity of the securities shall mean residual maturity.
In case the principal is to be repaid in more than one payout then
the maturity of the securities shall be calculated on the basis of
weighted average maturity of security.
b. In case of securities with put and call options (daily or otherwise)
the residual maturity of the securities shall not be greater than 91
days251
c. In case the maturity of the security falls on a non-business day
then settlement of securities will take place on the next business
day.
12.2.2 The above requirements shall be disclosed in the SID and shall
form part of the investment allocation pattern. Any deviation from
these requirements shall be viewed as violation of investment
restrictions.
12.3 Investments by close ended debt schemes:
12.3.1 Close ended debt schemes shall invest only in such securities
which mature on or before the date of the maturity of the
scheme252
12.4 Stock Lending Scheme253
251 w.e.f May 01, 2009.
252 SEBI Circular No IMD/CIR No 12/147132/08 dated December 11, 2008.
253 SEBI Circular No MFD/CIR/01/047/99 dated February 10, 1999.
,
114 Master Circular for Mutual Funds
12.4.1 The following guidelines are issued to facilitate lending of securities
by Mutual Funds through intermediaries approved by the Board in
accordance with the Stock Lending & Borrowing Scheme.254
12.4.2 Disclosure Requirements
12.4.2.1 The following information shall be disclosed in the SID to enable
the investors and unit holders to take an informed decision:
a. Intention to lend securities belonging to a particular Mutual Fund
scheme in accordance with the guidelines on securities lending
and borrowing scheme issued by SEBI from time to time.255
b. Exposure limit with regard to securities lending, both for the
scheme as well as for a single intermediary.
c. Risks factors such as loss, bankruptcy etc. associated with such
transactions.
254 Regulation 44(4) of the SEBI (Mutual Funds) Regulations, 1996.
255 SEBI Circular No - SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009
115 Master Circular for Mutual Funds
12.4.3 Reporting Requirement
12.4.3.1 The AMC(s) shall report to the Trustees on a quarterly basis
about the level of lending, in terms of value, volume and
intermediaries and also earnings and/or losses, value of
collateral security etc.
12.4.3.2 The Trustees shall periodically review the securities lending
contract and take reasonable steps to ensure that the same is
not, in any way, detrimental to the interests of the unit holders of
the scheme.
12.4.3.3 The Trustees shall offer their comments on the above aspects in
the Half Yearly Trustee Report filed with the Board.256
12.4.4 Existing schemes
12.4.4.1 In case an existing SID does not provide for lending of securities,
Mutual Funds may still lend securities belonging to the scheme,
in accordance with the SEBI Guidelines, provided approval is
obtained from the Trustees and the intention to lend securities is
conveyed to the unit holders.
12.5 Approval for Investment in Unrated Debt Instruments257
12.5.1 Mutual Funds may, for the purpose of operational flexibility,
constitute committees to approve investment proposals in unrated
instruments. However, detailed parameters for investment in
unrated debt instruments have to be approved by the Board of the
AMC and Trustees. Details of such investments shall be
communicated by the AMCs to the Trustees in their periodical
reports, along with clear indication as to how the parameters set
256 Regulation 18(23)(a) of the Mutual Funds Regulations. Further, for format of Half Yearly
Trustee Report please refer to chapter on Formats.
257 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.
116 Master Circular for Mutual Funds
for investments have been complied with. Prior approval of the
Board of the AMC and Trustees shall be required in case
investment is sought to be made in an unrated security falling
outside the prescribed parameters.
12.6 Investments in Units of Venture Capital Funds258
12.6.1 Mutual Fund schemes can invest in listed or unlisted securities or
units of Venture Capital Funds within the prescribed investment
limits as applicable.259
12.7 Investment limits for Government guaranteed debt
securities260
12.7.1 Prudential investment norms as per Regulations stipulating limits
for investments in debt securities261 issued by a single issuer are
applicable to all debt securities issued by public bodies or
institutions such as electricity boards, municipal corporations,
state transport corporations etc. guaranteed by either State /
Central Government. Government securities issued by Central
and/or State Government or on its behalf, by the RBI are however
exempt from these limits.
12.8 Investment Restrictions for Securitised Debt262
12.8.1 For investments made in Securitised Debt (mortgage backed
securities and asset backed securities), restrictions as per Clause 1
of Seventh Schedule263 shall not apply at the originator level.
12.9 Investments in Short Term Deposits of Scheduled
Commercial Banks264
258 SEBI Circular No. MFD/CIR/9/230/2001 dated August 14, 2001.
,2,, 59 Clauses 10 and 11, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996.
,2, 60 SEBI Circular No. SEBI/IMD/CIR No.8/18944/03 dated October 6, 2003.
,2 61 Clauses 1 and 1A, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996.
,2, 62 SEBI Circular No. SEBI/IMD/CIR No.6/63715/06 dated March 29, 2006.
263 Clause I of Schedule VII of SEBI (Mutual Fund), Regulations, 1996
117 Master Circular for Mutual Funds
12.9.1 The guidelines for deployment of funds in short term deposits of
commercial banks for schemes are as under:
12.9.1.1 “Short Term” for parking of funds by Mutual Funds shall be
treated as a period not exceeding 91 days.265
12.9.1.2 Such deposits shall be held in the name of the concerned scheme.
12.9.1.3 Mutual Funds shall not park more than 15% of their net assets in
short term deposits of all scheduled commercial banks put
together. This limit however may be raised to 20% with prior
approval of the Trustees. Also, parking of funds in short term
deposits of associate and sponsor scheduled commercial banks
together shall not exceed 20% of the total deployment by the
Mutual Fund in short term deposits.
12.9.1.4 Mutual Funds shall not park more than 10% of the net assets in
short term deposits with any one scheduled commercial bank
including its subsidiaries.
12.9.1.5 Trustees shall ensure that funds of a particular scheme are not
parked in short term deposit of a bank which has invested in that
scheme.
12.9.1.6 In case of liquid and debt oriented schemes, AMC(s) shall not
charge any investment management and advisory fees for parking
of funds in short term deposits of scheduled commercial banks.
12.9.1.7 Half Yearly portfolio statements shall disclose all funds parked in
short term deposit(s) under a separate heading. Details shall also
264 SEBI Circulars No. SEBI/IMD/CIR No.9/20306/03 dated November 12, 2003, SEBI
Circular No. SEBI/IMD/Cir No.1/91171/07 dated April 16, 2007, SEBI and Clause 8 of
Seventh Schedule of Mutual Funds Regulations, 1996.
,2,, 65 SEBI Circular No. SEBI/IMD/Cir No.1/91171/07 dated April 16, 2007.
118 Master Circular for Mutual Funds
include name of the bank, amount of funds parked, percentage of
NAV.
12.9.1.8 Trustees shall, in the Half Yearly Trustee Reports certify that
provisions of the Mutual Funds Regulations pertaining to parking
of funds in short term deposits pending deployment are complied
with at all points of time. The AMC(s) shall also certify the same in
its CTR(s).
12.9.1.9 Investments made in short term deposits pending deployment of
funds266 shall be recorded267 and reported to the Trustees
including the reasons for the investment especially comparisons
with interest rates offered by other scheduled commercial
banks.268
12.9.1.10 Except for clause (12.9.1.7) the above guidelines shall not apply
to term deposits placed as margins for trading in cash and
derivatives market269. However, duration of such term deposits
shall be disclosed in the Half Yearly Portfolio270.
12.10 Reconciliation Procedure for Investment in Government
Securities271
266 Clause 8, Schedule Seven, SEBI (Mutual Funds), Regulations, 1996.
,2,,,,, 67 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.
,2 , 68 SEBI Circular No. SEBI/IMD/CIR No.9/20306/03 da ted November 12, 2003.
,269 SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008.
270 SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008
271 SEBI Circular No. MFD/CIR/19/22474/2002 dated November 20, 2002.
,,
119 Master Circular for Mutual Funds
12.10.1 According to the RBI guidelines272 issued to all SGL account
holders, to make transactions in government securities
transparent, a monthly reconciliation system has been introduced
between RBI and Mutual Funds maintaining SGL/CSGL accounts
with respect to Government Securities on an ongoing basis.
12.10.2 Mutual Funds shall reconcile the balances reported in the monthly
statements furnished by RBI with the transactions undertaken by
them.
12.10.3 The reconciliation procedure shall be made part of internal audit
and the auditors shall on a continuous basis, check the status of
reconciliation and submit a report to the Audit Committee. These
reports shall be placed in the meetings of the Board of the AMC
and Trustees. Mutual Funds shall submit, on a quarterly basis to
the RBI, a certificate confirming compliance with these
requirements and any other guidelines issued by the RBI from time
to time in this regard. Compliance shall also be reported to the
Board in the CTRs of AMC(s) and Half Yearly Trustee Reports.
272 RBI Circular No.P.D.O.SGL.CIRR/1945/2002-2003 dated November 1, 2002.
120 Master Circular for Mutual Funds
12.11 Participation of mutual funds in repo in corporate debt
securities273
12.11.1 Mutual funds can participate in repos in corporate debt securities
as per the guidelines issued by RBI from time to time, subject to
the following conditions:
12.11.1.1 The gross exposure of any mutual fund scheme to repo
transactions in corporate debt securities shall not be more
than 10 % of the net assets of the concerned scheme.
12.11.1.2 The cumulative gross exposure through repo transactions in
corporate debt securities along with equity, debt and derivatives
shall not exceed 100% of the net assets of the concerned
scheme.
