MASTER CIRCULAR
SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/74 May 19, 2023
To,
All Mutual Funds (‘MFs’)
Asset Management Companies (‘AMCs’)
Trustee Companies/ Boards of Trustees of Mutual Funds
Registrar to an Issue and Share Transfer Agents (‘RTAs’)
Association of Mutual Funds in India (AMFI)
All Recognized Stock Exchanges & Clearing Corporations
All Stock Brokers
All Depositories
All Custodians
Dear Sir/ Madam,
Subject: Master Circular for Mutual Funds
1. For effective regulation of Mutual Fund Industry, the Securities and
Exchange Board of India (“SEBI”) has been issuing various circulars from
time to time. In order to enable the stakeholders to have an access to all
the applicable regulatory requirements at one place, the provisions of the
said circulars issued till March 31, 2023 are incorporated in this Master
Circular for Mutual Funds.
2. This Master Circular shall come into force from the date of its issuance.
The circulars mentioned in Appendix to this Master Circular shall stand
rescinded with the issuance of the Master Circular. With respect to the
directions or other guidance issued by SEBI, as specifically applicable to
Mutual Funds, the same shall continue to remain in force in addition to
the provisions of any other law for the time being in force. Terms not
defined in this Master Circular shall have the same meaning as provided
under the relevant Regulations.
3. Notwithstanding such rescission,
3.1. anything done or any action taken or purported to have been done or
taken under the rescinded circulars, including registrations or
approvals granted, fees collected, registration suspended or
cancelled, any inspection or investigation or enquiry or adjudication
commenced or show cause notice issued prior to such rescission,
shall be deemed to have been done or taken under the corresponding
provisions of this Master Circular;
3.2. any application made to SEBI under the rescinded circulars, prior to
such rescission, and pending before it shall be deemed to have been
made under the corresponding provisions of this Master Circular;
3.3. the previous operation of the rescinded circulars or anything duly
done or suffered thereunder, any right, privilege, obligation or liability
acquired, accrued or incurred under the rescinded circulars, any
penalty, incurred in respect of any violation committed against the
rescinded circulars, or any investigation, legal proceeding or remedy
in respect of any such right, privilege, obligation, liability, penalty as
aforesaid, shall remain unaffected as if the rescinded circulars have
never been rescinded;
4. Pursuant to issuance of this Master Circular, the entities which are
required to ensure compliance with various provisions shall submit
necessary reports as envisaged in this Master Circular on a periodic/
continuous basis.
5. Applicability of certain provisions of this Master Circular:
5.1. The provisions mentioned at Paragraph 5.27 of this Master Circular
shall be applicable with effect from July 01, 2023.
2 Master Circular for Mutual Funds as on March 31, 2023
6. This Master Circular is issued in exercise of powers conferred under
Section 11(1) of the Securities and Exchange Board of India Act, 1992 to
protect the interests of investors in securities and to promote the
development of, and to regulate the securities market.
7. This Master Circular is available on the SEBI website at
https://www.sebi.gov.in/ under the category “Legal -> Master Circulars”.
Yours faithfully,
Peter Mardi
Deputy General Manager
Investment Management Department
Tel: 022 - 26449233
Email: peterm@sebi.gov.in
3 Master Circular for Mutual Funds as on March 31, 2023
INDEX
ABBREVIATIONS .................................................................................................. 5
CHAPTER 1: OFFER DOCUMENT FOR SCHEMES ................................................. 7
CHAPTER 2: CONVERSION & CONSOLIDATION OF SCHEMES, LAUNCH OF
ADDITIONAL PLAN AND CATEGORIZATION & RATIONALIZATION OF MUTUAL
FUND SCHEMES ................................................................................................. 22
CHAPTER 3: NEW PRODUCTS ............................................................................ 43
CHAPTER 4: RISK MANAGEMENT FRAMEWORK ................................................ 68
CHAPTER 5: DISCLOSURES & REPORTING NORMS ............................................ 90
CHAPTER 6: GOVERNANCE NORMS.................................................................. 111
CHAPTER 7: SECONDARY MARKET ISSUES...................................................... 158
CHAPTER 8: NET ASSET VALUE ....................................................................... 163
CHAPTER 9: VALUATION .................................................................................. 176
CHAPTER 10: LOADS, FEES, CHARGES AND EXPENSES ................................... 201
CHAPTER 11: DIVIDEND DISTRIBUTION PROCEDURE ..................................... 217
CHAPTER 12: INVESTMENT BY SCHEMES ........................................................ 221
CHAPTER 13: ADVERTISEMENTS ..................................................................... 271
CHAPTER 14: INVESTOR RIGHTS & OBLIGATIONS ........................................... 279
CHAPTER 15: CERTIFICATION AND REGISTRATION OF INTERMEDIARIES ..... 295
CHAPTER 16: TRANSACTION IN MUTUAL FUNDS UNITS ................................... 304
CHAPTER 17: MISCELLANEOUS ....................................................................... 328
APPENDIX: LIST OF RESCINDED CIRCULARS .................................................. 356
FORMATS ------------------------------------------------------------------------ Refer the attachment
ANNEXURES -------------------------------------------------------------------- Refer the attachment
POLICY RELATED LETTERS/ EMAIL ISSUED BY SEBI ---------- Refer the attachment
AMFI BEST PRACTICE GUIDELINES ------------------------------------Refer AMFI Website
4 Master Circular for Mutual Funds as on March 31, 2023
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
Foreign Portfolio Investor FPI
Fixed Maturity Plans FMP(s)
Global Depository Receipt GDR
Gold Exchange Traded Fund GETF
Gold Monetization Scheme GMS
Hindu Undivided Family HUF
International Organization of Securities Commission IOSCO
Investor Service Center ISC
Key Information Memorandum KIM
Know Your Client KYC
London Bullion Market Association LBMA
Monthly Cumulative Report MCR
Monthly Average Assets Under Management MAAUM
Multilateral Memorandum of Understanding MMOU
Mutual Fund Distributor MFD
5 Master Circular for Mutual Funds as on March 31, 2023
National Stock Exchange NSE
Net Asset Value NAV
New Fund Offer NFO
Permanent Account Number PAN
Prevention of Money Laundering Act PMLA
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
Unique Client Code UCC
Unit Confirmation Receipt UCR
6 Master Circular for Mutual Funds as on March 31, 2023
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 –
http://www.sebi.gov.in for 21 working days from the date of
filing6.
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, Refer SEBI email dated
November 15, 2011, Refer SEBI letter No. SEBI/HO/OW/IMD-II/DOF3/P/2022/4580/1
dated February 03, 2022
< 2 ,, For format of SID & SAI, please refer to format no. 5.A & 5.B. under the section on Formats,
Refer SEBI email dated January 07, 2009
3 The filing fees was revised via gazette notification No. LAD-NRO/GN/2014-15/03/1089 on
SEBI (Payment of Fees) (Amendment) Regulations, 2014 dated 23 May, 2014, applicable from
May 23, 2014, Refer SEBI email dated April 13, 2015.
4 SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997, Refer SEBI letter
No. SEBI/HO/OW/IMD-II/DOF3/P/25096/2022 dated June 17, 2022
5 Regulation 28 (1) of SEBI (Mutual Funds) Regulation 1996
6 SEBI Circular No. IIMARP/MF/CIR/06/793/98 dated March 31, 1998
7 Master Circular for Mutual Funds as on March 31, 2023
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 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 days7 shall be calculated
from the date of refiling;8
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)9.
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 along with printed copy of the same10, upload the
SAI on its website and on AMFI website. The printed copy of
SAI shall be made available to the investor on request.
b. Updation of SAI - SAI shall be updated within 3 months from
end of financial year and filed with SEBI. 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
7 Regulation 29(3) of SEBI (Mutual Funds) Regulation 1996
, 8 ,,, SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997.
,9,,, 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.
10 SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29, 2009
8 Master Circular for Mutual Funds as on March 31, 2023
effective date for such changes shall be mentioned in the
updated SAI.
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 seven11 working days prior to the launch of
the scheme. AMC shall also submit an undertaking to the
Board 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 12. Failure to submit the printed SID to the Board
before it is issued for circulation shall invite penalties under
the Mutual Funds Regulations13.
b. In case of any difference, in nature of material alteration of the
suggestions made by the Board14 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 Board
1.2 Updation of SID & KIM15
The procedure for updation of SID and KIM shall be as follows:
11 SEBI Circular No – SEBI/HO/IMD/DF2/CIR/P/2016/68 dated August 10, 2016
12 SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009
13 SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997.
, 1 4 Regulation 29(2) of the SEBI (Mutual Funds) Regulations, 1996
15 SEBI Circular- SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 and SEBI Circular
No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021, Refer SEBI letter No.
SEBI/HO/OW/IMD-II/DOF3/P/397002021 dated December 28, 2021 & SEBI email dated
March 25, 2022 for Scheme Summary Document
9 Master Circular for Mutual Funds as on March 31, 2023
1.2.1 16For the open ended and interval schemes, the SID shall be updated
within next six months from the end of the 1st half or 2nd half of the
financial year in which schemes were launched, based on the relevant
data and information as at the end of previous month. Subsequently,
SID shall be updated within one month from the end of the half-year,
based on the relevant data and information as at the end of September
and March respectively. A soft copy of updated SID shall be filed with
SEBI in PDF format within 7 days along with a printed copy of the
same17.
1.2.2 18The procedure to be followed in case of changes to the open ended
and interval scheme shall be as under:
a. In case of change in fundamental attributes in terms of Regulation 18
(15A):
i. An addendum to the existing SID shall be issued and displayed on
AMC website immediately.
ii. SID shall be revised and updated immediately after completion of
duration of the exit option (not less than 30 days from the notice
date).
iii. 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.
b. In case of other changes:
i. The AMC shall be required to issue an addendum and display the
same on its website immediately.
ii. The addendum shall be circulated to all the
distributors/brokers/Investor Service Centre (ISC) so that the
same can be attached to all KIM and SID already in stock till it is
updated.
16SEBI Circular- SEBI/HO/IMD/IMD-I DOF2/P/CIR/2021/0560 dated April 30, 2021.
17 SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009
18 Refer SEBI letter No. IMD/DF3/OW/P/2021/32220/1 dated November 11, 2021
10 Master Circular for Mutual Funds as on March 31, 2023
iii. Latest applicable addendum shall be a part of KIM and SID. (E.g.
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).
iv. Further, the account statements shall continue to include
applicable load structure.
1.2.3 A copy of all changes made to the scheme shall be filed with SEBI
within 7 days of the change.
1.2.4 19KIM shall be updated at least once in half-year, within one month
from the end of the respective half-year, based on the relevant data
and information as at the end of September and March and shall be
filed with SEBI forthwith through electronic mode only.
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 along with filing fees.
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 Scheme20
1.4.1 In the certificate submitted by Trustees with regard to compliance of
AMC with Regulations21, the Trustees are required to certify as
follows:
19 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2021/0560 dated April 30, 2021
20 SEBI Cir. No. IMD/CIR No.5/70559/06 dated June 30, 2006
21 Regulation 18 (4) of SEBI (Mutual Funds) Regulations, 1996
11 Master Circular for Mutual Funds as on March 31, 2023
“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 fixed maturity plans and close
ended schemes except for those close ended schemes which have the
option of conversion into open ended schemes on maturity and also
to Interval Schemes.
1.5 Standard Observations
1.5.1 Standard Observations have been prescribed to ensure minimum
level of disclosures in the SID and SAI22.
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.
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 KIM23
22 For Standard Observations, please refer to format no. 6 under the section on Formats
23 Refer SEBI email dated March 29, 2010
12 Master Circular for Mutual Funds as on March 31, 2023
1.6.2.1 Mutual Funds shall prepare KIM in the prescribed format24.
The contents of KIM shall follow the same sequence as
prescribed in the format.
1.7 Easy Availability of Offer Document25
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.
1.8 Selection of Benchmarks26
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 of the
scheme(s).
1.8.2 Benchmarks for debt oriented and balanced fund schemes27
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 justified28.
24 For format of KIM, please refer format no. 5.C under the section on Formats
25 SEBI Circular- SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008
26 SEBI Circular No. MFD/CIR/16/400/02 dated March 26, 2002, SEBI Circular No.
MFD/CIR/01/071/02 April 15, 2002
27 SEBI Circular No. MFD/CIR/01/071/02 dated April 15, 2002
, 2 8 SEBI 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 Chapter 6 on
governance norms.