12.11.1.3 Mutual funds shall participate in repo transactions only in
AAA rated corporate debt securities.
12.11.1.4 In terms of Regulation 44 (2) of the Securities and Exchange
Board of India (Mutual Funds) Regulations, 1996, mutual
funds shall borrow through repo transactions only if the
tenor of the transaction does not exceed a period of six months.
12.11.1.5 The Trustees and the Asset Management Companies shall
frame guidelines about, inter alia, , the following in context of
these transactions keeping in mind the interest of investors in
their schemes:
a. Category of counterparty
b. Credit rating of counterparty
c. Tenor of collateral
273 SEBI Circular No. CIR/IMD/DF/19/2011 dated November 11, 2011
121 Master Circular for Mutual Funds
d. Applicable haircuts
12.11.1.6 Mutual funds shall ensure compliance with the Seventh
Schedule of the Mutual Funds Regulations about
restrictions on investments, wherever applicable, with
respect to repo transactions in corporate debt securities.
12.11.1.7 The details of repo transactions of the schemes in corporate debt
securities, including details of counterparties, amount
involved and percentage of NAV shall be disclosed to investors in
the half yearly portfolio statements and to SEBI in the half
yearly trustee report.
12.11.1.8 To enable the investors in the mutual fund schemes to take
an informed decision, the concerned Scheme Information
Document shall disclose the following:
a. The intention to participate in repo transactions in
corporate debt securities in accordance with directions issued
by RBI and SEBI from time to time;
b. The exposure limit for the scheme; and
c. The risk factors associated with repo transactions in
corporate bonds
12.12 Overseas Investment274
12.12.1 Applicable limits:
12.12.1.1 Aggregate ceiling for overseas investments is US $ 7 billion275
and within this overall limit, Mutual Funds can make overseas
274 SEBI Circular No. SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007 & SEBI
Circular No. SEBI/IMD/CIR No.2/122577/08 dated April 8, 2008.
275 SEBI Circular No. SEBI/IMD/CIR No.2/122577/08 dated April 8, 2008.
122 Master Circular for Mutual Funds
investments subject to a maximum of US $ 300 million per
Mutual Fund.
12.12.1.2 Aggregate ceiling for investment by Mutual Funds in overseas
Exchange Traded Fund (ETF(s)) that invest in securities is US $
1 billion subject to a maximum of US $ 50 million per Mutual
Fund.
12.12.2 Permissible investments:
12.12.2.1 ADR(s) and/or GDR(s) issued by Indian or foreign companies.
12.12.2.2 Equity of overseas companies listed on recognized Stock
Exchanges overseas.
12.12.2.3 Initial and Follow on Public Offerings for listing at recognized
Stock Exchanges overseas.
12.12.2.4 Foreign debt securities in the countries with fully convertible
currencies, short term as well as long term debt instruments
with rating not below investment grade by accredited/
registered credit rating agencies.
12.12.2.5 Money Market Instruments rated not below investment grade.
12.12.2.6 Repos in form of investment, where the counterparty is rated
not below investment grade; repo shall not however involve any
borrowing of funds by Mutual Funds.
12.12.2.7 Government securities where the countries are rated not below
investment grade.
123 Master Circular for Mutual Funds
12.12.2.8 Derivatives traded on recognized stock exchanges overseas only
for hedging and portfolio balancing with underlying as
securities.
12.12.2.9 Short term deposits with banks overseas where the issuer is
rated not below investment grade.
12.12.2.10 Units / securities issued by overseas Mutual Funds or unit
trusts registered with overseas regulators and investing in
a. Aforesaid Securities
b. Real Estate Investment Trusts listed on recognized Stock
Exchanges overseas or
c. Unlisted overseas securities, not exceeding 10% of their net assets
12.12.3 Other Conditions:
12.12.3.1 Apart from the Mutual Funds Regulations and guidelines issued
from time to time, Mutual Funds shall adhere to the following
specific guidelines while making overseas investments:
12.12.3.2 Appointment of a Dedicated Fund Manager:
a. A dedicated fund manager shall be appointed for making the above
overseas investments stipulated under clause 12.12.2.1 to
12.12.2.9.
12.12.3.3 Due Diligence:
a. The Board of the AMC and Trustees shall exercise due diligence in
making investment decisions and record the same.276 They shall
make a detailed analysis of risks and returns of overseas
investment and how these investments would be in the interest of
276 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.
124 Master Circular for Mutual Funds
investors. Investment shall be made in liquid actively traded
securities /instruments.
b. The Board of the AMC and Trustees may prescribe detailed
parameters for making such investments which may include
identification of countries, country rating, country limits etc. They
shall satisfy themselves that the AMC has experienced key
personnel, research facilities and infrastructure for making such
investments. Other specialized agencies and service providers
associated with such investments e.g. custodian, bank, advisors
etc. shall also have adequate expertise and infrastructure facilities.
Their past track record of performance and regulatory compliance
record, if they are registered with foreign regulators, should also be
considered. Necessary agreements may be entered into with them
as required.
12.12.3.4 Mandatory Disclosure Requirements for Mutual Fund schemes
proposing overseas investments:
a. Intention to invest in foreign securities and/or ETF(s) shall be
disclosed in the SID. The attendant risk factors and returns
ensuing from such investments shall be explained clearly in the
SID. Mutual Funds shall also disclose as to how such investments
will help in the furtherance of the investment objectives of the
scheme(s). Such disclosures shall be in a language comprehensible
to an average investor
b. Mutual Funds shall disclose the name of the Dedicated Fund
Manager for making overseas investments as stipulated under
paragraph 12.12.3.2 above.
125 Master Circular for Mutual Funds
c. Mutual Funds shall disclose exposure limits i.e. the percentage of
assets of the scheme they would invest in foreign securities /
ETF(s).
d. Such investments shall be disclosed while disclosing Half Yearly
portfolios in the prescribed format under a separate heading
"Foreign Securities and/or overseas ETF(s)." Scheme wise
percentage of investments made in such securities shall be
disclosed while publishing Half Yearly Results in the prescribed
format277 as a footnote.
12.12.3.5 Investment by Existing Schemes:
a. Existing schemes of Mutual Funds where the SID provides for
investment in foreign securities and attendant risk factors but
which have not yet invested, may invest in foreign securities,
consistent with the investment objectives of the schemes, provided
a Dedicated Fund Manager has been appointed as stipulated in
paragraph 12.12.3.2. Additional disclosures specified above shall
be included by way of addendum and unit holders will be informed
accordingly.
b. In case the SID of an existing scheme does not provide for overseas
investment, the scheme, if it so desires, may make such
investments in accordance with these Guidelines, provided that
prior to the overseas investments for the first time, the AMC shall
ensure that a written communication about the proposed
investment is sent to each unit holder and an advertisement is
given in one English daily newspaper having nationwide circulation
as well as in a newspaper published in the language of the region
where the Head Office of the Mutual Fund is situated. The
277 For Half Yearly Results, please refer to the Chapter on Formats
126 Master Circular for Mutual Funds
communication to unit holders shall also disclose the risk factors
associated with such investments.
12.12.3.6 Detailed periodic reporting to Trustees by AMC(s) shall include:
a. Performance of overseas investments
b. Amount invested in various schemes and any breach of the
exposure limit laid down in the SID.
12.12.3.7 Review of Performance:
a. The Board of the AMC and Trustees shall review the performance
of schemes making overseas investments with appropriate
benchmark(s) as disclosed in the SID.
12.12.3.8 Reporting to the Board:
a. The Trustees shall offer their comments on the compliance of
these guidelines in the Half Yearly Reports filed with the Board.
12.12.3.9 Prudential Investment Norms:
a. Investment restrictions specified in Schedule Seven of the Mutual
Funds Regulations are applicable to overseas investments
stipulated under paragraph 12.12.2.1- 12.12.2.9
b. However, Clause 4 of the Seventh Schedule of the Mutual Funds
Regulations that restricts investments in Mutual Fund units up to
5% of net assets and prohibits charging of fees, shall not be
applicable to investments in Mutual Funds in foreign countries
made in accordance with these Guidelines.
c. Management fees and other expenses charged by the Mutual
Funds in foreign countries along with the management fee and
127 Master Circular for Mutual Funds
recurring expenses charged to the domestic Mutual Fund scheme
shall not exceed the total limits on expenses as prescribed under
Regulation 52(6) of the Mutual Funds Regulations. Where the
scheme is investing only a part of the net assets in overseas
Mutual Funds, the same principle shall be applicable for that part
of investment. Details of calculation for charging such expenses
shall be reported to the Board of the AMC and the Trustees and
shall also be disclosed in the Annual Report of the scheme
d. The application278 for seeking approval for investing in foreign
securities, ADR/GDR/overseas ETF(s) shall be made in advance of
making investments. On receipt of approval from the Board,
intimation may be sent by the AMC(s) to Overseas Investment
Division, Foreign Exchange Department, RBI.
12.13 Investments in Indian Depository Receipts (IDRs)279
12.13.1 Mutual funds can invest in Indian Depository Receipts280 [Indian
Depository Receipts as defined in Companies (Issue of Indian
Depository Receipts) Rules, 2004] subject to compliance with SEBI
(Mutual Funds) Regulations 1996 and guidelines issued there
under, specifically investment restrictions as specified in the
Seventh Schedule of the Regulations.
12.14 Investment Restrictions281
12.13.1 All investment restrictions as contained in the Regulations282 shall
be applicable at the time of making investment.
278 Please refer the chapter on formats for format of proposal for investments in foreign securities
and ETFs
279 SEBI Circular No. IMD/CIR. No.1/165935/2009 dated June 09, 2009
280 Regulation 43(1) of SEBI (Mutual Funds) Regulations, 1996
281 SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000.
282 Seventh Schedule of SEBI (Mutual Funds) Regulations, 1996.
128 Master Circular for Mutual Funds
12.15 Recording of Investment Decisions283
12.15.1 AMC(s) shall exercise due diligence and care in all investment
decisions as would be exercised by other persons engaged in the
same business.284 Further AMC(s) shall maintain records in
support of each investment decision which will indicate data,
facts and opinion leading to that decision. While broad
parameters for investments can be prescribed by the Board of
Directors of the AMC, the basis for taking individual scrip wise
investment decision in equity and debt securities shall be
recorded. A detailed research report analyzing various factors for
each investment decision taken for the first time shall be
maintained and the reasons for subsequent purchase and sales
in the same scrip shall also be recorded. The contents of the
research reports may be decided by the AMC(s) and the Trustees.
12.15.2 The Board of the AMC shall develop a mechanism to verify that
due diligence is being exercised while making investment
decisions especially in cases of investment in unlisted and
privately placed securities, unrated debt securities, NPAs,
transactions where associates are involved and instances where
the performance of the scheme(s) is poor.
12.15.3 AMC(s) shall report compliance with these requirements in their
periodical reports to the Trustees and the Trustees shall report
the same to the Board in the Half Yearly Trustee Reports285.
Trustees shall also check compliance with these Guidelines
through independent auditors or internal and/or statutory
auditors or other systems developed by them.
283 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.
284 Regulation 25(2) of the SE BI (Mutual Funds) Regulations, 1996.
285 For Half Yearly Trustee Report please refer to the chapter on Formats
129 Master Circular for Mutual Funds
12.16 Norms for investment and disclosure by Mutual Funds in
derivatives286
12.16.1 Exposure Limits
12.16.1.1 The cumulative gross exposure through equity, debt and
derivative positions should not exceed 100% of the net assets of
the scheme.
12.16.1.2 Mutual Funds shall not write options or purchase instruments
with embedded written options.
12.16.1.3 The total exposure related to option premium paid must not
exceed 20% of the net assets of the scheme.
12.16.1.4 Cash or cash equivalents with residual maturity of less than 91
days may be treated as not creating any exposure.
12.16.1.5 Exposure due to hedging positions may not be included in the
above mentioned limits subject to the following:
a. Hedging positions are the derivative positions that reduce possible
losses on an existing position in securities and till the existing
position remains.
b. Hedging positions cannot be taken for existing derivative positions.
Exposure due to such positions shall have to be added and treated
under limits mentioned in Point 12.16.1.1.
c. Any derivative instrument used to hedge has the same underlying
security as the existing position being hedged.
286
SEBI Circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010
130 Master Circular for Mutual Funds
d. The quantity of underlying associated with the derivative position
taken for hedging purposes does not exceed the quantity of the
existing position against which hedge has been taken.
12.16.1.6 Mutual Funds may enter into plain vanilla interest rate swaps
for hedging purposes. The counter party in such transactions
has to be an entity recognized as a market maker by RBI.
Further, the value of the notional principal in such cases must
not exceed the value of respective existing assets being hedged
by the scheme. Exposure to a single counterparty in such
transactions should not exceed 10% of the net assets of the
scheme.
12.16.1.7 Exposure due to derivative positions taken for hedging purposes
in excess of the underlying position against which the hedging
position has been taken, shall be treated under the limits
mentioned in point 12.16.1.1.
Definition of Exposure in case of Derivative Positions
12.16.1.8 Each position taken in derivatives shall have an associated
exposure as defined under. Exposure is the maximum possible
loss that may occur on a position. However, certain derivative
positions may theoretically have unlimited possible loss.
Exposure in derivative positions shall be computed as follows:
Position Exposure
Long Future Futures Price * Lot Size * Number of
Contracts
Short Future Futures Price * Lot Size * Number of
Contracts
Option bought Option Premium Paid * Lot Size * Number
of Contracts.
131 Master Circular for Mutual Funds
12.15.1.4 The provisions shall be applicable for all new schemes launched
post the issue of the aforementioned guidelines. For all existing
schemes, compliance with the guidelines shall be effective from
October 01, 2010.
12.17 Interval Schemes/Plans287
287 SEBI Circular No. CIR/IMD/DF /19/2010 dated November 26, 2010
132 Master Circular for Mutual Funds
12.17.1 Certain SIDs provide that the subscription to the scheme can be
made during a specific period (known as specified transaction
period) and the repurchase of units is permitted on all business
days subject to applicable loads (except for redemption during
specified transaction period when no load is charged). These
schemes are generally referred to as ‘interval schemes’.
12.17.2 For all interval schemes/plans288:
12.17.2.1 The units shall be mandatorily listed.
12.17.2.2 No redemption/repurchase of units shall be allowed except
during the specified transaction period (the period during which
both subscription and redemption may be made to and from the
scheme). The specified transaction period shall be of minimum
2 working days.
12.17.2.3 Minimum duration of an interval period in an interval
scheme/plan shall be 15 days.
12.17.2.4 Investments shall be permitted only in such securities which
mature on or before the opening of the immediately following
specified transaction period.
a. Explanation:
In case of securities with put and call options the residual time for
exercising the put option of the securities shall not be beyond the
opening of the immediately following transaction period.
288
Applicability:
The AMC shall ensure compliance with the requirements mentioned in Clause 12.16.2 from
the date of next specified transaction period or April 1, 2011 whichever is later. Schemes for
which observations (final) under Regulation 29 of SEBI (Mutual Funds) Regulations, 1996
have been issued but are yet to be launched would be required to carry out the changes in
Scheme Information Document and file the same with SEBI before the launch.
133 Master Circular for Mutual Funds
CHAPTER 13
ADVERTISEMENTS289
13.1 Advertisement shall be in terms of Sixth Schedule290.
13.2 In addition to the provisions of the Sixth Schedule, mutual funds shall
comply with the following:291
13.2.1 While advertising pay out of dividends, all advertisements shall
disclose the dividends declared or paid in rupees per unit along
with the face value of each unit of that scheme and the prevailing
NAV at the time of declaration of the dividend.
13.2.2 Impact of Distribution Taxes: While advertising returns by
assuming reinvestment of dividends, if distribution taxes are
excluded while calculating the returns, this fact shall also be
disclosed.
13.2.3 Pay out of Dividend/ Bonus: While advertising pay outs, all
advertisements shall disclose, immediately below the pay out figure
(in percentage or in absolute terms) that the NAV of the scheme,
pursuant to pay out would fall to the extent of payout and statutory
levy (if applicable).
13.3 Transparency of Information292
13.3.1 When the scheme has been in existence for more than three years:
289SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011 and SEBI Circular
No.Cir/IMD/DF/6/2012 dated February 28, 2012
290 Sixth Schedule of SEBI (Mutual Funds) Regulations, 1996 as amended via gazette notification No. LAD-
NRO/GN/2011-12/38/4290 dated February 21, 2012
291 SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012
292 SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011
134 Master Circular for Mutual Funds
13.3.1.1 Point-to-point returns on a standard investment of `10,000/-
shall also be shown in addition to CAGR for a scheme in order
to provide ease of understanding to retail investors.
13.3.1.2 Performance advertisement shall be provided since inception
and for as many twelve month periods as possible for the last 3
years, such periods being counted from the last day of the
calendar quarter preceding the date of advertisement, along
with benchmark index performance for the same periods.
13.3.2 Where scheme has been in existence for more than one year but
less than three years, performance advertisement of scheme(s) shall
be provided for as many as twelve month periods as possible, such
periods being counted from the last day of the calendar quarter
preceding the date of advertisement, alongwith benchmark index
performance for the same periods.
13.3.3 Where the scheme has been in existence for less than one year,
past performance shall not be provided.
13.3.4 In case of Money Market schemes or cash and liquid schemes293,
wherein investors have very short investment horizon, the
performance can be advertised by simple annualisation of yields if a
performance figure is available for at least 7 days, 15 days and 30
days provided it does not reflect an unrealistic or misleading picture
of the performance or future performance of the scheme.
293 SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012
135 Master Circular for Mutual Funds
13.3.5 For the sake of standardization, a similar return in INR and by way
of CAGR must be shown for the following apart from the scheme
benchmarks:
Scheme Type Benchmark
Equity Scheme Sensex or Nifty
Long term debt scheme 10 year dated GOI security
Short term debt fund 1 year T-bill
These disclosures shall form a part of the Statement of Additional
Information and all advertisements of Mutual Funds.
13.3.6 Any disclosure regarding quarterly/ half yearly/ yearly performance
shall pertain to respective calendar quarterly/ half yearly/ yearly
only.
13.3.7 When the performance of a particular Mutual Fund scheme is
advertised, the advertisement shall also include the
performance data of all the other schemes managed by the fund
manager of that particular scheme.