13 Master Circular for Mutual Funds as on March 31, 2023
1.8.5 Examples of benchmarks are illustrated below:
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 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 Guiding Principles for bringing uniformity in Benchmarks of
Mutual Fund Schemes29
1.9.1 It has been decided that there would be two-tiered structure for
benchmarking of schemes for certain categories of schemes. The first
tier benchmark shall be reflective of the category of the scheme, and
the second tier benchmark should be demonstrative of the
investment style / strategy of the Fund Manager within the category.
All the benchmarks followed should necessarily be Total Return
Indices.
1.9.2 The following are the guiding principles for first tier benchmarks:
29SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010, SEBI
circular no. SEBI/HO/IMD/IMD-II DF3/P/CIR/2021/652 dated October 27, 2021.
14 Master Circular for Mutual Funds as on March 31, 2023
For Income / Debt Oriented Schemes
First Tier: One Broad Market Index per Index Provider for each
category e.g.: NIFTY Ultra Short Duration Debt Index or CRISIL
Ultra Short Term Debt Index for Ultra Short Duration Fund
Category
Second Tier: Bespoke according to Investment Style/Strategy of
the Index e.g.: AAA Bond Index
For Growth / Equity Oriented Schemes
First Tier: One Broad Market Index per Index Provider for each
category e.g.: S&P BSE 100 Index or NSE 100 Index for Large Cap
Fund Category
Second Tier: Bespoke according to Investment Style/Strategy of
the Index e.g.: Nifty 50 Index
For Hybrid and Solution Oriented Schemes:
There would be a single benchmark, i.e., Broad Market
Benchmark wherever available or bespoke to be created for
schemes, which would then be applicable across industry.
For Thematic / Sectoral schemes:
There would be a single benchmark as characteristics of the
schemes are already tapered according to the theme/sector.
For Index Funds and Exchange Traded Funds (ETFs):
There would be a single benchmark as these schemes replicate
an underlying index.
For Fund of Funds Schemes (FoFs):
15 Master Circular for Mutual Funds as on March 31, 2023
Similar to Index Fund and ETFs, if a FoF scheme is investing in
a single fund, then benchmark of the underlying scheme shall be
used for corresponding FoF.
However, in case a FoF scheme invests in multiple schemes, then
Broad Market Index shall be applied.
For Other Schemes:
Depending on underlying asset allocation, Broad Market
benchmark may be arrived at.
1.9.3 AMFI has been advised to publish:
a) Benchmarks intended to be used by AMCs as first tier
benchmarks
b) Benchmarks intended to be used as first tier benchmark
as per the Potential Risk Class Matrix from April 1, 2022
by AMCs for open ended debt schemes.
1.9.4 The second tier Benchmark is optional and shall be decided by the
AMCs according to Investment Style/Strategy of the Index.
1.10 New Fund Offer (NFO) Period30
1.10.1 In case of open ended and close ended schemes (except ELSS
schemes), the NFO should be open for 15 days.
1.10.2 The NFO period in case of ELSS schemes shall continue to be
governed by guidelines issued by Government of India.
1.10.3 Mutual Funds/AMCs are allowed to deploy the NFO proceeds in
triparty repo on Government securities or treasury bills 31 before the
30 SEBI 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.
31 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016 and SEBI
circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021.
16 Master Circular for Mutual Funds as on March 31, 2023
closure of NFO period. However, AMCs shall not charge any
investment management and advisory fees on funds deployed in
triparty repo on Government securities or treasury bills during the
NFO period. The appreciation received from investment in triparty
repo on Government securities or treasury bills shall be passed on to
investors. Further, in case the minimum subscription amount is not
garnered by the scheme during the NFO period, the interest earned
upon investment of NFO proceeds in triparty repo on Government
securities or treasury bills shall be returned to investors, in
proportion of their investments, along-with the refund of the
subscription amount.
1.10.4 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.
1.11 Timelines related to processing of scheme related applications
filed by AMCs32
1.11.1 The application filed by AMCs for the following matters may be
deemed to be taken on record in case no modifications are suggested
or no queries are raised by SEBI within 21 working days:
a) Change in the Fundamental Attributes of a scheme
b) Merger/Consolidation of Schemes
c) Rollover of Close-ended schemes
d) Conversion of Close-ended scheme to Open ended schemes.
1.11.2 In respect of applications filed by AMCs under Regulation 24 (b) of
SEBI (Mutual Funds) Regulations, 1996, no objection will have been
32 SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/603 dated July 23, 2021
17 Master Circular for Mutual Funds as on March 31, 2023
deemed to be communicated in case no modifications are suggested
or no queries are raised by SEBI within 21 working days.
1.11.3 The timelines mentioned at Paragraph 1.11.1 and 1.11.2 above shall
generally be adhered to -
(a) provided the application is complete in all respects and in
compliance with all the relevant Regulations and circulars
issued by SEBI.
(b) except in cases where subject matter of approval requires a
policy view to be taken or presents a unique situation which
requires wider consultation and deliberation.
1.12 Restriction on Redemption in Mutual Funds33
1.12.1 In order to bring more clarity and to protect the interest of the
investors, the following requirement shall be observed before
imposing restriction on redemptions:
1.12.1.1 Restriction may be imposed when there are circumstances
leading to a systemic crisis or event that severely constricts
market liquidity or the efficient functioning of markets such as:
1.12.1.1.1 Liquidity issues - when market at large becomes illiquid
affecting almost all securities rather than any issuer specific
security. AMCs should have in place sound internal liquidity
management tools for schemes. Restriction on redemption
cannot be used as an ordinary tool in order to manage the
liquidity of a scheme. Further, restriction on redemption due
to illiquidity of a specific security in the portfolio of a scheme
due to a poor investment decision, shall not be allowed.
1.12.1.1.2 Market Failures, exchange closures - when markets are
affected by unexpected events which impact the functioning
33 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/57 dated May 31, 2016
18 Master Circular for Mutual Funds as on March 31, 2023
of exchanges or the regular course of transactions. Such
unexpected events could also be related to political,
economic, military, monetary or other emergencies.
1.12.1.1.3 Operational Issues - when exceptional circumstances are
caused by force majeure, unpredictable operational problems
and technical failures (e.g. a black out). Such cases can only
be considered if they are reasonably unpredictable and occur
in spite of appropriate diligence of third parties, adequate
and effective disaster recovery procedures and systems.
1.12.1.2 Restrictions on redemption may be imposed for a specified
period of time not exceeding 10 working days in any 90 days
period.
1.12.1.3 Any imposition of restriction would require specific approval of
Board of AMCs and Trustees and the same should be informed
to SEBI immediately.
1.12.1.4 When restriction on redemption is imposed, the following
procedure shall be applied:
1.12.1.4.1 No redemption requests up to INR 2 lakh shall be subject to
such restriction.
1.12.1.4.2 When redemption requests are above INR 2 lakh, AMCs shall
redeem the first INR 2 lakh without such restriction and
remaining part over and above INR 2 lakh shall be subject to
such restriction.
1.12.2 Disclosure: The above information to investors shall be disclosed
prominently and extensively in the scheme related documents
regarding the possibility that their right to redeem may be restricted
in such exceptional circumstances and the time limit for which it can
be restricted.
19 Master Circular for Mutual Funds as on March 31, 2023
1.13 Discontinuation of the nomenclature – ‘Liquid Plus Scheme(s)’34
1.13.1 The nomenclature “Liquid Plus Scheme(s)” has been discontinued
from January 2009 since it gives a wrong impression of added
liquidity.
1.14 Fundamental Attributes35
1.14.1 The words "fundamental attributes"36 are elaborated below:
1.14.1.1 Type of a scheme
a. Open ended/Close ended/Interval scheme
b. Equity Schemes, Debt Schemes, Hybrid Schemes, Solution
Oriented Schemes and Other Schemes37
1.14.1.2 Investment Objective(s)
a. Main Objective - Growth/Income/Both.
b. 38Investment pattern - The tentative portfolio break-up of
Equity, Debt, Money Market Instruments, other permitted
securities and such other securities as may be permitted
by the Board from time to time with minimum and
maximum asset allocation, while retaining the option to
alter the asset allocation for a short term period on
defensive considerations.
1.14.1.3 Terms of Issue
a. Liquidity provisions such as listing, repurchase,
redemption.
b. Aggregate fees and expenses charged to the scheme.
34 SEBI/IMD/CIR No.13/150975 / 09 dated January 19, 2009
35 SEBI Circular No- IIMARP/MF/CIR/01/294/98 dated February 4, 1998, Refer SEBI letter
No. SEBI/HO/OW/IMD/RAC2/P/2022/511371/1 dated October 04, 2022
36 Sub-regulation (15A) of Regulation 18 of SEBI (Mutual Funds) Regulations, 1996
37 SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017
38 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
20 Master Circular for Mutual Funds as on March 31, 2023
c. Any safety net or guarantee provided.
1.14.1.4 39Comments from SEBI for change in Fundamental Attributes:
In addition to the conditions specified under Regulation 18
(15A) for bringing change in the fundamental attributes of
any scheme, trustees shall take comments of the Board
before bringing such change(s).
39 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
21 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 2: CONVERSION & CONSOLIDATION OF SCHEMES, LAUNCH
OF ADDITIONAL PLAN AND CATEGORIZATION & RATIONALIZATION OF
MUTUAL FUND SCHEMES
PART I - CONVERSION OF SCHEMES
2.1 Conversion of Close Ended Scheme(s) to Open Ended Scheme(s)40
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 Regulations41, following requirements are clarified again:
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 Board42 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 format43
b. Details of the financial performance of the scheme(s) since
inception in the format prescribed in SID44 along with
comparisons with appropriate benchmark(s)45.
c. The addendum to the SID detailing the modifications (if any)
made to the scheme(s).
40 SEBI Circular No. MFD/CIR No.22/2311/03 dated January 30, 2003.
, 4 , 1 Regulation 33(3) of the SEBI (Mutual Funds), Regulations, 1996.
, 4 , 2 SEBI Circular No. SEBI/IMD/Cir No 5/126096/08 dated May 23, 2008
43 Refer to format no. 3.C on half yearly portfolio disclosure under section on formats.
, 4 4 Please refer to format no. 5.A. of SID under section on Formats.
45 For examples of Benchmarks, refer to Chapter 1 – ‘Offer Documents for Schemes’
22 Master Circular for Mutual Funds as on March 31, 2023
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.
23 Master Circular for Mutual Funds as on March 31, 2023
PART II – CONSOLIDATION OF SCHEMES
2.2 Consolidation of Schemes46
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 regard47.
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
46 SEBI Circular No. SEBI/MFD/CIR No.5/12031/03 dated June 23, 2003.
, 4 7 Regulation 18(15A) of the Mutual Funds Regulations.
24 Master Circular for Mutual Funds as on March 31, 2023
disclose all relevant information enabling them to take well
informed decisions. This information will include, inter alia:
1. Latest portfolio of the concerned schemes48.
2. Details of the financial performance of the concerned
schemes since inception in the format prescribed in SID49
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 exposure to securities classified as
below investment grade or default and percentage of total
illiquid assets to net assets of each individual scheme(s) as
well the consolidated scheme.50
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 scheme51.
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
48 Refer format no. 3.C. on half yearly portfolio disclosure under section on Formats
< 4 9 Please refer format no. 5.A. on SID under section on Formats
50 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019.
51 Please refer Chapter 1 on ‘Offer Documents for Schemes’ for further details
25 Master Circular for Mutual Funds as on March 31, 2023
with the Board within 21 days from the date of closure of the
exit option52.
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 met53:
a. Fundamental attributes54 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 unit holders of surviving scheme is not adversely affected.
2.2.2.6 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
prescribed55.
2.2.2.7 The letter to unit holders 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.
52 SEBI Circular No- SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009
53 SEBI Circular No- Cir / IMD / DF / 15/ 2010 dated October 22, 2010
54 SEBI Circular No-IIMARP/MF/CIR/01/294/98 dated February 4, 1998
55 Regulation 29(3) of SEBI (Mutual Funds) Regulations, 1996
26 Master Circular for Mutual Funds as on March 31, 2023
PART III – LAUNCH OF ADDITIONAL PLANS56
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).
2.4 Single Plan57
2.4.1 Mutual funds/AMCs shall launch schemes under a single plan and
ensure that all new investors are subject to single expense structure.
2.4.2 Existing schemes with multiple plans based on the amount of
investment (i.e. retail, institutional, super-institutional, etc.) shall
accept fresh subscriptions only under one plan.
56 SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15, 2009
57 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012
27 Master Circular for Mutual Funds as on March 31, 2023
2.4.3 Other plans will continue till the existing investors remain invested
in the plan.