In case the number of schemes managed by a fund manager is
more than six, then the AMC may disclose the total number of
schemes managed by that fund manager along with the
performance data of top 3 and bottom 3 schemes (in addition to the
performance data of the scheme for which the advertisement is
being made) managed by that fund manager in all performance
related advertisement. However, in such cases AMCs shall ensure
that true and fair view of the performance of the fund manager is
communicated by providing additional disclosures, if required.
136 Master Circular for Mutual Funds
13.4 Indicative portfolios and yields in mutual funds schemes294
13.4.1 Mutual Funds shall not offer any indicative portfolio and
indicative yield. No communication regarding the same in any
manner whatsoever shall be issued by any Mutual Fund or
distributors of its products. The compliance of the same shall be
monitored by the AMC and Trustees and reported in their
respective reports to SEBI.
13.4.2 Indicative portfolio or yield in close ended debt
oriented mutual fund schemes295
Mutual Funds (MFs) / AMCs may make following additional
disclosures in the SID/SAI and KIM without indicating the
portfolio or yield, directly or indirectly:
13.4.2.1 MFs/AMCs shall disclose their credit evaluation policy for the
investments in debt securities.
13.4.2.2 MFs/AMCs shall also disclose the list of sectors they would not
be investing.
13.4.2.3 MFs shall disclose the type of instruments which the schemes
propose to invest viz. CPs, CDs, Treasury bills etc
13.4.2.4 MFs shall disclose the floors and ceilings within a range of 5%
of the intended allocation (in %) against each sub asset
class/credit rating. For example, it may be disclosed that x-y %
would be in AAA rated bank CD as per the sample matrix below:
294 SEBI Circular No. IMD/CIR No. 14/1510/2009 dated January 19, 2009
295 SEBI Circular No. CIR/IMD/DF/12/2011 dated August 01,2011
137 Master Circular for Mutual Funds
13.4.2.5 After the closure of NFO, the AMCs will report in the
next meeting of AMCs and Trustees the publicized
percentage allocation and the final portfolio. Variations between
indicative portfolio allocation and final portfolio will not be
permissible.
138 Master Circular for Mutual Funds
CHAPTER 14
INVESTOR RIGHTS & OBLIGATIONS
PART I – INVESTOR RIGHTS
14.1 Payment of interest for delay in dispatch of redemption
and/or repurchase proceeds and/or dividend296
14.1.1 In the event of failure to dispatch:
a. Redemption or repurchase proceeds within 10 working days from
the date of receipt of such requests and/ or
b. Dividend within the stipulated 30 day period297,
14.1.2 The AMC(s) shall be liable to pay interest @ 15 per cent per
annum to the unit holders.298 AMC(s) must ensure that the
interest amount due for the period of delay in dispatch of
repurchase or redemption and/or dividend is added to the
proceeds when such payments are made to the investors. Such
interest shall be borne by the AMC(s).
14.1.3 Details of such payments shall be sent to the Board along with the
CTR(s).299 Investors shall also be informed about the rate and
amount of interest paid to them. Non compliance with these
directions may invite action under the Mutual Funds Regulations.
296 SEBI Circular No. SEBI/MFD/CIR/2/266/2000 dated May 19, 2000.
,2 97
SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009
,2 98Regulation 53(c) of the SEBI (Mutual Fund) Regulations, 1996.
299 For CTR format please refer to Chapter on Formats
139 Master Circular for Mutual Funds
14.2 Unclaimed Redemption Amount300
14.2.1 Unclaimed redemption and dividend amounts may be deployed by
Mutual Funds in Call Money Market or Money Market
instruments, as may be permitted by RBI from time to time.
14.2.2 Investors claiming these amounts within three years from the due
date shall be paid at the prevailing NAV. At the end of three years,
the amount can be transferred to a pool account and investors
can claim the amount at the NAV prevailing at the end of the third
year.
14.2.3 Income earned on such funds can be used for the purpose of
investor education.
14.2.4 The AMC shall make a continuous effort to remind the investors
through letters to take their unclaimed amounts.
14.2.5 The investment management and advisory fee charged by the
AMC for managing unclaimed amounts shall not exceed 50 basis
points.
14.2.6 Disclosures on above provisions shall be made in the SAI /SID.
Disclosure on the unclaimed amounts and the number of such
investors for each scheme shall be made in the Annual Report
also.301
14.3 Dispatch of Statement of Accounts302
300SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000
301 Please refer to Schedule XI of SEBI (Mutual Funds) Regulations, 1996
302SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000, SEBI Circular No.
IMD/CIR/12/80083/2006 dated November 20, 2006 and SEBI Circular
No.Cir/IMD/DF/16/2011 dated September 08, 2011
140 Master Circular for Mutual Funds
14.3.1 AMCs shall allot the units to the applicant whose application has
been accepted and also send confirmation specifying the number
of units allotted to the applicant by way of email and/or SMS’s to
the applicant’s registered email address and/or mobile number as
soon as possible but not later than five working days from the
date of closure of the initial subscription list and/or from the date
of receipt of the request from the unitholders.
14.3.2 Consolidated Account Statement303
14.3.2.1 As per regulation304, AMCs shall issue consolidated account
statement for each calendar month to the investors in whose
folios transaction(s) has/have taken place during that month.
14.3.3 Systematic Investment Plan (SIP) or Systematic Transfer Plan
(STP) or Systematic Withdrawal Plan (SWP) 305
a. Mutual Funds may dispatch the Statement of Accounts to the unit
holders under SIP or STP or SWP, once every quarter ending
March, June, September and December within 10 working days of
the end of the respective quarter. The first Statement of Accounts
shall however be issued within 10 working days of the initial
transaction.
b. Mutual funds shall also provide Statement of Accounts to unit
holders within 5 working days, without any charges, if specific
requests are received from the investors. Further, if so mandated, a
soft copy of the Statement of Accounts shall be e-mailed to the unit
holders on a monthly basis.
303 SEBI Circular No.Cir/IMD/DF/16/2011 dated September 08, 2011
304 Regulation 36(4) of SEBI (Mutual Funds) Regulations, 1996
305 SEBI Circular No. IMD/CIR/12/80083/2006 dated November 20, 2006
141 Master Circular for Mutual Funds
14.3.4 Dormant Accountholders
14.3.4.1 Mutual Funds shall also provide Statement of Accounts to those
unit holders who have not transacted during the last six months
prior to the date of generation of the Statement of Accounts. In
such cases, the Statement of Accounts may be issued along with
the scheme’s Portfolio Statement or Annual Report and should
reflect the last closing balance and value of the units prior to the
date of generation of the Statement of Accounts. Further, if so
mandated, a soft copy of the Statement of Accounts shall be e-
mailed to the unit holders instead of a physical statement.
14.4 AMC’s Annual Reports for unitholders306
14.4.1 The annual report containing accounts of the AMCs should be
displayed on the website of Mutual Fund. It should also be
mentioned in the Annual Report of Mutual Funds schemes that the
unitholders, if they so desire may request for the Annual Report of
the AMC.
14.5 Distribution of Proceeds realized from illiquid securities/
NPAs 307
14.5.1 Some of the investments made by Mutual Funds may become non-
performing assets (NPAs) or illiquid at the time of
maturity/winding up of the scheme(s). In due course of time i.e.
after the maturity/ winding up of the scheme(s), these NPAs and
illiquid securities may be realized by the Mutual Funds. Mutual
Funds shall distribute such amounts to the old investors if such
amounts are substantial and realized within two years. If the
amounts realized are not substantial or are realized after two
306 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000
307 SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002.
,
142 Master Circular for Mutual Funds
years, the same may be transferred to the Investor Education Fund
maintained by each Mutual Fund. The decision as to the
determination of substantial amount shall be taken by the trustees
of mutual funds after considering the relevant factors.
14.6 Change of Mutual Fund Distributor
14.6.1 Incase an investor wishes to change his distributor or wishes to go
direct, Mutual Funds/AMC’s shall ensure compliance with the
instruction of the investor informing his desire to change his
distributor and / or go direct, without compelling that investor to
obtain a ‘No Objection Certificate’ from the existing distributor.308
14.7 Additional mode of payment through Applications
Supported by Blocked Amount (hereinafter referred to as
“ASBA”) in Mutual Funds309
14.7.1 ASBA facility which investors have been enjoying for subscription
to public issue of equity capital of companies has been extended to
the investors subscribing to New Fund Offers (NFOs) of mutual
fund schemes. It shall co-exist with the current process, wherein
cheques/ demand drafts are used as a mode of payment.
14.7.2 The banks which are in SEBI’s list shall extend the same facility in
case of NFOs of mutual fund schemes to all eligible investors in
Mutual Fund units.
14.7.3 Mutual Funds shall ensure that adequate arrangements are made
by Registrar and Transfer Agents for the implementation of ASBA.
308 SEBI Circular No -SEBI/IMD/CIR No./ 13/187052 /2009 December 11, 2009
309 SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
143 Master Circular for Mutual Funds
Mutual Funds/AMCs shall make all relevant disclosures in this
regard in the SAI.
14.7.4 SEBI circulars310 related to ASBA shall be followed to the extent
applicable.
14.7.5 The Mutual Funds/AMCs have to compulsorily provide ASBA
facility to the investors for all NFOs launched on or after October 1,
2010.
310 SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008,
SEBI/CFD/DIL/2008/25/09 dated September 25, 2008,
SEBI/CFD/DIL/MB/IS/5/2009/05/08 dated August 5, 2009 and
SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009 and CIR/CFD/DIL/7/2010
dated July 13, 2010
144 Master Circular for Mutual Funds
PART II – INVESTOR’S OBLIGATIONS
14.8 Mandatory mentioning of PAN Number311
14.8.1 14.7.1 For, the requirement of mentioning PAN Number by
investors of mutual fund schemes, the applicable SEBI guidelines
may be referred312
14.9 Mandatory mentioning of Bank Account by Investors313
14.9.1 It shall be mandatory for the investors of the Mutual Funds
schemes to mention their bank account numbers in their
applications/request for redemption. For this purposes Mutual
Funds shall provide space in applications and redemption request
forms.
311 SEBI Circular No. MRD/DoP/Cir-05/2007 dated April 27, 2007, SEBI Circular No.
MRD/DoP/Cir-08/2007 dated June 25, 2007, SEBI Circular No. MRD/DoP/MF/Cir-
08/2008 dated April 3, 2008.
,3,, 12 SEBI Circular No. MRD/DoP/MF/Cir-08/2008 dated April 3, 2008.
<3, 13 SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998.
145 Master Circular for Mutual Funds
PART III– INVESTOR EDUCATION
14.10 SEBI Investors Education Programme – Investments
in Mutual Funds314
14.10.1 Board has prepared a brochure in question-answer format
explaining the fundamental issues pertaining to mutual funds.
The same is enclosed at Annexure 5. The same is also available at
our website www.sebi.gov.in under the "Mutual Funds" section.
14.10.2 AMCs are advised to circulate copies of the brochure among their
distributors and agents (including brokers, banks, post offices)
and the investors.
14.10.3 AMCs may publish the same as small booklets. In such a case,
while the booklets must bear SEBI name and logo, AMC may give
their name as publisher. This may also be displayed prominently
on their web sites
14.10.4 AMFI may consider including the brochure as a part of study
material for their training programmes for investors and for their
certification programme conducted for agents and distributors.
14.10.5 Board may be kept informed about the steps taken by the AMCs
in this regard from time to time.
314 SEBI Cir No. MFD/CIR NO -13/370/02 dated January 16,2002
146 Master Circular for Mutual Funds
CHAPTER 15
CERTIFICATION AND REGISTRATION OF INTERMEDIARIES 315, 316
15.1 No Mutual Fund shall deal with any intermediary (i.e. distributors, agents,
brokers, sub brokers or called by any other name, whether individuals
or belonging to any other organization structure) in relation to selling
and marketing of Mutual Fund units unless they have cleared the
certification examination.
15.2 No Mutual Fund shall engage/employ employee(s) interacting with
investors (i.e. those working in investors relations, call centers,
employees engaged in sales and marketing etc) unless they have cleared
the certification examination.
15.3 Further, such intermediaries and employees shall also adhere to the
Guidelines specified by the Board and AMFI.317
15.4 Distributors of Mutual Fund products318
15.4.1 The AMCs shall regulate the distributors by putting in place a
due diligence process as follows:
315 SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No.
MFD/CIR/20/23230/2002 dated November 28, 2002, SEBI Circular No. SEBI/MFD/CIR
No.01/6693/03 dated April 3, 2003, SEBI Circular No. SEBI/IMD/CIR No.2/254/04
dated February 4, 2004, SEBI Circular No. MFD/CIR/06/210/2002 dated June 26, 2002.
< 3 16 Exemption for Senior Citizens: Senior citizens with experience in distributing Mutual
Funds units are exempt from the mandatory certification examination if they have
completed 50 years of age and have experience of at least 5 years as on September 30,
2003.316 They are also required to follow the guidelines prescribed by the Board and
AMFI. They had to attend a mutual fund training programme and a certificate to that
effect endorsed by a mutual fund should be submitted to AMFI.
<
3
<
17 SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No.
MFD/CIR/20/23230/2002 dated November 28, 2002.
318 SEBI Circular No. CIR/IMD/DF/13/2011 dated August 22, 2011.
147 Master Circular for Mutual Funds
15.4.1.1 The due diligence of distributors is solely the responsibility of
mutual funds/AMCs. This responsibility shall not be delegated
to any agency. However, mutual funds/AMCs may take
assistance of an agency of repute while carrying out due
diligence process of distributors. 319
15.4.1.2 The due diligence process shall be initially applicable for
distributors satisfying one or more of the following criteria:
a. Multiple point presence (More than 20 locations)
b. AUM raised over `100 Crore across industry in the non
institutional category but including high networth individuals
(HNIs)
c. Commission received of over `1 Crore p.a. across industry
d. Commission received of over `50 Lakh from a single Mutual Fund
15.4.1.3 At the time of empanelling distributors and during the period
i.e. review process, Mutual Funds/AMCs shall undertake a
due diligence process to satisfy ‘fit and proper’ criteria that
incorporate, amongst others, the following factors:
a. Business model, experience and proficiency in the business.
b. Record of regulatory / statutory levies, fines and penalties,
legal suits, customer compensations made; causes for these and
resultant corrective actions taken.
c. Review of associates and subsidiaries on above factors.
319 SEBI Circular No. Cir/IMD/DF/7/2012 dated February 28, 2012
148 Master Circular for Mutual Funds
d. Organizational controls to ensure that the following processes are
delinked from sales and relationship management processes and
personnel:
1. Customer risk / investment objective evaluation.
2. MF scheme evaluation and defining its appropriateness to
various customer risk categories.
15.4.1.4 In this respect, customer relationship and transactions shall be
categorized as:
a) Advisory - where a distributor represents to offer advice while
distributing the product, it will be subject to the principle of
‘appropriateness’ of products to that customer category.
Appropriateness is defined as selling only that product
categorization that is identified as best suited for investors
within a defined upper ceiling of risk appetite. No exception
shall be made.
b) Execution Only - in case of transactions that are not booked as
‘advisory’, it shall still require:
i. The distributor has information to believe that the
transaction is not appropriate for the customer, a written
communication be made to the investor regarding the
unsuitability of the product. The communication shall
have to be duly acknowledged and accepted by investor.
ii. A customer confirmation to the effect that the transaction is
‘execution only notwithstanding the advice of in-
appropriateness from that distributor be obtained prior to
the execution of the transaction.
149 Master Circular for Mutual Funds
iii. That on all such ‘execution only’ transactions, the
customer is not required to pay the distributor anything
other than the standard flat transaction charge.
c) There shall be no third categorization of customer relationship /
transaction.
d) While selling Mutual Fund products of the
distributors’ group/affiliate/associates, the distributor shall
make disclosure to the customer regarding the conflict of
interest arising from the distributor selling of such products.
15.4.1.5 Compliance and risk management functions of the
distributor shall include review of defined management
processes for:
a) The criteria to be used in review of products and the
periodicity of such review.
b) The factors to be included in determining the risk appetite of
the customer and the investment categorization and
periodicity of such review.
c) Review of transactions, exceptions identification, escalation and
resolution process by internal audit.
d) Recruitment, training, certification and performance review of
all personnel engaged in this business.
e) Customer on boarding and relationship management process,
servicing standards, enquiry / grievance handling mechanism.
f) Internal/ external audit processes, their comments /
observations as it relates to MF distribution business.
g) Findings of ongoing review from sample survey of investors.
150 Master Circular for Mutual Funds
15.4.2 Mutual Funds/AMCs may implement additional
measures as deemed appropriate to help achieve greater investor
protection.
15.5 Code of Conduct:
15.5.1 Mutual Funds are required to monitor the activities of their
distributors, agents, brokers to ensure that they do not indulge in
any malpractice or unethical practice while selling or marketing
Mutual Funds units. Any non compliance with the Mutual Funds
Regulations and Guidelines pertaining to Mutual Funds especially
guidelines on advertisements and/ or sales literature and/or Code
of Conduct shall be reported in the periodic meetings of the Board
of the AMC and the Trustee(s) and shall also be reported to the
Board by the AMC(s) in their CTR(s) and by the Trustees in their
Half Yearly Reports.
15.5.2 AMFI has prescribed a Code of Conduct for Mutual Fund
intermediaries enclosed herewith as Annexure 1320. All
intermediaries shall follow the Code of Conduct strictly and not
indulge in any practice contravening it directly or indirectly.
15.5.3 Non compliance with the Code of Conduct shall be reported by the
Mutual Funds to the Board and AMFI. Further, no Mutual Fund
shall deal with intermediaries contravening the prescribed Code of
Conduct.
15.6 Empanellment of Intermediaries by Mutual Funds
15.6.1 Empanelment of intermediaries by Mutual Funds, payment of
commissions, brokerage and/or sub-brokerage etc. shall be in
320 Refer Annexure and Reports for details on Code of Conduct
151 Master Circular for Mutual Funds
accordance with parameters and guidelines specified by the Board
and AMFI from time to time. Mutual Funds shall monitor the
compliance of these guidelines and Code of Conduct by their
intermediaries in terms of business done across all Mutual Funds.
In case of non-compliance, Mutual Funds shall suspend further
business and payment of commissions, etc. until full compliance
by the empanelled intermediary.
15.7 Certification Programme for sale and/ or distribution of
mutual fund products321
15.7.1 With effect from June 01, 2010, the certification examination for
distributors, agents or any other persons employed or engaged or
to be employed or engaged in the sale and/or distribution of
mutual fund products, would be conducted by the National
Institute of Securities Markets (NISM)322.