2.5 Direct Plan58
2.5.1 Mutual funds/AMCs shall provide a separate plan for direct
investments, i.e., investments not routed through a distributor, in
existing as well as new schemes.
2.5.2 Such separate plan shall have a lower expense ratio excluding
distribution expenses, commission, etc., and no commission shall be
paid from such plans. The plan shall also have a separate NAV.
58 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012, Refer SEBI Email
dated April 28, 2015
28 Master Circular for Mutual Funds as on March 31, 2023
PART IV – CATEGORIZATION AND RATIONALIZATION OF MUTUAL FUND
SCHEMES59
It is desirable that different schemes launched by a Mutual Fund are clearly
distinct in terms of asset allocation, investment strategy etc. Further, there is
a need to bring in uniformity in the characteristics of similar type of schemes
launched by different Mutual Funds. This would ensure that an investor of
Mutual Funds is able to evaluate the different options available, before taking
an informed decision to invest in a scheme.
In order to bring the desired uniformity in the practice, across Mutual Funds
and to standardize the scheme categories and characteristics of each
category, it has been decided to categorize the MF schemes as given below:
2.6 Categories of Schemes, Scheme Characteristics and Type of
Scheme (Uniform Description of Schemes)60:
2.6.1 The Schemes would be broadly classified in the following groups:
i. Equity Schemes
ii. Debt Schemes
iii. Hybrid Schemes
iv. Solution Oriented Schemes
v. Other Schemes
The details of the scheme categories under each of the aforesaid
groups along with their characteristics and uniform description are
as under:
59 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017, Refer
SEBI letter No. SEBI/HO/OW/IMD-II/DOF3/P/5249/2022 dated February 08, 2022, Refer
SEBI letter No. SEBI/HO/OW/IMD-II/DOF3/P/25379/2022 dated June 21, 2022
60 Refer SEBI letter No. SEBI/HO/OW/IMD-II/DOF3/P/25096/2022 dated June 17, 2022
29 Master Circular for Mutual Funds as on March 31, 2023
A. Equity Schemes:
Sr. Category of Scheme Characteristics Type of scheme
No. Schemes (uniform description of
scheme)
1 Multi Cap Minimum investment in equity Multi Cap Fund- An open
Fund & equity related instruments- ended equity scheme
75% of total assets in the investing across large
following manner:61 cap, mid cap, small cap
stocks
a) Minimum investment in
equity & equity related
instruments of large cap
companies - 25% of total
assets;
b) Minimum investment in
equity & equity related
instruments of mid cap
companies - 25% of total
assets;
c) Minimum investment in
equity & equity related
instruments of small cap
companies - 25% of total
assets
2 Large Cap Minimum investment in equity Large Cap Fund- An open
Fund & equity related instruments of ended equity scheme
large cap companies- 80% of predominantly investing
total assets in large cap stocks
3 Large & Mid Minimum investment in equity Large & Mid Cap Fund-
Cap Fund & equity related instruments of An open ended equity
large cap companies- 35% of scheme investing in both
total assets large cap and mid cap
Minimum investment in equity stocks.
& equity related instruments of
mid cap stocks- 35% of total
assets
4 Mid Cap Minimum investment in equity Mid Cap Fund- An open
Fund & equity related instruments of ended equity scheme
61 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2020/172 dated September 11, 2020
30 Master Circular for Mutual Funds as on March 31, 2023
mid cap companies- 65% of total predominantly investing
assets in mid cap stocks
5 Small cap Minimum investment in equity Small Cap Fund- An open
Fund & equity related instruments of ended equity scheme
small cap companies- 65% of predominantly investing
total assets in small cap stocks
6 Dividend Scheme should predominantly An open ended equity
Yield Fund invest in dividend yielding scheme predominantly
stocks. investing in dividend
yielding stocks
Minimum investment in equity-
65% of total assets
7 Value Fund* Scheme should follow a value An open ended equity
investment strategy. scheme following a value
Minimum investment in equity investment strategy
& equity related instruments -
65% of total assets
Contra Scheme should follow a An open ended equity
Fund* contrarian investment strategy. scheme following
Minimum investment in equity contrarian investment
& equity related instruments - strategy
65% of total assets
8 Focused A scheme focused on the An open ended equity
Fund number of stocks (maximum 30) scheme investing in
Minimum investment in equity maximum 30 stocks
& equity related instruments - (mention where the
65% of total assets scheme intends to focus,
viz., multi cap, large cap,
mid cap, small cap)
9 Sectoral/ Minimum investment in equity An open ended equity
Thematic62 & equity related instruments of scheme investing in __
a particular sector/ particular sector (mention the
theme- 80% of total assets sector)/
An open ended equity
scheme following __
theme (mention the
theme)
10 ELSS63 Minimum investment in equity An open ended equity
& equity related instruments - linked saving scheme
80% of total assets (in
62 Refer SEBI letter No. SEBI/H0/0W/IMD-II/DOF3/P/24098/2022 dated June 10, 2022
63 Refer SEBI letter No. SEBI/HO/IMD- POD-2/P/OW/2023/1114/1 dated January 10, 2023
31 Master Circular for Mutual Funds as on March 31, 2023
accordance with Equity Linked with a statutory lock in of
Saving Scheme, 2005 notified by 3 years and tax benefit
Ministry of Finance)
11 Flexi Cap Minimum Investment in equity An open ended dynamic
Fund64 & equity related instruments – equity scheme investing
65% of total assets across large cap, mid cap,
small cap stocks
* Mutual Funds will be permitted to offer either Value fund or Contra fund.
B. Debt Schemes
Sr. Category of Scheme Characteristics Type of scheme
No Schemes (uniform description of
. scheme)
1 Overnight Investment in overnight An open ended debt
Fund** securities having maturity of 1 scheme investing in
day*** overnight securities
2 Liquid Fund Investment in Debt and money An open ended liquid
$ ** market securities with maturity scheme
of upto 91 days only
3 ++ Ultra Short Investment in Debt & Money An open ended ultra-
Duration Market instruments such that short term debt scheme
Fund the Macaulay duration of the investing in instruments
portfolio is between such that the Macaulay
3 months to 6 months duration of the portfolio
is between 3 months to 6
months (please refer to
page no.__) #.
4++ Low Investment in Debt & Money An open ended low
Duration Market instruments such that duration debt scheme
Fund the Macaulay duration of the investing in instruments
portfolio is between such that the Macaulay
6 months to 12 months duration of the portfolio
is between 6 months to
12 months (please refer
to page no.__) #.
64 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2020/228 dated November 06, 2020
32 Master Circular for Mutual Funds as on March 31, 2023
5 Money Investment in Money Market An open ended debt
Market instruments having maturity up scheme investing in
Fund to 1 year money market
instruments
6++ Short Investment in Debt & Money An open ended short
Duration Market instruments such that term debt scheme
Fund the Macaulay duration of the investing in instruments
portfolio is between such that the Macaulay
1 year to 3 years duration of the portfolio
is between 1 year to 3
years (please refer to
page no.__) # .
7++ Medium Investment in Debt & Money An open ended medium
Duration Market instruments such that term debt scheme
Fund ^^ the Macaulay duration of the investing in instruments
portfolio is between such that the Macaulay
3 years to 4 years. duration of the portfolio
is between 3 years to 4
Portfolio Macaulay duration years (please refer to
under anticipated adverse page no.__) #.
situation is 1 year to 4 years
8++ Medium to Investment in Debt & Money An open ended medium
Long Market instruments such that term debt scheme
Duration the Macaulay duration of the investing in instruments
Fund ^^ portfolio is between such that the Macaulay
4 to 7 years. duration of the portfolio
is between 4 years to 7
Portfolio Macaulay duration years (please refer to
under anticipated adverse page no.__) #.
situation is 1 year to 7 years
9++ Long Investment in Debt & Money An open ended debt
Duration Market Instruments such that scheme investing in
Fund the Macaulay duration of the instruments such that
portfolio is greater the Macaulay duration of
than 7 years the portfolio is greater
than 7 years (please refer
to page no.__) # .
10 Dynamic Investment across duration An open ended dynamic
Bond debt scheme investing
across duration
33 Master Circular for Mutual Funds as on March 31, 2023
11 Corporate Minimum investment in An open ended debt
Bond corporate bonds- 80% of total scheme predominantly
Fund assets (only in AA+ and above investing in AA+ and
rated corporate bonds) @ above rated corporate
bonds
12 Credit Risk Minimum investment in An open ended debt
Fund ^ corporate bonds- 65% of total scheme predominantly
assets (only in AA* and below investing in AA and
rated corporate bonds) @ below rated
corporate bonds
(excluding AA+ rated
corporate bonds)
13 Banking and Minimum investment in Debt An open ended debt
PSU Fund instruments of banks, Public scheme predominantly
Sector Undertakings, Public investing in Debt
Financial Institutions and instruments of banks,
Municipal Bonds - 80% of total Public Sector
assets @ Undertakings, Public
Financial Institutions
and Municipal Bonds
14 Gilt Fund Minimum investment in Gsecs- An open ended debt
80% of total assets (across scheme investing in
maturity) government securities
across maturity
15 Gilt Fund Minimum investment in Gsecs- An open ended debt
with 10 year 80% of total assets such that the scheme investing in
constant Macaulay duration of the government securities
duration portfolio is equal to 10 years having a constant
maturity of 10 years
16 Floater Fund Minimum investment in floating An open ended debt
rate instruments (including fixed scheme predominantly
rate instruments converted to investing in floating rate
floating rate exposures using instruments (including
swaps/derivatives)- 65% of total fixed rate instruments
assets @ converted to floating rate
exposures using
swaps/derivatives)
**Provision as mentioned at Paragraph 8.4.5 of this Master Circular shall be
followed for Uniform cut-off timings for applicability of Net Asset Value in
respect of Liquid Fund and Overnight Fund.
34 Master Circular for Mutual Funds as on March 31, 2023
*** Overnight funds can deploy, not exceeding, 5% of the net assets of the
scheme in G-secs and/or T-bills with a residual maturity of upto 30 days for
the purpose of placing the same as margin and collateral for certain
transactions65.
$ All provisions mentioned at Paragraph 1.13, 8.4.2.1.c, 12.6 of this Master
Circular in respect of liquid schemes shall be applicable.
# Please refer to the page number of the Offer Document on which the concept
of Macaulay's Duration has been explained
^ Words/ phrases that highlight/ emphasize only the return aspect of the
scheme shall not be used in the name of the scheme (for instance Credit
Opportunities Fund, High Yield Fund, Credit Advantage etc.)
* excludes AA+ rated corporate bonds
^^ With respect to the Medium Duration Fund and Medium to Long Duration
Fund, the characteristics of the scheme shall remain the same under normal
circumstances. However, the fund manager, in the interest of investors, may
reduce the portfolio duration of the aforementioned schemes up to one year, in
case he has a view on interest rate movements in light of anticipated adverse
situation. The AMC shall be required to mention its asset allocation under such
adverse situation in its offer documents.
Whenever the portfolio duration is reduced below the specified floors of 3
years and 4 years in respect of Medium Duration Fund and Medium to Long
Duration Fund respectively, the AMC shall be required to record the reasons
for the same with adequate justification and maintain the same for inspection.
The written justifications shall be placed before the Trustees in the
subsequent Trustee meeting. Further, the Trustees shall also review the
portfolio and report the same in their Half Yearly Trustee Report to SEBI.
++ It is clarified that Macaulay duration shall be at portfolio level66.
@ For asset allocation limits considering minimum liquid assets requirement,
refer Paragraph 4.6 of this Master Circular.