15.7.2 Under the existing instructions, the agent/ distributor was
exempted from the AMFI certification examination if he had
completed fifty years of age and had at least five years of
experience in distribution of mutual fund units. As per regulation
4(3) of the Certification Regulations, persons who have attained the
age of fifty years or who have at least ten years experience in the
securities markets in the sale and/ or distribution of mutual fund
products as on May 31, 2010, will be given the option of obtaining
the certification either by passing the NISM certification
examination or qualifying for Continuing Professional Education
(CPE) by obtaining such classroom credits as may be specified by
NISM from time to time.
321 SEBI Circular No. Cir/IMD/DF/5/2010 dated June 24, 2010
322 For Notification under regulation 3 of the Securities and Exchange Board of India
(Certification of Associated Persons in the Securities Markets) Regulations, 2007 please refer
Chapter on Annexure
152 Master Circular for Mutual Funds
15.7.3 The Certification Regulations require the persons referred to in
paragraph 15.7.1 above to comply with the requirements for CPE
as specified by NISM within the validity period of the certificate
obtained by passing the certification examination. However, to
facilitate the transition process from AMFI to NISM, it has been
decided that a person holding a valid AMFI certification whose
validity expires between June 01, 2010 and December 31, 2010,
would be required to comply with the CPE requirements as laid
down by NISM under the relevant clauses of the Certification
Regulations, by December 31, 2010.
15.7.4 An associated person holding a valid AMFI/NISM certification
whose validity expires anytime after December 31, 2010, would be
required to comply with the CPE requirements as laid down by
NISM under the relevant clauses of the Certification Regulations,
prior to the expiry of the validity of the certification.
15.7.5 The requirement of obtaining registration from AMFI after
obtaining certification, as per the Circular dated November 28,
2002, would continue.
153 Master Circular for Mutual Funds
CHAPTER 16
TRANSACTION IN MUTUAL FUNDS UNITS
154 Master Circular for Mutual Funds
16.1 Maintenance of documents323
16.1.1 As per the requirements specified by Board in respect of “Anti
Money Laundering (AML) Standards/Combating Financing of
Terrorism (CFT) / Obligations of Securities Market Intermediaries
under Prevention of Money Laundering Act, 2002 and Rules
framed there-under”324, maintenance of all documentation
pertaining to the unitholders/ investors is the responsibility of the
AMC.
16.1.2 Accordingly, vide SEBI Circular No - SEBI/IMD/CIR No.12
/186868 /2009 dated December 11, 2009, AMCs were advised to
confirm whether all the investor related documents were
maintained/ available with the AMC. If not, and to the extent of
and relating to such investor accounts/folios where investor
related documentation was incomplete/inadequate/not available
or was stated to be maintained by the distributors, then the
Trustees were advised to ensure the following:
16.1.2.1 No further payment of any commissions, fees and / or payments
in any other mode should be made to such distributors till full
compliance/ completion of the steps enumerated herein.
16.1.2.2 Take immediate steps to obtain all investor/ unit holders
documents in terms of the AML/ CFT, including KYC
documents/ PoA as applicable.
323 SEBI Circular No - SEBI/IMD/CIR No.12 /186868 /2009 dated December 11,2009
324 SEBI Circular No ISD/AML/CIR-1/2008 dated December 19, 2008
155 Master Circular for Mutual Funds
16.1.2.3 Take immediate steps to obtain all supporting documents in
respect of the past transactions.
16.1.2.4 On a one time basis, send statement of holdings and all
transactions since inception of that folio in duplicate to the
investor and seek confirmation from the unit holders on the
duplicate copy.
16.1.2.5 Set up a separate customer services mechanism to handle/
address queries and grievance of the above mentioned
unitholders.
16.1.3 Pending completion of documentation, exercise great care and be
satisfied of investor bonafides before authorizing any transaction,
including redemption, on such accounts/ folios.
16.1.4 The Trustees were required forthwith to confirm to Board that the
steps had been taken to address the above and also send a status
to the Board as and when process was completed to their
satisfaction.
16.1.5 All mutual funds/ AMCs are directed that325:
16.1.5.1 All new folios/ accounts shall be opened only after ensuring that
all investor related documents including account opening
documents, PAN, KYC, PoA (if applicable), specimen signature
are available with AMCs/RTAs and not just with the distributor.
16.1.5.2 For existing folios, AMCs shall be responsible for updation of the
investor related documents including account opening
documents, PAN, KYC, PoA (if applicable), specimen signature by
November 15, 2010.
325
SEBI Circular No Cir /IMD/DF/9 / 2010 dated August 12, 2010
156 Master Circular for Mutual Funds
16.1.5.3 The trustees shall submit a confirmation after they receive
certification from an Independent auditor on completion of the
said process latest by November 22, 2010.
16.2 Facilitating transactions in Mutual Fund schemes through
the Stock Exchange infrastructure326
16.2.1 Stock Exchange terminals can be used for facilitating transactions
in mutual fund schemes. The Stock Exchange mechanism would
also extend the present convenience available to secondary market
investors to mutual fund investors.
16.2.2 Units of mutual fund schemes may be permitted to be transacted
through registered stock brokers of recognized stock exchanges
and such stock brokers will be eligible to be considered as official
points of acceptance327.
16.2.3 The respective stock exchange would provide detailed operating
guidelines to facilitate the same.
16.2.4 In this regard, Mutual Funds/AMC are advised that:
16.2.4.1 Empanelment and monitoring of Code of Conduct for brokers
acting as mutual fund intermediaries-
a. The stock brokers intending to extend the transaction in Mutual
Funds through stock exchange mechanism shall be required to
comply with the requirements of passing the AMFI certification
examination328.All such stock brokers would then be considered as
empanelled distributors with mutual fund/AMC.
326
SEBI Circular No - SEBI /IMD / CIR No.11/183204/ 2009 dated November 13,2009
327 SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006
328 Please refer Chapter 15 on Certification and Registration of Mutual Funds intermediaries
157 Master Circular for Mutual Funds
b. These stock brokers shall also comply with Code of Conduct329 for
intermediaries of Mutual Funds, and applicable SEBI guidelines330,
applicable to intermediaries engaged in selling and marketing of
mutual fund units.
c. It is clarified that, stock exchanges shall monitor the compliance of
the code of conduct specified regarding empanelment of
intermediaries by mutual funds331.
16.2.4.2 Time stamping
a. Time stamping as evidenced by confirmation slip given by stock
exchange mechanism to be considered sufficient compliance with
clause for cut–off timing for liquid scheme and plans, cut-off timing
for other schemes and plans and time stamping provisions
mandated by Board332.
16.2.4.3 Statement of Account
a. Where investor desires to hold units in dematerialised form, demat
statement given by depository participant would be deemed to be
adequate compliance with requirements for account statement
prescribed by SEBI 333.
16.2.4.4 Investor grievance mechanism
a. Stock exchanges shall provide for investor grievance handling
mechanism to the extent they relate to disputes between brokers
and their client.
329 For Code of Conduct, please refer to Annexure I
330 Please refer Chapter 15 on Certification and Regiatration of Mutual Funds intermediaries
331Please refer Chapter 15 on Certification and Regiatration of Mutual Funds intermediaries
,3, 32 Please refer to Chapter 8 – Net Asset Value for details on cut off timing provisions
333 For details on dispatch of statement of accountts. refer to Chapter 14- Investor Rights and
services
158 Master Circular for Mutual Funds
16.2.4.5 Dematerialization of existing units held by investors
a. In case investors desire to convert their existing physical units
(represented by statement of account) into dematerialized form,
mutual funds / AMCs shall take such steps in coordination with
Registrar and Transfer Agents, Depositories and Depository
participants (DPs) to facilitate the same.
16.2.4.6 Option to hold units in demat form334
a. Mutual Funds/AMCs are advised to invariably provide an option to
the investors to mention demat account details in the subscription
form, in case they desire to hold units in demat form while
subscribing to any scheme (open ended/close ended/Interval).
b. Mutual Funds/AMCs shall ensure that above mentioned option is
provided to the investors in all their schemes (existing and new).
c. Mutual Funds/AMCs are advised to obtain ISIN for each option of
the scheme and quote the respective ISIN along with the name
of the scheme, in all Statement of Account/Common Account
Statement (CAS) issued to the investors.
16.2.4.7 Know your client (KYC).
a. Where investor desires to hold units in dematerialised form, the
KYC performed by DP in terms of SEBI requirements335 would be
considered compliance with applicable requirements specified in
this regard336 by Mutual Funds/AMCs.
334 SEBI circular no.CIR/IMD/DF/9/2011, dated May 19, 2011
335 SEBI Circular No - MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004
336 SEBI Circular No - ISD/AML/CIR-1/2008 dated December 19, 2008
159 Master Circular for Mutual Funds
b. The Mutual Funds/AMC shall take necessary steps to do KYC
requirements of all investors as per the prescribed guidelines337.
16.2.4.8 Stock exchanges and mutual funds/AMCs, based on the
experience gained may improve the mechanism in the interest of
investors.
16.2.4.9 In addition to the existing facilities of purchasing and redeeming
directly with the Mutual Funds and Stock Brokers, the following
be noted338:
a. Units of mutual funds schemes may be permitted to be transacted
through clearing members of the registered Stock Exchanges.
b. Permit Depository participants of registered Depositories to process
only redemption request of units held in demat form.
16.2.4.10 The following be noted with respect to investors having demat
account and purchasing and redeeming mutual funds units
through stock brokers and clearing members:
a. Investors shall receive redemption amount (if units are redeemed)
and units (if units are purchased) through broker/clearing
member’s pool account. Mutual Funds(MF)/ Asset management
Companies(AMC) would pay proceeds to the broker/clearing
member (in case of redemption) and broker/clearing member in
turn to the respective investor and similarly units shall be credited
by MF/AMC into broker/clearing member’s pool account (in case
of purchase) and broker/clearing member in turn to the respective
investor.
337 SEBI Circular No. MIRSD/SE/Cir-21/2011, dated October 5, 2011, SEBI Circular
No.MIRSD/Cir-23/2011 dated December 2, 2011 and SEBI Circular No.MIRSD/Cir- 26 /2011
dated December 23, 2011
338 SEBI Circular No CIR/IMD/DF/17/2010 dated November 9, 2010
160 Master Circular for Mutual Funds
b. Payment of redemption proceeds to the broker/clearing members
by MF/AMC shall discharge MF/AMC of its obligation of payment
to individual investor. Similarly, in case of purchase of units,
crediting units into broker/clearing member pool account shall
discharge MF/AMC of its obligation to allot units to individual
investor.
16.2.4.11 The following may be noted in this regard:
a. Clearing members and Depository participants will be eligible to be
considered as official points of acceptance339 and conditions
stipulated340 Viz. AMFI /NISM certification, code of conduct
prescribed by SEBI for Intermediaries of Mutual Fund, shall be
applicable for such Clearing members and Depository participants
as well.
b. Stock exchanges and Depositories shall provide investor grievance
handling mechanism to the extent they relate to disputes between
their respective regulated entity and their client and shall also
monitor the compliance of code of conduct specified341 regarding
empanelment and code of conduct for intermediaries of Mutual
Funds.
339 SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006
340 SEBI Circular dated November 13, 2009 for stock brokers
341SEBI Circulars MFD/CIR/20/23230/02 dated November 28, 2002 and
SEBI/IMD/08/174648/2009 dated August 27, 2009
161 Master Circular for Mutual Funds
16.2.4.12 The respective stock exchanges and Depositories would provide
detailed operating guidelines to facilitate the above and ensure
that timelines prescribed342 shall be adhered to with regard to
allotment of units and receipt of redemption proceeds at the
investor’s level.
16.2.4.13 Transferability of Mutual Fund units343
a. Regulations344 states that “a unit unless otherwise restricted or
prohibited under the scheme, shall be freely transferable by act of
parties or by operation of law.” The spirit and intention of this
regulation is not to prohibit transferability of units as a general
rule or practice.
b. All AMCs shall clarify by way of an addendum that units of all
mutual fund schemes held in demat form shall be freely
transferable from the date of the issue of said addendum which
shall be not later than October 1, 2010. However, restrictions on
transfer of units of ELSS schemes during the lock-in period shall
continue to be applicable as per the ELSS Guidelines.
16.2.5 Stock exchanges and mutual funds/AMCs, based on the
experience gained may further improve the mechanism in the
interest of investors. Necessary clarifications, if any, would be
issued at appropriate time by SEBI in this regard.
342 SEBI (Mutual Funds) Regulations, 1996
343 SEBI Circular No - CIR/IMD/DF/10/2010 dated August 18, 2010
344 Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996
162 Master Circular for Mutual Funds
CHAPTER 17
MISCELLANEOUS
17.1 Investment by Foreign Investors in Mutual Fund
Schemes345.
17.1.1 Foreign investors (termed as Qualified Foreign Investors/ QFIs) who
meet KYC requirement may invest in equity and debt schemes of
Mutual Funds (MF) through the following two routes:
17.1.1.1 Direct route - Holding MF units in demat account through a
SEBI registered depository participant (DP).
17.1.1.2 Indirect route- Holding MF units via Unit Confirmation Receipt
(UCR).
17.1.2 The investment through the above mentioned routes shall be subject
to the following conditions:
17.1.2.1 Qualified Foreign Investor (QFI) shall mean a person resident
in a country that is compliant with Financial Action Task Force
(FATF) standards and that is a signatory to International
Organization of Securities Commission's (IOSCO’s) Multilateral
Memorandum of Understanding,
Provided that such person is not resident in India,
Provided further that such person is not registered with SEBI as
Foreign Institutional Investor or Sub-account.
345 SEBI Circular No.CIR/IMD/DF/14/2011 dated August 9, 2011
163 Master Circular for Mutual Funds
Explanation- For the purposes of this clause:
(1) the term "Person" shall carry the same meaning under Section
2(31) of the Income Tax Act, 1961
(2) the phrase “resident in India” shall carry the same meaning as
in the Income Tax Act, 1961
(3) “resident” in a country, other than India, shall mean resident as
per the direct tax laws of that country.
17.1.2.2 MF shall ensure that only QFIs who comply with para 17.1.2.1
are allowed to invest under these routes.
17.1.2.3 MF shall ensure that QFIs meet the KYC requirements as per
the FATF standards, Prevention of Money Laundering Act, 2002
(PMLA) rules and regulations made thereunder, and SEBI circulars
issued in this regard before accepting subscriptions from QFIs.
17.1.2.4 The aggregate investments by QFIs under both the routes
shall be subject to a total overall ceiling of US $10 billion for equity
schemes.
17.1.2.5 In addition to the above, the aggregate investments by QFIs
under both the routes for debt schemes which invest in
infrastructure (“Infrastructure” as defined under the extant ECB
guidelines issued by RBI) debt of minimum
residual maturity of 5 years, shall be subject to a total overall
ceiling of US $3 billion within the existing ceiling of US $25
billion for FII investment in corporate bonds issued by
infrastructure companies.
17.1.2.6 MF can accept subscriptions from QFIs till such time the
investments by QFIs under both the routes reaches US $8 billion in
164 Master Circular for Mutual Funds
equity schemes and US $2.5 billion in debt schemes and the
remaining limit of US $2 billion in equity schemes and US $0.5
billion in debt schemes shall be auctioned by SEBI through bidding
process.
17.1.2.7 MF shall file with SEBI a report about the total subscription
and redemption by QFIs on a daily basis as per the format. MF
shall prepare such report on actual receipt and payment basis.
SEBI will disseminate on an aggregate basis the total amount of
investments by QFIs in equity and debt schemes of the MF on
SEBI’s website. When the total investment reaches US $8 billion in
equity schemes or US $2.5 billion in debt schemes, MF shall stop
accepting fresh investment from QFIs unless they get allotment of
limits out of the remaining limit of US $2 billion in equity schemes
or US $0.5 billion in debt schemes respectively in the auction
process referred in para 17.1.2.6.
17.1.2.8 MF/ DP shall ensure that the units held by QFIs by way of
UCR/demat holding are non transferable and non tradable.
17.1.2.9 MF/ DP shall capture the bank account details of the
QFIs designated overseas bank account and shall ensure that all
subscriptions are received from that overseas account and
redemption proceeds are also transferred into the same overseas
account. MF/ DP shall also ensure that the overseas bank account
which QFIs has designated for the purpose is based in countries
which are compliant with FATF standards and are signatory to
MMOU of IOSCO.
17.1.2.10 In case of subscription, MF shall allot units based on the NAV
of the day on which funds are realized in the MF’s scheme bank
account in India and in case of redemption, units shall be
redeemed on the day on which transaction slip/instruction is
165 Master Circular for Mutual Funds
received and time stamped by MF, as per the applicable cut off
time. The Scheme information documents of the MF shall clearly
mention the applicable cut off time for QFIs and the other
requirements / applicable guidelines for QFIs.
17.1.2.11 MF shall ensure that Systematic Investments/ transfer/
withdrawals and switches are not available to the QFIs. QFIs can
only subscribe or redeem.
17.1.2.12 MF/ DP shall ensure that units/ UCRs held by QFIs are
free from all encumbrances i.e. pledge or lien cannot be created
for such units.
17.1.2.13 MF shall comply with all the requirements as per the PMLA,
FATF standards and SEBI circulars issued in this regard on an
ongoing basis.
17.1.2.14 MF shall ensure that all the investor related documents/
records of the QFIs are available with them.
17.1.2.15 MF shall ensure compliance with laws (rules and
regulations) of the jurisdictions where the QFIs are based and also
ensure that the interest of existing unit holders of the MF schemes
are not adversely affected due to the issuance of UCRs/ demat
units to the QFIs.
17.1.2.16 In case of any penalty, pending litigations or proceedings,
findings of Inspections or investigations for which action may have
been taken or is in the process of being taken by an overseas
regulator against MF/ AMC, it shall bring such information to
the attention of SEBI and unitholders of the concerned
scheme.
166 Master Circular for Mutual Funds
17.1.2.17 MF shall be responsible for the deduction of applicable tax at
source out of the redemption proceeds before making redemption
payments to QFIs.
17.1.2.18 MF/DP shall require QFIs to submit necessary information for
the purpose of obtaining PAN. MF/DP may use the combined PAN
cum KYC form to be notified by CBDT for QFIs. MF/ DP may take
any additional information/ documents from the QFIs other than
those mentioned in the common PAN cum KYC from to ensure
compliance with Para 17.1.2.3 above.
17.1.3 Other conditions for direct route (demat account).
17.1.3.1 There shall be 3 parties under this route - QFIs, qualified DP
and MF.