C. Hybrid Schemes
Sr. Category of Scheme Characteristics Type of scheme
No Schemes (uniform description of
. scheme)
65 SEBI/HO/IMD/DF2/CIR/P/2021/683 dated December 10, 2021
66 SEBI circular no. SEBI/HO/IMD/DF3/CIR/P/2017/126 dated December 04, 2017
35 Master Circular for Mutual Funds as on March 31, 2023
1 Conservative Investment in equity & equity An open ended hybrid
Hybrid Fund related instruments- between scheme investing
10% and 25% of total assets; predominantly in debt
Investment in Debt instruments
instruments- between 75%
and 90% of total assets
2 Balanced Equity & Equity related An open ended balanced
Hybrid instruments- between 40% scheme investing in
Fund @ and 60% of total assets; equity and debt
Debt instruments- between instruments
40% and 60% of total assets
No Arbitrage would be
permitted in this scheme
Aggressive Equity & Equity related An open ended hybrid
Hybrid Fund instruments- between 65% scheme investing
@ and 80% of total assets; predominantly in
Debt instruments- between equity and equity related
20% 35% of total assets instruments
3 Dynamic Investment in equity/ debt An open ended dynamic
Asset that is managed dynamically asset allocation fund
Allocation or
Balanced
Advantage
4 Multi Asset Invests in at least three asset An open ended scheme
Allocation ## classes with a minimum investing in _ , __ ,___
allocation of at least 10% each (mention the three
in all three asset classes different asset
classes)
5 Arbitrage Scheme following arbitrage An open ended scheme
Fund strategy. Minimum investing in arbitrage
investment in equity & equity opportunities
related instruments-
65% of total assets
6 Equity Minimum investment in An open ended scheme
Savings equity & equity related investing in equity,
instruments- 65% of total arbitrage and debt
assets and minimum
investment in debt- 10% of
total assets
Minimum hedged &
unhedged to be stated in the
SID.
36 Master Circular for Mutual Funds as on March 31, 2023
Asset Allocation under
defensive considerations may
also be stated in the Offer
Document
@ Mutual Funds will be permitted to offer either an Aggressive Hybrid fund or
Balanced fund
## Foreign securities will not be treated as a separate asset class
D. Solution Oriented Schemes:
Sr. Category of Scheme Characteristics Type of scheme
No Schemes (uniform description
of scheme)
1 Retirement Scheme having a lock-in for at An open ended
Fund least 5 years or till retirement retirement solution
age whichever is earlier oriented scheme
having a lock-in of 5
years or till retirement
age (whichever is
earlier)
2 Children's Scheme having a lock-in for at An open ended fund for
Fund least 5 years or till the child investment for children
attains age of majority having a lock-in for at
whichever is earlier least 5 years or till the
child attains age of
majority (whichever is
earlier)
E. Other Schemes:
Sr. Category of Scheme Characteristics Type of scheme
No Schemes (uniform
description of scheme)
1 Index Funds/ Minimum investment in An open ended scheme
ETFs securities of a particular replicating/ tracking _
index (which is being index
replicated/ tracked)- 95% of
total
assets
2 FoFs Minimum investment in the An open ended fund of
(Overseas/ underlying fund- 95% of total fund scheme investing in
Domestic) assets
37 Master Circular for Mutual Funds as on March 31, 2023
fund (mention the
underlying fund)
2.6.2 As per the above, the ‘type of scheme’ (mentioned below the scheme
name in the offer documents/ advertisements/ marketing
material/etc.) would be the type of scheme (given in the third column
of the tables) as applicable to each category of scheme.
2.6.3 In case of Solution oriented schemes, there will be specified period of
lock in as stated in the above tables.
However, the said lock- in period would not be applicable to any
existing investment by an investor, registered SIPs and incoming
STPs in the existing solution oriented schemes as on the date on
which such scheme is getting realigned with these provisions.
2.6.4 The investment objective, investment strategy and benchmark of
each scheme shall be suitably modified (wherever applicable) to bring
it in line with the categories of schemes listed above.
2.6.5 For easy identification by investors and in order to bring uniformity
in names of schemes for a particular category across Mutual Funds,
the scheme name shall be the same as the scheme category.67
2.7 Definition of Large Cap, Mid Cap and Small Cap68:
2.7.1 In order to ensure uniformity in respect of the investment universe
for equity schemes, it has been decided to define large cap, mid cap
and small cap as follows:
i. Large Cap: 1st -100th company in terms of full market
capitalization
ii. Mid Cap: 101st -250th company in terms of full market
capitalization
67 SEBI Circular no. SEBI/HO/IMD/DF3/CIR/P/2020/228 dated November 06, 2020
68 Refer SEBI email dated January 28, 2022
38 Master Circular for Mutual Funds as on March 31, 2023
iii. Small Cap: 251st company onwards in terms of full market
capitalization
2.7.2 Mutual Funds would be required to adopt the list of stocks prepared
by AMFI in this regard and AMFI would adhere to the following points
while preparing the list:
i. If a stock is listed on more than one recognized stock exchange,
an average of full market capitalization of the stock on all such
stock exchanges, will be computed;
ii. In case a stock is listed on only one of the recognized stock
exchanges, the full market capitalization of that stock on such an
exchange will be considered.
iii. This list would be uploaded on the AMFI website and the same
would be updated every six months based on the data as on the
end of June and December of each year. The data shall be
available on the AMFI website within 5 calendar days from the
end of the 6 months period.
iv. While preparing the single consolidated list of stocks, average full
market capitalization of the previous six month of the stocks shall
be considered69.
2.7.3 Subsequent to any updation in the list, Mutual Funds would have to
rebalance their portfolios (if required) in line with updated list, within
a period of one month.
2.8 Process to be followed for categorization and rationalization of
schemes:
2.8.1 Only one scheme per category would be permitted, except:
i. Index Funds/ ETFs replicating/ tracking different indices;
ii. Fund of Funds having different underlying schemes; and
iii. Sectoral/ thematic funds investing in different sectors/ themes
69 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2017/126 dated December 04, 2017
39 Master Circular for Mutual Funds as on March 31, 2023
2.8.2 70Further, Mutual Funds can launch either of the following ELSS
scheme in open ended Scheme Category, subject to compliance with
guidelines on Equity Linked Saving Scheme, 2005 notified by
Ministry of Finance:
i. Active ELSS Scheme - In terms of Paragraph 2.6.1.A.10 above
under “Equity Schemes” category or;
ii. Passive ELSS Scheme (through Index Fund) - In terms of
Paragraph 2.6.1.E.1 under “Other Schemes” category. The
passive ELSS scheme shall be based on one of the indices
comprising of equity shares from top 250 companies in terms of
market capitalization
2.9 Timelines for Rebalancing of Portfolios of Mutual Fund Schemes71
In order to bring uniformity across Mutual Funds with respect to
timelines for rebalancing of portfolio, the following has been decided:
2.9.1 In the event of deviation from mandated asset allocation mentioned
in the Scheme Information Document (SID) due to passive breaches
(occurrence of instances not arising out of omission and commission
of AMCs), rebalancing period across schemes shall be as follows:
SI. Category of Scheme Mandated
No. Rebalancing Period
i. Overnight Fund NA
70 SEBI Circular no. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022
71 SEBI circular no SEBI/HO/IMD/IMD-II DF3/P/CIR/2022/39 dated March 30, 2022, Refer
SEBI Letter No. – SEBI/HO/IMD-I DOF-2/P/OW/2022/26571/1 dated June 29, 2022
40 Master Circular for Mutual Funds as on March 31, 2023
ii. All schemes other than Index Funds Thirty (30) business
and Exchange Traded Funds days
2.9.2 In case the portfolio of schemes (all schemes other than Index Funds
and Exchange Traded Funds) mentioned at Paragraph above are not
rebalanced within the above mandated timelines, justification in
writing, including details of efforts taken to rebalance the portfolio
shall be placed before Investment Committee. The Investment
Committee, if so desires, can extend the timelines up to sixty (60)
business days from the date of completion of mandated rebalancing
period.
2.9.3 In case the portfolio of schemes is not rebalanced within the
aforementioned mandated plus extended timelines, AMCs shall:
a) not be permitted to launch any new scheme till the time the
portfolio is rebalanced.
b) not to levy exit load, if any, on the investors exiting such
scheme(s).
2.9.4 Reporting and Disclosure Requirements:
a) AMCs to report the deviation to Trustees at each stage.
b) In case the AUM of deviated portfolio is more than 10% of the
AUM of main portfolio of scheme:
i. AMCs have to immediately disclose the same to the investors
through SMS and email / letter including details of portfolio
not rebalanced.
41 Master Circular for Mutual Funds as on March 31, 2023
ii. AMCs shall also have to immediately communicate to investors
through SMS and email / letter when the portfolio is
rebalanced.
iii. Subject line of the aforementioned emails / letters should be
uniform across industry and clearly indicate “breach of” /
“deviation” from mandated asset allocation.
c) AMCs have to disclose any deviation from the mandated asset
allocation to investors along with periodic portfolio disclosures as
specified by SEBI from the date of lapse of mandated plus
extended rebalancing timelines.
2.9.5 The above mentioned norms shall be applicable to main portfolio only
and not to segregated portfolio(s), if any.
42 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 3: NEW PRODUCTS
3.1 Fund of Funds Scheme72
3.1.1 The SID and the advertisements pertaining to Fund of Funds
Scheme73 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 account74.
3.1.3 Fund of funds mutual fund schemes shall adopt the total expense
structures laid out in Regulations75, which Asset Management
Companies shall clearly indicate in the SIDs.
3.2 Gold Exchange Traded Fund Scheme76
3.2.1 A Gold Exchange Traded Fund (GETF) Scheme77 shall invest
primarily in:
3.2.1.1 Gold and
72 SEBI Circular No. MFD/CIR. No.04/11488/2003 dated June 12, 2003.
73 Regulation 2(ma) of the Mutual Funds Regulations introduced vide Gazette Notification No.
S.O 632(E) dated May 29, 2003.
74 SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010
75 Regulation 52(6)(a) of SEBI (Mutual Funds) Regulations, 1996
76 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.
77 Regulation 2(mb) of the SEBI (Mutual Funds) Regulations, 1996 introduced vide Gazette
Notification No. S.O. 38(E) dated January 12, 2006.
43 Master Circular for Mutual Funds as on March 31, 2023
3.2.1.2 Gold related instruments78. However investments in gold related
instruments shall be done only after such instruments are
specified by the Board79
3.2.1.3 Gold Deposit Scheme (GDS)80 of banks had been designated as one
such gold related instrument. However, as per RBI notification
dated October 22, 2015, the Gold Monetisation Scheme, 2015
(GMS) will replace the Gold Deposit Scheme, 1999. Accordingly, it
has been decided that GMS will also be designated as a gold related
instrument81, in line with GDS of Banks.
3.2.1.4 Exchange Traded Commodity Derivatives (ETCDs)82 having gold as
the underlying, shall also be considered as ‘gold related
instrument’ for GETFs.
3.2.1.5 Investment in GDS, GMS and ETCD having gold as the underlying
by GETFs of mutual funds will be subject to following conditions:
a. The cumulative exposure to gold related instruments i.e. GDS
of banks, GMS and ETCD having gold as the underlying shall
not exceed 50% of net asset value of the scheme. However,
within the 50% limit, the investment limit for GDS of banks
and GMS as part of gold related instrument shall not exceed
20% of net asset value of the scheme. The unutilized portion of
the limit for GDS of banks and GMS can be utilized for ETCD
having gold as the underlying.
b. Before investing in GDS of Banks, GMS and ETCDs having gold
as the underlying, mutual funds shall put in place a written
policy with regard to such investments with due approval from
the Board of the Asset Management Company and the
Trustees. The policy should have provision to make it necessary
78 Regulations 2(mc) of the Mutual Funds Regulations introduced vide Gazette Notification
No. S.O. 38(E) dated January 12, 2006.
79 SEBI Circula r No. SEBI/IMD/CIR No. 4/58422/06 dated January 24, 2006.
80 SEBI Circular No. CIR/IMD/DF/04/2013 dated February 15, 2013
81 SEBI Circular No. CIR/IMD/DF/11/2015 dated December 31, 2015
82 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/65 dated May 21, 2019
44 Master Circular for Mutual Funds as on March 31, 2023
for the mutual fund to obtain approval of trustees for
investment proposal in GDS of any bank and GMS. The policy
shall be reviewed by mutual funds, at least once a year.
c. Certificates issued in respect of investments made by GETFs in
GDS of banks and GMS can be held by the mutual funds in
dematerialized or physical form83.
3.2.1.6 Existing investments by Gold ETFs of Mutual Funds under the
GDS will be allowed to run till maturity unless these are withdrawn
prematurely.
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 Regulations84.
3.2.3 Determination of Net Asset Value85
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 Rs. terms) = ______________________________________________
Number of Units outstanding under Scheme on the
Valuation Date
3.2.4 Recurring Expenses86
3.2.4.1 The recurring expenses limits as per applicable regulations87 shall
be applicable to GETF Scheme(s).
83 SEBI Circular No. CIR/IMD/DF/16/2013 dated October 18, 2013
84 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.
85 SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.
86 SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.
87 Regulation 52(6)(b) of the SEBI (Mutual Funds) Regulations, 1996.
45 Master Circular for Mutual Funds as on March 31, 2023
3.2.5 Benchmarks for GETF Scheme88
3.2.5.1 GETF Scheme(s) shall be benchmarked against the price of gold.
3.2.6 Half yearly report by Trustees89
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 report90 by trustees to SEBI.