17.1.3.2 A QFIs can open only one demat account with any one of the
qualified DPs and shall subscribe and redeem through that DP
only. MF alongwith the DP shall have adequate systems to ensure
the compliance of the same.
17.1.3.3 To become a qualified DP, a SEBI registered DP shall fulfill the
following:
a. DP shall have paid up capital of `50 Crore or more,
b. DP shall be either a clearing bank or clearing member of any of the
clearing corporations.
c. DP shall have appropriate arrangements for receipt and remittance
of money with a designated Authorised Dealer (AD) Category - I
bank
167 Master Circular for Mutual Funds
d. DP shall demonstrate that it has systems and procedures to
comply with the FATF Standards, PMLA and SEBI circulars issued
from time to time.
e. DP shall obtain prior approval of SEBI before commencing the
activities relating to accepting MF subscription from QFIs.
17.1.3.4 The qualified DP shall open a demat account for the QFIs
after ensuring all the requirements as per the PMLA, FATF
standards and SEBI circulars issued in this regard.
17.1.3.5 For the purpose of account opening, MF can rely on the KYC
done by DPs. Further, MF shall obtain the relevant records of KYC/
other documents from the DP and ensure compliance with para
1.11.3.14. However, MF shall comply with PMLA, FATF standards
and SEBI circulars issued in this regard from time to time on an
ongoing basis.
17.1.3.6 The qualified DP shall open a separate single rupee pool bank
account with a designated AD Category -I bank, exclusively for the
purpose of investments by QFIs in India.
17.1.3.7 Process Flow
Subscription
a. The QFIs shall place a purchase/ subscription order mentioning
the name of the scheme/MF with its DP and remit foreign
inward remittances through normal banking channel in any
permitted currency (freely convertible) directly to the single
rupee pool bank account of the DP maintained with a
designated AD category - I bank.
168 Master Circular for Mutual Funds
b. DP in turn shall forward the purchase order to the concerned MF
and remits the money to the MF’s scheme account on the same
day as the receipt of funds from QFIs. In case of receipt of money
after business hours, DP shall remit the funds to MF scheme
account by next business day.
c. If for any reasons, the DP is not able to remit the money to the MF
scheme account within the stipulated timeframe as mentioned in
para-b, the DP shall immediately return the money to the
designated overseas bank account of the QFIs.
d. MF shall process the order and credit units into the demat account
of the QFIs.
e. If for any reasons the units are not allotted, MF / DP shall ensure
that the money is remitted back to the QFI’s designated overseas
bank account within 3 working days from the date of receipt of
subscription of money in the single rupee pool bank account of
the DP maintained with a designated AD category I bank.
Redemption
f. QFIs can redeem, either through Delivery Instruction (physical/
electronic) or any another mode prescribed by the
Depositories. On receipt of instruction from QFIs, DP shall
process the same and forward the redemption instructions to
the MF. Upon receipt of instruction from DP, MF shall process the
same and shall credit the single rupee pool bank account of the DP
with the redemption proceeds.
g. The DP can make fresh purchase of units of equity and debt
schemes of MF (if so instructed by the QFIs) out of the redemption
proceeds received provided that payment is made towards such
purchase is made within two working days of receipt of money
169 Master Circular for Mutual Funds
from MF in the pooled bank account. In case no purchase is made
within said period, the money shall be remitted by the DPs to the
designated bank overseas account of the QFIs within two working
days from the date of receipt of money from the MF in the pooled
bank account.
Dividend
h. In case of dividend payout, the MF shall credit the single rupee
pool bank account of the DP with the dividend amount. The DP in
turn shall remit the same to the designated bank overseas account
of the QFIs within two working days from the date of receipt of
money from the MF in the DP’s rupee pooled bank account.
17.1.4 Other conditions for Indirect route (Unit Confirmation Receipts)
17.1.4.1 There shall be four parties involved - QFIs, UCR issuer (based
overseas), SEBI registered Custodian (based in India) and MF.
17.1.4.2 QFIs can subscribe / redeem only through the UCR Issuer.
17.1.4.3 MF shall appoint one or more UCR issuing agent overseas and
one SEBI registered custodian in India.
17.1.4.4 UCR issuer appointed by MF shall act as agent of the MF.
17.1.4.5 MF can appoint entities fulfilling the following conditions as
UCR issuer:
a. The entity is able to demonstrate that it has proven track record,
expertise and technology in the business of issuance of global
depository receipts/global custody agency
170 Master Circular for Mutual Funds
b. The entity is registered with an overseas securities market/
banking regulator.
17.1.4.6 MF shall seek no objection from SEBI before appointing any
UCR issuer and furnish the details and information sought by SEBI
about the UCR issuer. SEBI reserves the right to seek additional
information / clarification and direct action, including non
appointment/ revocation of appointment of that UCR Issuing Agent.
17.1.4.7 MF shall comply with all the requirements as per the PMLA,
FATF standards and SEBI circulars issued in this regard on an
ongoing basis.
17.1.4.8 Custodians appointed by the MF shall comply with the SEBI
(Custodian of Securities) Regulations, 1996, circulars and
guidelines issued by SEBI.
17.1.4.9 The rupee denominated units of the MF would be held as
underlying by the custodian in India in demat mode against which
the UCR issuer would issue UCR to be held by QFIs.
17.1.4.10 MF shall ensure that for every UCR issued by UCR issuer,
Custodian in India shall hold corresponding number of units
against it i.e., there shall be one unit of MF scheme for every unit of
UCR.
17.1.4.11 MF shall receive money from UCR issuer either in foreign
country by opening bank account overseas (in accordance with
the relevant extant FEMA regulations) or in Indian rupees in the
respective MF scheme account held in India.
17.1.4.12 MF shall mandate the UCR issuer regarding the
requirements for KYC, Customer due diligence process and
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documents and information to be collected from the QFIs in
terms of the requirements mentioned in para 17.1.2.13 above.
17.1.4.13 MF shall obtain the relevant records of KYC/ other documents
from the UCR issuer in order to comply with FATF standards, PMLA
and SEBI circulars issued in this regard and ensure compliance
with para 17.1.2.14.
17.1.4.14 Units purchased and redeemed through UCR issuer shall be
settled on gross basis and under no circumstances shall be netted
against other investors of UCR issuer
17.1.4.15 Process flow:
a. The QFIs places a purchase/ subscription order through the UCR
issuer.
In case of MF opening bank account overseas (in accordance
with the relevant extant FEMA regulations)
b. UCR issuer shall forward the order of QFIs to the MF/Custodian.
Upon receipt and transfer of funds to India; the MF shall issue
units to the custodian and custodian in turn confirm to the UCR
Issuer to issue UCR to the QFIs.
c. In case of redemption, UCR issuer shall confirm receipt of
redemption request to the MF and Custodian. Upon receipt of
instruction, MF shall process the same and shall transfer the
redemption proceeds to the MF overseas bank account for making
payment to the designated overseas bank account of the QFIs.
d. In case of dividend payout, the MF shall transfer the dividend
amounts to the MF overseas bank account for making payment to
the designated overseas bank account of the QFIs.
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In case MF receives money in India from UCR issuer.
e. UCR issuer shall forward the purchase order to MF and Custodian,
and remit the funds into MF scheme account (in rupee terms).
Upon receipt of funds; the MF shall issue units to the custodian
and custodian shall in turn confirm to the UCR Issuer to issue
UCR to the QFIs.
f. In case of redemption, UCR issuer shall confirm receipt of
redemption request to the MF & Custodian. Upon receipt of
instruction, MF shall process and remit redemption proceeds to
the UCR issuer which in turn shall remit redemption proceeds to
the designated bank account of the QFIs.
g. In case of dividend payout, the MF shall remit the dividend
amount proceeds to the UCR issuer which in turn shall remit the
dividend amount to the designated bank account of the QFIs.
17.1.5 The investment by the QFIs in MF equity and debt schemes under
this scheme shall also be subject to the relevant and extant FEMA
regulations and guidelines issued by the Reserve Bank of India under
FEMA, 1999 from time to time.
17.2 Clarification346 to Regulation 24347
17.2.1 The amended Regulation mandates that AMCs shall appoint
separate fund manager for each separate fund managed by it
unless the investment objectives and assets allocations are the
same and the portfolio is replicated across all the funds managed
by the fund manager.
346 SEBI Circular No.Cir/IMD/DF/7/2012 dated February 28, 2012
347 Of SEBI (Mutual Funds) Regulations, 1996
173 Master Circular for Mutual Funds
17.2.2 The replication of minimum 70% of portfolio value shall be
considered as adequate for the purpose of said compliance,
provided that AMC has in place a written policy for trade allocation
and it ensures at all points of time that the fund manager shall not
take directionally opposite positions in the schemes managed by
him.
17.2.3 Wherein a fund manager is common across mutual fund schemes
and schemes/products under other permissible activities of AMC,
then the AMC shall:
17.2.3.1 disclose on their websites, the returns provided by the said
manager for all the schemes (mutual fund, pension funds,
offshore funds etc) on a monthly basis.
17.2.3.2 in case of any performance advertisement is issued by the AMC
for any scheme, then the details of returns of all the schemes
(mutual fund, pension funds, offshore funds etc) managed by
that fund manager shall be provided.
17.2.3.3 in case the difference between the annual returns provided by
the schemes managed by the same fund manager is more than
10% then the same shall be reported to the trustee and
explanation for the same shall be disclosed on the website of
the AMC.
174 Master Circular for Mutual Funds