3.2.7 Additional Norms for Gold ETFs91
3.2.7.1 Gold ETFs shall additionally comply with the norms as stated at
Paragraphs 3.3.6, 3.3.9, 3.3.10 and 3.3.11 of this Master Circular.
3.3 Norms for Silver Exchange Traded Funds (Silver ETFs) 92
3.3.1 Investment Objective: To generate returns that are in line with the
performance of physical silver in domestic prices, subject to tracking
error.
3.3.2 A Silver ETF scheme shall invest at least 95% of the net assets of the
scheme in:
3.3.2.1 Silver and
3.3.2.2 Silver related instruments. Exchange Traded Commodity
Derivatives (ETCDs) having silver as the underlying shall be
considered as ‘silver related instrument’ for Silver ETFs.
88 SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.
89 SEBI Circular No. Cir/IMD/DF/20/2010 dated December 06, 2010
90 Please refer to Format No. 2.C. under the section 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.
91 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/668 dated November 24, 2021
9 2 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/668 dated November 24, 2021.
46 Master Circular for Mutual Funds as on March 31, 2023
3.3.2.3 Investment in ETCDs having silver as the underlying by Silver
ETFs will be subject to following conditions:
a) The exposure to ETCDs having silver as the underlying shall
not exceed 10% of net asset value of the scheme. However, the
above limit of 10% shall not be applicable to Silver ETFs where
the intention is to take delivery of the physical silver and not to
roll over its position to next contract cycle.
b) Before investing in ETCDs having silver as the underlying,
mutual funds shall put in place a written policy with regard to
such investment with due approval from the Board of the AMC
and the Trustees. The policy shall be reviewed by the Board of
AMC and Trustees at least once a year.
c) The cumulative gross exposure of Silver ETFs shall not exceed
100% of the net assets of the scheme.
3.3.2.4 The physical silver shall be of standard 30 kg bars with fineness of
999 parts per thousand (or 99.9% purity) confirming to London
Bullion Market Association (LBMA) Good Delivery Standards.
3.3.3 Valuation: Silver shall be valued based on the methodology provided
in paragraph 3B of Eighth Schedule to MF Regulations.
3.3.4 Determination of Net Asset Value
3.3.4.1 The NAV of units of Silver ETF 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 Rs. terms) = ______________________________________________
Number of Units outstanding under the Scheme on
the Valuation Date
3.3.5 Total Expense Ratio (TER): The TER applicable for Silver ETF
schemes shall be same as the TER applicable for ETFs in terms of
Regulation 52 of MF Regulations.
47 Master Circular for Mutual Funds as on March 31, 2023
3.3.6 Disclosure of NAV: The NAV of Silver ETFs shall be disclosed on
every business day on the website of the AMC. Further, the indicative
NAVs of Silver ETFs shall be disclosed on Stock Exchange platforms,
where the units of these ETFs are listed, on continuous basis during
the trading hours.
3.3.7 Benchmark for Silver ETF Scheme: Silver ETF Scheme(s) shall be
benchmarked against the price of silver (based on LBMA Silver daily
spot fixing price).
3.3.8 Liquidity:
3.3.8.1 Units of Silver ETFs shall be listed on the recognized Stock
Exchange(s).
3.3.8.2 The AMC shall appoint Authorized Participants (APs)/ Market
Makers (MMs) to provide liquidity for the units of Silver ETFs in
secondary market on an ongoing basis.
3.3.8.3 APs/ MMs and large investors may directly buy/sell units with the
Mutual Fund in creation unit size. The AMC shall disclose the
details about the creation unit size of Silver ETF in Scheme
Information Document (SID).
3.3.9 Tracking Error & Tracking Difference:
3.3.9.1 The provisions mentioned at Paragraph 3.6.3 below, shall be
followed for tracking error & tracking difference for Silver Exchange
Traded Funds.93
3.3.10 Disclosures: To enable the investors to take an informed decision,
the SID of Silver ETFs shall, inter-alia, disclose the following:
3.3.10.1 Tracking error and tracking difference,
3.3.10.2 Market risk due to volatility in silver prices,
93 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022
48 Master Circular for Mutual Funds as on March 31, 2023
3.3.10.3 Liquidity risks in physical or derivative markets impairing the
ability of the fund to buy and sell silver,
3.3.10.4 Risks associated with handling, storing and safekeeping of
physical silver;
3.3.10.5 Applicable tax provisions.
3.3.11 Dedicated Fund Manager: For commodity based funds such as Gold
ETFs, Silver ETFs and other funds participating in commodities
market, a dedicated fund manager with relevant skill and experience
in commodities market including commodity derivatives market shall
be appointed to manage the fund. However, it is clarified that
dedicated fund manager(s) for each Commodity based fund is not
mandatory.
3.3.12 Half Yearly Trustee Report:
3.3.12.1 Physical verification of silver underlying the Silver ETF units shall
be carried out by the statutory auditor of mutual fund and shall
report the same to trustees on half yearly basis.
3.3.12.2 The confirmation on physical verification of silver as stated above
shall also form part of half yearly report by trustees to SEBI.
3.4 Portfolio Concentration Norms for Equity Exchange Traded Funds
(ETFs) and Index Funds94
3.4.1 In order to address the risk related to portfolio concentration in ETFs
and Index Funds, it has been decided to adopt the following norms:
3.4.1.1 The index shall have a minimum of 10 stocks as its constituents.
3.4.1.2 For a sectoral/ thematic Index, no single stock shall have more
than 35% weight in the index. For other than sectoral/ thematic
indices, no single stock shall have more than 25% weight in the
index.
94 SEBI Circular No SEBI/HO/IMD/DF3/CIR/P/2019/011 dated January 10, 2019.
,
49 Master Circular for Mutual Funds as on March 31, 2023
3.4.1.3 The weightage of the top three constituents of the index,
cumulatively shall not be more than 65% of the Index.
3.4.1.4 The individual constituent of the index shall have a trading
frequency greater than or equal to 80% and an average impact
cost of 1% or less over previous six months.
Accordingly, any ETF/ Index Fund that seeks to replicate a
particular Index shall ensure that such index complies with the
aforesaid norms.
3.4.2 Compliance Procedure:
3.4.2.1 The aforesaid norms shall be applicable to all ETFs/ Index Funds
tracking equity indices.
3.4.2.2 The ETF/ Index Fund issuer shall evaluate and ensure
compliance to the aforesaid norms for all its ETFs/ Index Funds
at the end of every calendar quarter.
3.4.2.3 The ETF/Index Fund issuer shall ensure that the updated
constituents of the Indices (for all its ETFs/ Index Funds) are
available on the website of such ETF/Index Fund issuers at all
points of time.
3.5 Norms for Debt Exchange Traded Funds (ETFs)/Index Funds95
3.5.1 Debt ETFs/ Index Funds could be based on indices comprising of
3.5.1.1 Corporate Debt Securities (Corporate debt indices); or
3.5.1.2 Government Securities (G-sec), t-bills and/or State Development
Loans (SDLs) (G-sec indices); or
3.5.1.3 A combination of Corporate Debt Securities and G-sec/t-
bills/SDLs (Hybrid debt indices).
95 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022 & SEBI
Circular No SEBI/HO/IMD/DF3/CIR/P/2019/147 dated November 29, 2019, Refer SEBI
Letter No. – SEBI/HO/IMD-I DOF-2/P/OW/2022/26571/1 dated June 29, 2022
,
50 Master Circular for Mutual Funds as on March 31, 2023
The detailed provisions in this regard are given below:
3.5.2 Debt ETFs/ Index Funds: Index Constitution
For Debt ETFs/ Index Funds, the AMCs shall ensure the
following:
3.5.2.1 Constituents of the index are aggregated at issuer level for the
purpose of determining investment limits for single issuer, group,
sector, etc.
3.5.2.2 Constituents of the index shall have a defined credit rating and
defined maturity and the same shall be specified in the index
methodology.
3.5.2.3 Rating of the constituents of the index shall be of investment
grade and above.
3.5.2.4 Constituents of the index should have adequate liquidity and
diversification (other than for the portion of indices comprising of
G-sec and/or SDLs) at issuer level.
3.5.2.5 Constituents of the index shall be periodically reviewed (at least
on half-yearly basis).
3.5.2.6 Debt ETFs/ Index Funds shall replicate the underlying debt
index. The portfolio of ETF/Index Funds shall be considered to be
replicating the index subject to meeting the requirements
specified at Paragraph 3.5.3, 3.5.4 & 3.5.5 below.
3.5.2.7 Single issuer limit for debt indices shall be as follows:
a) For an index with at least 80% weight of corporate debt
securities, single issuer limit shall be as under:
i. In respect of AAA rated securities, a single issuer shall
not have more than 15% weight in the index.
ii. In respect of AA rated securities, a single issuer shall not
have more than 12.5% weight in the index.
iii. In respect of A and below rated securities, a single issuer
shall not have more than 10% weight in the index.
51 Master Circular for Mutual Funds as on March 31, 2023
b) For a hybrid index (comprising both corporate debt
securities and G-sec /SDL) with up to 80% weight of
corporate debt securities,
i. In respect of AAA rated securities, a single issuer shall
not have more than 10% weight in the index. However,
for AAA rated securities of PSU and AAA rated securities
of PFI issuers the said limit shall be 15%.
ii. In respect of AA rated securities, a single issuer shall not
have more than 8% weight in the index.
iii. In respect of A and below rated securities, a single issuer
shall not have more than 6% weight in the index.
c) For an index based on G-Sec and SDLs, single issuer limit
shall not be applicable.
3.5.2.8 The index shall not have more than 25% weight in a particular
group (excluding securities issued by Public Sector Units (PSUs),
Public Financial Institutions (PFIs) and Public Sector Banks
(PSBs)). For the purpose of this provision, ‘group’ shall have the
same meaning as defined in Paragraph 12.9.3.3 of this Master
Circular.
3.5.2.9 The index shall not have more than 25% weight in a particular
sector (excluding G-sec, t-bills, SDLs and AAA rated securities
issued by PSUs, PFIs and PSBs). However, this provision shall not
be applicable for sectoral or thematic debt indices.
3.5.2.10 AMCs shall ensure that the updated constituents of the indices
and methodology for all their Debt ETFs/ Index Funds are
available on their respective websites at all points of time.
Further, the historical data with respect to constituents of the
indices since inception of schemes shall also be disclosed on their
website.
52 Master Circular for Mutual Funds as on March 31, 2023
3.5.2.11 AMFI has issued a list of debt indices for launching of debt ETFs/
Index Funds. The said list is available on AMFI’s website.
3.5.3 Corporate Debt ETF/Index Funds: Debt ETFs/ Index Funds based
on Index of Corporate Debt Securities
Debt ETFs/ Index Funds based on index comprising of only corporate
debt securities shall be considered to be replicating the underlying
debt index provided:
3.5.3.1 Investment in securities of issuers accounting for at least 60% of
weight in the index, represents at least 80% of net asset value
(NAV) of the ETF/ Index Fund.
3.5.3.2 At no point of time the securities of issuers not forming part of
the index exceed 20% of NAV of the ETF/ Index Fund.
3.5.3.3 At least 8 issuers from the underlying index form part of the
portfolio of the ETF/ Index Fund.
3.5.3.4 The investment in various securities are aggregated at issuer level
for the purpose of exposure limits.
3.5.3.5 The exposure limit to a single issuer by the ETF/ Index Fund shall
be as under:
a) For AAA rated securities, exposure to a single issuer by the
ETF/ Index Fund shall not have more than 15% weight in
the portfolio.
b) For AA rated securities, exposure to a single issuer by the
ETF/ Index Fund shall not have more than 12.5% weight in
the portfolio.
c) For A and below rated securities, exposure to a single issuer
by the ETF/ Index Fund shall not have more than 10%
weight in the portfolio.
3.5.3.6 Total exposure of the ETF/ Index Fund in a particular group
(excluding investments in securities issued by PSUs, PFIs and
PSBs) shall not exceed 25% of NAV of the scheme. For the purpose
53 Master Circular for Mutual Funds as on March 31, 2023
of this provision, ‘group’ shall have the same meaning as defined
in Paragraph 12.9.3.3 of this Master Circular.
3.5.3.7 Total exposure of the ETF/ Index Fund in a particular sector
(excluding G-sec, t-Bills, SDLs and AAA rated securities issued
by PSUs, PFIs and PSBs) shall not exceed 25% of the NAV of the
scheme. However, this provision shall not be applicable for
schemes based on sectoral or thematic debt indices.
3.5.3.8 The Macaulay Duration (hereinafter referred as “duration”) of the
portfolio of the ETF/ Index Fund replicates the duration of the
underlying index within a maximum permissible deviation of +/-
10%.
3.5.3.9 In case of Target Maturity (or Target Date) ETFs/ Index Funds,
the following norms for permissible deviation in duration shall
apply:
a) For portfolio with residual maturity of greater than 5 years:
Either +/- 6 months or +/- 10% of duration, whichever is
higher.
b) For a portfolio with residual maturity of up to 5 years: Either
+/- 3 months or +/- 10% of duration, whichever is higher.
c) However, at no point of time, the residual maturity of any
security forming part of the portfolio shall be beyond the
target maturity date of the ETF/ Index Fund.
3.5.3.10 The rating wise weightage of debt securities in the portfolio of
ETF/ Index Fund replicates the underlying index. However,
greater allocation of up to 10% of the portfolio may be made to
higher rated debt securities.
3.5.3.11 Rebalancing Period:
For rebalancing the portfolio of the ETF/ Index Fund, the
following norms shall apply:
54 Master Circular for Mutual Funds as on March 31, 2023
a) In case of change in constituents of the index due to periodic
review, the portfolio of ETF/ Index Funds be rebalanced
within 7 calendar days.
b) In case the rating of any security is downgraded to below the
rating mandated in the index methodology (including
downgrade to below investment grade), the portfolio be
rebalanced within 30 calendar days.
c) In case the rating of any security is downgraded to below
investment grade, the said security may be segregated in
accordance with Paragraph 4.4.4 & 4.4.5 of this Master
Circular on “Segregated portfolio in mutual fund schemes”.
3.5.4 G-sec ETF/Index Fund: Debt ETFs/ Index Funds based on G-sec, t-
bills and SDLs
3.5.4.1 The duration of the portfolio of ETF/ Index Fund replicates the
duration of the underlying index within a maximum permissible
deviation of +/- 10%.
3.5.4.2 ETFs/Index Funds replicating a Constant Maturity index may
invest in securities with residual maturity within +/- 10% of
maturity range of the index.
3.5.4.3 In case of Target Maturity (or Target Date) ETFs/ Index Funds,
the following norms for permissible deviation in duration shall
apply:
a) For portfolio with residual maturity of greater than 5 years:
Either +/- 6 months or +/- 10% of duration, whichever is
higher.
b) For a portfolio with residual maturity of up to 5 years: Either
+/- 3 months or +/- 10% of duration, whichever is higher.
55 Master Circular for Mutual Funds as on March 31, 2023
c) However, at no point of time, the residual maturity of any
security forming part of the portfolio shall be beyond the
target maturity date of the ETF/ Index Fund.
3.5.5 Hybrid Debt ETF/ Index Fund - Debt ETFs/ Index Funds based on a
Hybrid Index of Corporate Debt Securities and G-Sec/t-bills/SDLs
Hybrid Debt ETFs/ Index Funds shall be considered to be replicating
the underlying index, provided:
3.5.5.1 For ETF/ Index Fund based on an index comprising of more than
80% weight for corporate debt securities, the provisions
mentioned at paragraph 3.5.3 above shall be followed.
3.5.5.2 For ETF/ Index Fund based on an index comprising of up to 80%
weight of corporate debt securities, the provisions mentioned at
Paragraph 3.5.3 above, apart from Paragraph 3.5.3.3 & 3.5.3.5,
shall apply on the portion of the portfolio comprising of corporate
debt securities. Further, the exposure limit to a single issuer by
the ETF/ Index Fund shall be as under:
a) For AAA rated securities, exposure to a single issuer by the
ETF/ Index Fund shall not have more than 10% weight in
the portfolio. However, for AAA rated securities of PSU and
AAA rated securities of PFI issuers the said limit shall be
15%.
b) For AA rated securities, exposure to a single issuer by the
ETF/ Index Fund shall not have more than 8% weight in the
portfolio.
c) For A and below rated issuances, exposure to a single issuer
by the ETF/ Index Fund shall not have more than 6% weight
in the portfolio.
56 Master Circular for Mutual Funds as on March 31, 2023
3.5.5.3 For the portion of the portfolio of the ETF/ Index Fund comprising
of G-sec/tbills/SDLs, the provisions mentioned at Paragraph
3.5.4 above shall apply.
3.5.6 At all points of time, positioning of the ETF/ Index Fund in the
Potential Risk Class (PRC) matrix shall be in the same cell as that of
positioning of the index in the PRC matrix.
3.5.7 Any transactions undertaken in the scheme portfolio of ETF/ Index
Fund in order to meet the redemption and subscription obligations
shall be done while ensuring that post such transactions replication
of the portfolio with the index is maintained at all points of time.
3.6 Development of Passive Funds96
3.6.1 Norms for Market Making Framework for ETFs
3.6.1.1 AMC shall appoint at least two Market Makers (MMs), who are
members of the Stock Exchanges, for ETFs to provide continuous
liquidity on the stock exchange platform. MM shall transact with
AMC only in multiples of creation unit size.
3.6.1.2 The AMC shall have an approved policy regarding market making
in ETFs based on the framework for market making as provided
at Annexure 12.
3.6.1.3 AMCs shall facilitate in-kind creation and redemption of units of
ETFs (including Debt ETFs) by MMs on a best effort basis.
3.6.1.4 Incentive for MMs
a) Incentives, if any, to MMs shall be charged to the scheme within
the maximum permissible limit of TER.
b) A transparent incentive structure for the MMs shall be put in
place, and the incentives shall, inter alia, be linked to performance
96 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022, Refer SEBI
letter No. SEBI/HO/IMD-I DOF2/P/OW/2022/26517/1 dated June 29, 2022
57 Master Circular for Mutual Funds as on March 31, 2023
of the MMs in terms of generating liquidity in units of ETFs. The
relevant data regarding trading volume, bid-ask spread in units of
ETFs, and such other information as may be required to formalize
performance based incentive structure, shall be obtained from the
stock exchanges.
c) Stock Exchanges may also incentivize the MMs through Liquidity
Enhancement Schemes (LES) as per the applicable provisions.
d) There should be necessary checks and balances and adequate
disclosure of the principles of incentive structure on the website
of the AMCs and also in the Scheme Information Documents
(SIDs) of ETFs.
e) There shall be proper audit trail for scheme wise incentives.
3.6.1.5 Market Making Settlement Process for domestic Equity ETFs
In order to make the market making process less capital intensive,
it has been decided that net settlement between cash leg of
transactions in units of ETF by the MM and consequent
transaction in underlying basket by the ETF shall be
implemented. In this regard, the following has been decided:
a) MMs shall be permitted to transact in the basket of securities
underlying the ETF against equivalent transactions in units of
ETFs and transfer the net obligation of such transactions to the
ETF for unit creation or redemption. The AMCs shall be allowed
to create or redeem units of ETFs without upfront payment of
100% value of such units or upfront delivery of such units by the
MMs, respectively.
b) The above mechanism shall be permitted subject to equivalent
transactions in units and underlying basket for the same
settlement cycle and confirmation of both the legs by the
Custodian.
c) For the above mechanism,
58 Master Circular for Mutual Funds as on March 31, 2023
i. ETFs shall be allowed to buy or sell their own units, without
the same forming part of the asset allocation of the scheme.
ii. Provisions mentioned at Paragraph 12.29.3.b.III) of this
Master Circular shall not be applicable.
iii. The transactions by the MM in the underlying basket shall be
excluded for the purpose of computation of aggregate purchase
or sale of securities through any broker as required under the
Regulations97.
d) Facilitation of the above mechanism for equity ETFs shall be at
the discretion of the AMC.
e) The detailed operational guidelines in this regard, has been issued
by AMFI in consultation with Clearing Corporations. The Clearing
Corporations shall ensure that the necessary systems are in place
to enable the netting mechanism.
f) The AMC shall ensure that at no point of time, the above
mechanism shall increase the risk of the ETF.
3.6.2 Direct transaction in ETFs through AMCs
3.6.2.1 In order to enhance liquidity in units of ETFs on stock exchange
platform, it has been decided that direct transaction with AMCs
shall be facilitated for investors only for transactions above a
specified threshold.
3.6.2.2 In this regard, to begin with any order placed for redemption or
subscription directly with the AMC must be of greater than INR 25
Cr. The aforesaid threshold shall not be applicable for MMs and
shall be periodically reviewed. 98This provision shall be applicable
with effect from May 01, 2023.
97 Regulation 25(7)(a) and (b) of SEBI (Mutual Funds) Regulations, 1996
98 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/145 dated October 28, 2022 & SEBI
Circular No. SEBI/HO/IMD/DF2/CIR/P/2022/102 July 28, 2022
59 Master Circular for Mutual Funds as on March 31, 2023
3.6.2.3 Further, as in terms of Paragraph 8.7 of this Master Circular, all
direct transactions in units of ETFs by MMs or other eligible
investors (as per Paragraph 3.6.2.1 above) with AMCs shall be at
intra-day NAV based on the actual execution price of the
underlying portfolio, the following has been decided:
a) The provisions as mentioned at Paragraph 4.10 of this Master
Circular on "Swing pricing framework for mutual fund schemes”
shall not be applicable to Debt ETFs.
b) The requirement of “cut-off” timing for NAV applicability as
prescribed by SEBI from time to time shall not be applicable for
direct transaction with AMCs in ETFs by MMs and other eligible
investors.
3.6.3 Tracking Error and Tracking Difference
3.6.3.1 Tracking Error (TE)
a) The tracking error i.e. the annualized standard deviation of the
difference in daily returns between the underlying index or goods
and the NAV of the ETF/ Index Fund (other than Debt ETFs/
Index Funds) based on past one year rolling data shall not exceed
2%. In case of unavoidable circumstances in the nature of force
majeure, which are beyond the control of the AMCs, the tracking
error may exceed 2% and the same shall be brought to the notice
of Trustees with corrective actions taken by the AMC, if any.
b) For ETFs/ Index Funds in existence for a period of less than one
year, the annualized standard deviation shall be calculated
based on available data.
c) All ETFs/ Index Funds (including Debt ETFs/ Index Funds),
shall disclose the tracking error based on past one year rolling
data, on a daily basis, on the website of respective AMCs and
AMFI.
60 Master Circular for Mutual Funds as on March 31, 2023
3.6.3.2 Tracking Difference (TD)
a) Along with tracking error, tracking difference i.e. the annualized
difference of daily returns between the index or goods and the
NAV of the ETF/ Index Fund shall also be disclosed on the
website of the AMC and AMFI, on a monthly basis, for tenures 1
year, 3 year, 5 year, 10 year and since the date of allotment of
units.
b) For Debt ETFs/ Index Funds the annualized tracking difference
averaged over one year period shall not exceed 1.25%. In case the
average annualized tracking difference over one year period for
Debt ETFs/ Index Funds is higher than 1.25%, the same shall
be brought to the notice of trustees with corrective actions taken
by the AMC, if any.
3.6.4 Valuation by Fund of Funds (FoFs) investing in ETFs
3.6.4.1 The closing price of the units of ETFs on Stock Exchange shall be
used for valuation by FoFs investing in such ETFs.
3.6.5 Disclosure of indicative Net Asset Value (iNAV)
3.6.5.1 iNAV of an ETF i.e. the per unit NAV based on the current market
value of its portfolio during the trading hours of the ETF, shall be
disclosed on a continuous basis on the Stock Exchange(s), where
the units of these ETFs are listed and traded and shall be updated
in the following manner:
a) For Equity ETFs, within a maximum time lag of 15 seconds from
underlying market.
b) For Debt ETFs, at least four times a day i.e. opening and closing
iNAV and at least two times during the intervening period with
minimum time lag of 90 minutes between the two disclosures.
61 Master Circular for Mutual Funds as on March 31, 2023
c) For ETFs on Gold or Silver, based on the latest available data for
Gold or Silver. Accordingly, iNAV disclosed for Gold or Silver
ETFs may either be static or dynamic depending upon the
availability of the underlying price.
d) For ETFs on international indices, based on the latest available
data regarding the portfolio of the ETF. Accordingly, iNAV
disclosed for international ETFs may either be static or dynamic
depending on the intersection in trading hours of domestic and
overseas markets.
e) For disclosure of iNAV, AMCs and Stock Exchanges shall develop
suitable mechanism for data sharing.
3.6.6 Liquidity window for Investors of ETFs with AMCs
3.6.6.1 Investors can directly approach the AMC for redemption of units of
ETFs, for transaction of upto INR 25 Cr. without any exit load, in
case of the following scenarios:
a) Traded price (closing price) of the ETF units is at discount of more
than 1% to the day end NAV for 7 continuous trading days, or
b) No quotes for such ETFs are available on stock exchange(s) for 3
consecutive trading days, or
c) Total bid size on the exchange is less than half of creation units
size daily, averaged over a period of 7 consecutive trading days.
3.6.6.2 In case of the above scenarios, applications received from investors
for redemption up to 3.00 p.m. on any trading day, shall be
processed by the AMC at the closing NAV of the day.
3.6.6.3 The above instances shall be tracked by the AMC on a continuous
basis and in case if any of the above mentioned scenario arises,
the same shall be disclosed on the website of AMC.
3.6.7 Rebalancing period for Equity ETFs/ Index Funds
62 Master Circular for Mutual Funds as on March 31, 2023
3.6.7.1 In case of change in constituents of the index due to periodic
review, the portfolio of equity ETF/ Index Funds be rebalanced
within 7 calendar days.
3.6.7.2 Any transactions undertaken in the scheme portfolio of ETF/ Index
Fund in order to meet the redemption and subscription obligations
shall be done while ensuring that post such transactions
replication of the portfolio with the index is maintained at all points
of time.
3.6.8 Disclosure Norms for ETFs/ Index Funds
3.6.8.1 The debt and equity ETFs/ Index Funds shall disclose the following
on monthly basis:
a) Name and exposure to top 7 issuers and stocks respectively as a
percentage of NAV of the scheme
b) Name and exposure to top 7 groups as a percentage of NAV of
the scheme.
c) Name and exposure to top 4 sectors as a percentage of NAV of
the scheme.
Change in constituents of the index, if any, shall be disclosed on
the AMC website on the day of change
3.6.9 Nomenclature of ETFs/ Index Funds
3.6.9.1 In order to have proper understanding and clarity for investors, the
nomenclature for ETFs/ Index Funds shall include the name of the
underlying index or goods.
3.6.9.2 Further, for ETFs, after listing of the units, the scrip code of such
ETFs shall also be disclosed in the nomenclature at all places.
63 Master Circular for Mutual Funds as on March 31, 2023
3.7 Capital Protection Oriented Scheme99
3.7.1 The SID, KIM and advertisements pertaining to Capital Protection
Oriented Scheme100 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.
3.7.2 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.
3.7.3 The Trustees shall continuously monitor the portfolio structure of the
scheme and report the same in the Half Yearly Trustee Reports101 to
the Board. The AMC(s) shall also report on the same in its quarterly
CTR(s)102 to the Board.
3.7.4 It shall also be ensured that the debt component of the portfolio
structure has the highest investment grade rating.
3.8 Guaranteed Return Schemes
3.8.1 All Mutual Funds which offer Guaranteed Return Schemes shall
clearly indicate in the scheme information document as to who is
offering guarantee and that the guarantee is for both, initial capital
invested and the return assured103.
9 9 SEBI Circular No. SEBI/IMD/CIR No.9/74364/06 dated August 14, 2006.
100 Regulation 2 (ea), 33(2A) and 38A of the Mutual Funds Regulations introduced vide Gazette
Notification No. S.O. 1254(E) dated August 3, 2006.
101 For format of Half Yearly Trustee Report, please refer format no. 2.C under the section on
Formats
102 For format of quarterly CTR, please refer format no. 2.B under the section on Formats
103 SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997
64 Master Circular for Mutual Funds as on March 31, 2023
3.8.2 AMC in its report to Trustees and Trustees in their half yearly reports
to SEBI shall comment on ability of the AMC/sponsor to honour the
guaranteed returns in case of any Scheme guaranteeing returns104.
3.9 Real Estate Mutual Funds105:
3.9.1 A real estate mutual fund scheme106 can invest in real estate assets
in the cities mentioned in:
3.9.1.1 List of Million Plus Urban Agglomerations/Cities; or
3.9.1.2 List of Million Plus Cities
3.9.2 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 3.
3.10 Infrastructure Debt Schemes107
3.10.1 Placement Memorandum:
3.10.1.1 Private Placement to less than 50 investors has been permitted
as an alternative to New Fund Offer to the public, in case of
Infrastructure Debt Funds (IDF). In case of private placement, the
mutual funds would have to file a Placement Memorandum with
SEBI instead of a Scheme Information Document and a Key
Information Memorandum. However, all the other conditions
applicable to IDFs offered through the NFO route like kind of
investments, investment restrictions, etc. would be applicable to
IDFs offered through private placement.
104 SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000 and SEBI Circular No.
SEBI/HO/IMD/IMD-I DOF2/P/CIR/2021/550 dated April 12, 2021
105 SEBI Circular No - SEBI/IMD/CIR No.4/124477/08 dated May 2,2008
106Regulation 49 A(a)(i) of SEBI (Mutual Fund) Regulations, 1996
107 SEBI Circular No. CIR/IMD/DF/7/2013 dated April 23, 2013
65 Master Circular for Mutual Funds as on March 31, 2023
3.10.1.2 In terms of regulation 49-OA of the SEBI (Mutual Funds)
Regulations, 1996, the Placement Memorandum shall be filed
with SEBI as per the prescribed format108.
3.10.2 The Asset Management Companies shall ensure that the Placement
Memorandum is uploaded on their respective websites after
allotment of units, and on the website of such recognized Stock
Exchange, where it is proposed to be listed, at the time of listing of
the scheme.
3.10.3 FPIs which are long term investors
3.10.3.1 The universe of strategic investors in the IDF has been expanded
to include, inter alia, FPIs registered with SEBI which are long
term investors subject to their existing investment limits.
3.10.3.2 With reference to regulation 49L of the SEBI (Mutual Funds)
Regulations, 1996 the following categories of FPIs are designated
as long term investors only for the purpose of IDF:
a. Foreign Central Banks
b. Governmental Agencies
c. Sovereign Wealth Funds
d. International/Multilateral Organizations/ Agencies
e. Insurance Funds
f. Pension Funds
g. Foreign feeder funds, having at all times, at least 20% of their
assets under management held by investors belonging to one
of more of the above categories of FPIs109
3.10.4 Investments by the IDF scheme
108 Please refer to format no. 5.D under the section on Formats
109 SEBI Circular No. CIR/IMD/DF/20/2013 dated November 29, 2013
66 Master Circular for Mutual Funds as on March 31, 2023
3.10.4.1 With reference to regulation 49P (1) of the SEBI (Mutual Funds)
Regulations, 1996, the investments in bank loans shall be made
only through the securitization mode.
67 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 4: RISK MANAGEMENT FRAMEWORK110
4.1 Risk Management Framework for Mutual Funds
4.1.1 With the overall objective of management of key risks involved in
mutual fund operation, the Risk Management Framework (RMF)
shall provide a set of principles or standards, which inter alia
comprise the policies, procedures, risk management functions and
roles & responsibilities of the management, the Board of AMC and
the Board of Trustees.
4.1.2 The detailed RMF for mutual funds are placed at Annexure 1.
4.1.3 The elements of RMF, wherever applicable, have been segregated into
‘mandatory elements' which should be implemented by the AMCs and
‘recommendatory elements' which address other leading industry
practices that can be considered for implementation by the AMCs, to
the extent relevant to them.
4.1.4 AMCs shall perform a self-assessment of their RMF and practices and
submit a report, thereon, to their Board along with the roadmap for
implementation of the framework.
4.1.5 Compliance with the RMF should be reviewed annually by the AMC.
Reports of such reviews shall be placed before the Board of AMC and
Trustees for their consideration and appropriate directions, if any.
Trustees may forward the findings and steps taken to mitigate the
risk along with their comments to SEBI in the half-yearly trustee
reports.
110 SEBI Circular No. MFD/CIR/15/19133/2002 dated September 30, 2002 replaced by SEBI
Circular No SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2021/630 dated September 27, 2021 with
effect from April 1, 2022, Refer SEBI email dated September 13, 2022.
68 Master Circular for Mutual Funds as on March 31, 2023
4.2 Stress Testing of Liquid Fund and Money Market Mutual Fund
Schemes 111
4.2.1 As a part of risk management framework, Mutual Funds (MFs) carry
out stress testing of their portfolio, particularly for debt schemes. In
order to standardize this practice across industry, AMFI came out
with Best Practice Guidelines dated September 12, 2014 on stress
testing of Liquid Funds and Money Market Mutual Fund Schemes
(MMMFs).
4.2.2 In order to further strengthen the risk management practices and to
develop a sound framework that would evaluate potential
vulnerabilities on account of plausible events and provide early
warning on the health of the underlying portfolio of Liquid Fund and
MMMF Schemes, it has been decided to stipulate the following
guidelines:
4.2.2.1 As a part of the extant risk management framework, AMCs should
have stress testing policy in place which mandates them to
conduct stress test on all Liquid Fund and MMMF Schemes.
4.2.2.2 The stress test should be carried out internally at least on a
monthly basis, and if the market conditions require so, AMC
should conduct more frequent stress test.
4.2.2.3 The concerned schemes shall be tested on the following risk
parameters, among others deemed necessary by the AMC:
a) Interest rate risk;
b) Credit risk;
c) Liquidity & Redemption risk.
4.2.2.4 While conducting stress test, it will be required to evaluate impact
of the various risk parameters on the scheme and its Net Asset
Value (NAV). The parameters used and the methodology adopted
1 11 SEB I Circular No. CIR/IMD/DF/03/2015 dated April 30, 2015
69 Master Circular for Mutual Funds as on March 31, 2023
for conducting stress test on such type of scheme, should be
detailed in the stress testing policy, which is required to be
approved by the Board of AMC.
4.2.2.5 Further, in the event of stress test revealing any vulnerability or
early warning signal, it would be required to bring it to the notice
of the Trustees and take corrective action as deemed necessary, to
reinforce their robustness. Each AMC should also be required to
have documented guidelines, to deal with the adverse situation
effectively.
4.2.2.6 Such stress-testing policy shall be reviewed by the Board of AMC
and Trustees, at least on an annual basis, in light of the evolving
market scenarios and should cover the following aspects:
i. Adequacy of the documentation for various elements of the
stress testing framework
ii. Scope of coverage of the stress testing policy and the levels
of stress applied
iii. Integration of the stress testing framework in the day-to-day
risk management processes
iv. Adequacy of the corrective actions and the efficacy of the
systems for their activation.
4.2.2.7 Further, Trustees shall be required to report compliance with
provisions of Paragraph 4.2 above and steps taken to deal with
adverse situations faced, if any, in the Half Yearly Trustee Report
submitted to SEBI.
4.2.3 112From December 01, 2020, all open ended Debt Schemes (except
Overnight scheme) are mandated to conduct stress testing and AMC
shall stipulate the guidelines to carry out stress testing in line with
paragraph 4.2 of this Master Circular.
1 12 SEB I Circular No.SEBI/HO/IMD/DF3/CIR/P/2020/229 dated November 06, 2020.
70 Master Circular for Mutual Funds as on March 31, 2023
4.3 Internal Credit Risk Assessment113:
4.3.1 In order to ensure that mutual funds are able to carry out their own
credit assessment of assets and reduce reliance on credit rating
agencies, all AMCs are required to have an appropriate policy and
system in place to conduct an in-house credit risk assessment/ due
diligence of debt and money market instruments/ products at all
points of time i.e. before investing in such instruments/ products and
also on continuous basis in order to have proper assessment of the
credit risk of the portfolio. Further, the internal policy should have
adequate provisions to generate early warning signals (including yield
based alerts) on deterioration of credit profile of the issuer. Based on
the alerts generated, the AMCs shall take appropriate measures and
report the same to trustees.
4.4 Creation of segregated portfolio in mutual fund schemes114,115
4.4.1 In order to ensure fair treatment to all investors in case of a credit
event and to deal with liquidity risk, it has been decided to permit
creation of segregated portfolio of debt and money market
instruments by mutual funds schemes.
4.4.2 For this purpose,
4.4.2.1 The term ‘segregated portfolio’ shall mean a portfolio, comprising
of debt or money market instrument affected by a credit event, that
has been segregated in a mutual fund scheme.
4.4.2.2 The term ‘main portfolio’ shall mean the scheme portfolio excluding
the segregated portfolio.
113SEBI Circular No. SEBI/HO/IMD/DF2/CIR/2016/42 dated March 18, 2016 and SEBI
Circular No. SEBI/HO/IMD/DF2/CIR/2019/104 dated October 01, 2019.
114 SEBI Circula r No. SEBI/HO/IMD/DF2/CIR/P/2018/160 dated December 28, 2018, Refer
SEBI letter No. SEBI/HO/IMD/DF2/OW/P/2019/22447/1 dated August 29, 2019, Refer
SEBI letter No. SEBI/HO/IMD/DF2/OW/P/2019/28242/1 dated October 24, 2019
115 SEBI Circu lar No. SEBI/HO/IMD/DF2/CIR/P/2019/127 dated November 07, 2019.
71 Master Circular for Mutual Funds as on March 31, 2023
4.4.2.3 The term ‘total portfolio’ shall mean the scheme portfolio including
the securities affected by the credit event.
4.4.3 AMC may create segregated portfolio in a mutual fund scheme
subject to the following:
4.4.3.1 Segregated portfolio may be created, in case of a credit event at
issuer level i.e. downgrade in credit rating by a SEBI registered
Credit Rating Agency (CRA), as under:
a. Downgrade of a debt or money market instrument to
‘below investment grade’, or
b. Subsequent downgrades of the said instruments from
‘below investment grade’, or
c. Similar such downgrades of a loan rating.
4.4.3.2 In case of difference in rating by multiple CRAs, the most
conservative rating shall be considered. Creation of segregated
portfolio shall be based on issuer level credit events as detailed at
Paragraph 4.4.3.1 and implemented at the ISIN level.
4.4.3.3 Segregated portfolio of unrated debt or money market instruments
may be created only in case of actual default of either the interest
or principal amount. Actual default by the issuer of such
instruments shall be considered as credit event for creation of
segregated portfolio.
4.4.3.4 AMCs shall inform AMFI immediately about the actual default by
the issuer. Upon being informed about the default, AMFI shall
immediately inform the same to all AMCs. Pursuant to
dissemination of information by AMFI about actual default by the
issuer, AMCs may segregate the portfolio of debt or money market
instruments of the said issuer.
4.4.3.5 Creation of segregated portfolio shall be optional and at the
discretion of the AMC. It should be created only if the Scheme
72 Master Circular for Mutual Funds as on March 31, 2023
Information Document (SID) of the scheme has provisions for
segregated portfolio with adequate disclosures. All new schemes116
shall have the enabling provisions included in the SID for creation
of segregated portfolio.
4.4.3.6 AMCs shall have a detailed written down policy on creation of
segregated portfolio and the same shall be approved by the
trustees.
4.4.4 117Provisions for Segregation of Portfolio in SID of scheme having
investment in instrument with special features:
a) Debt schemes which have investment in instruments with special
features viz. subordination to equity (absorbs losses before equity
capital) and /or convertible to equity upon trigger of a pre-
specified event for loss absorption (Additional Tier I bonds and
Tier 2 bonds issued under Basel III) or debt schemes that have
provision to invest in such instruments shall ensure that the
Scheme Information Document (SID) of the scheme has
provisions for segregated portfolio. The provision to enable
creation of segregated portfolio in the existing schemes shall be
subject to compliance with Regulation 18(15A) of SEBI (Mutual
Funds) Regulations, 1996.
b) In case, the said instrument is to be written off or converted to
equity pursuant to any proposal, the date of said proposal may
be treated as the trigger date. However, if the said instruments
are written off or converted to equity without proposal, the date
of write off or conversion of debt instrument to equity may be
treated as the trigger date.
c) On the said trigger date, AMCs may, at their option, create
segregated portfolio in a mutual fund scheme subject to
116 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/127 dated November 07, 2019.
1 17 SEB I Circular No. SEBI/HO/IMD/DF4/CIR/P/2021/032 dated March 10, 2021.
73 Master Circular for Mutual Funds as on March 31, 2023
compliance with relevant provisions of Paragraph 4.4 of this
Master Circular and any other relevant
Regulations/Circulars/Guidelines issued from time to time.
d) Further, Asset Management Companies/Valuation Agencies shall
ensure that the financial stress of the issuer and the capabilities
of issuer to repay the dues/borrowings are reflected in the
valuation of the securities from the trigger date onwards.
4.4.5 Process for creation of segregated portfolio
4.4.5.1 AMC shall decide on creation of segregated portfolio on the day of
credit event. Once an AMC decides to segregate portfolio, it shall
i. seek approval of trustees prior to creation of the segregated
portfolio.
ii. immediately issue a press release disclosing its intention to
segregate such debt and money market instrument and its
impact on the investors. The mutual fund should also disclose
that the segregation shall be subject to trustee approval.
Additionally, the said press release shall be prominently
disclosed on the website of the AMC.
iii. ensure that till the time the trustee approval is received,
which in no case shall exceed 1 business day from the day of
credit event, the subscription and redemption in the scheme
shall be suspended for processing with respect to creation of
units and payment on redemptions.
4.4.5.2 Once trustee approval is received by the AMC,
i. Segregated portfolio shall be effective from the day of credit
event
ii. AMC shall issue a press release immediately with all relevant
information pertaining to the segregated portfolio. The said
information shall also be submitted to SEBI.
74 Master Circular for Mutual Funds as on March 31, 2023
iii. An e-mail or SMS should be sent to all unit holders of the
concerned scheme.
iv. The NAV of both segregated and main portfolio shall be
disclosed from the day of the credit event.
v. All existing investors in the scheme as on the day of the credit
event shall be allotted equal number of units in the segregated
portfolio as held in the main portfolio.
vi. No redemption and subscription shall be allowed in the
segregated portfolio. However, in order to facilitate exit to unit
holders in segregated portfolio, AMC shall enable listing of
units of segregated portfolio on the recognized stock exchange
within 10 working days of creation of segregated portfolio and
also enable transfer of such units on receipt of transfer
requests.
4.4.5.3 If the trustees do not approve the proposal to segregate portfolio,
AMC shall issue a press release immediately informing investors of
the same.
4.4.6 Valuation and processing of subscriptions and redemptions
4.4.6.1 Notwithstanding the decision to segregate the debt and money
market instrument, the valuation should take into account the
credit event and the portfolio shall be valued based on the
principles of fair valuation (i.e. realizable value of the assets) in
terms of the relevant provisions of SEBI (Mutual Funds)
Regulations, 1996 and Circular(s) issued thereunder.
4.4.6.2 All subscription and redemption requests for which NAV of the day
of credit event or subsequent day is applicable will be processed as
per the provisions on applicability of NAV as under:
i. Upon trustees’ approval to create a segregated portfolio -
75 Master Circular for Mutual Funds as on March 31, 2023
a. Investors redeeming their units will get redemption
proceeds based on the NAV of main portfolio and will
continue to hold the units of segregated portfolio.
b. Investors subscribing to the scheme will be allotted
units only in the main portfolio based on its NAV.
ii. In case trustees do not approve the proposal of segregated
portfolio, subscription and redemption applications will be
processed based on the NAV of total portfolio.
4.4.7 Disclosure Requirements
In order to enable the existing as well as the prospective investors
to take informed decision, the following shall be adhered to:
4.4.7.1 A statement of holding indicating the units held by the investors
in the segregated portfolio along with the NAV of both segregated
portfolio and main portfolio as on the day of the credit event shall
be communicated to the investors within 5 working days of
creation of the segregated portfolio.
4.4.7.2 Adequate disclosure of the segregated portfolio shall appear in all
scheme related documents, in monthly and half-yearly portfolio
disclosures and in the annual report of the mutual fund and the
scheme.
4.4.7.3 The Net Asset Value (NAV) of the segregated portfolio shall be
declared on every business day.
4.4.7.4 The information regarding number of segregated portfolios created
in a scheme shall appear prominently under the name of the
scheme at all relevant places such as SID, KIM-cum-Application
Form, advertisement, AMC and AMFI websites, etc.
4.4.7.5 The scheme performance required to be disclosed at various places
shall include the impact of creation of segregated portfolio. The
76 Master Circular for Mutual Funds as on March 31, 2023
scheme performance should clearly reflect the fall in NAV to the
extent of the portfolio segregated due to the credit event and the
said fall in NAV along with recovery(ies), if any, shall be disclosed
as a footnote to the scheme performance.
4.4.7.6 The disclosures at paragraphs 4.4.7.4 and 4.4.7.5 above regarding
the segregated portfolio shall be carried out for a period of at least
3 years after the investments in segregated portfolio are fully
recovered/ written-off.
4.4.7.7 The investors of the segregated portfolio shall be duly informed of
the recovery proceedings of the investments of the segregated
portfolio. Status update may be provided to the investors at the
time of recovery and also at the time of writing-off of the segregated
securities.
4.4.8 TER for the Segregated Portfolio
4.4.8.1 AMC shall not charge investment and advisory fees on the
segregated portfolio. However, TER (excluding the investment and
advisory fees) can be charged, on a pro-rata basis only upon
recovery of the investments in segregated portfolio.
4.4.8.2 The TER so levied shall not exceed the simple average of such
expenses (excluding the investment and advisory fees) charged on
daily basis on the main portfolio (in % terms) during the period for
which the segregated portfolio was in existence.
4.4.8.3 The legal charges related to recovery of the investments of the
segregated portfolio may be charged to the segregated portfolio in
proportion to the amount of recovery. However, the same shall be
within the maximum TER limit as applicable to the main portfolio.
The legal charges in excess of the TER limits, if any, shall be borne
by the AMC.
77 Master Circular for Mutual Funds as on March 31, 2023
4.4.8.4 The costs related to segregated portfolio shall in no case be charged
to the main portfolio.
4.4.9 Monitoring by Trustees
4.4.9.1 In order to ensure timely recovery of investments of the segregated
portfolio, trustees shall ensure that:
i. The AMC puts in sincere efforts to recover the investments of
the segregated portfolio.
ii. Upon recovery of money, whether partial or full, it shall be
immediately distributed to the investors in proportion to their
holding in the segregated portfolio. Any recovery of amount of
the security in the segregated portfolio even after the write off
shall be distributed to the investors of the segregated portfolio.
iii. An Action Taken Report (ATR) on the efforts made by the AMC
to recover the investments of the segregated portfolio is placed
in every trustee meeting till the investments are fully
recovered/ written-off.
iv. The trustees shall monitor the compliance with the guidelines
issued by SEBI regarding segregation of portfolio in mutual
fund schemes and disclose in the half-yearly trustee reports
filed with SEBI, the compliance in respect of every segregated
portfolio created.
4.4.9.2 In order to avoid mis-use of segregated portfolio, trustees shall
ensure to have a mechanism in place to negatively impact the
performance incentives of Fund Managers, Chief Investment
Officers (CIOs), etc. involved in the investment process of securities
under the segregated portfolio, mirroring the existing mechanism
for performance incentives of the AMC, including claw back of such
amount to the segregated portfolio of the scheme.
78 Master Circular for Mutual Funds as on March 31, 2023
4.4.10 AMCs desirous of having a provision of segregated portfolio in existing
scheme (schemes as on December 28, 2018) shall ensure that all
relevant disclosures are made in the SID of such schemes. The
provision to enable creation of segregated portfolio in the existing
scheme shall be subject to compliance with Regulation 18(15A) of
SEBI (Mutual Funds) Regulations, 1996.
4.4.11 The existence of the provisions for segregated portfolio should not
encourage the AMCs to take undue credit risk in the scheme
portfolio. Any mis-use of the provisions of segregated portfolio, would
be considered serious and stringent action may be taken.
4.5 Risk management framework for liquid and overnight funds118
In order to augment the risk management framework for liquid and
overnight funds, the following has been decided:
4.5.1 Liquid funds shall hold at least 20% of its net assets in liquid assets.
For this purpose, ‘liquid assets’ shall include Cash, Government
Securities, T-bills and Repo on Government Securities.
In case, the exposure in such liquid assets falls below 20% of net
assets of the scheme, the AMC shall ensure compliance with the
above requirement before making any further investments.
4.5.2 Liquid Funds and Overnight Funds shall not park funds pending
deployment in short term deposits of scheduled commercial banks.
4.5.3 Liquid Funds and Overnight Funds shall not invest in debt securities
having structured obligations (SO rating) and/ or credit
enhancements (CE rating). However, debt securities with government
guarantee shall be excluded from such restriction.
118 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/101 dated September 20, 2019.
79 Master Circular for Mutual Funds as on March 31, 2023
4.5.4 Mutual Fund shall levy exit load on investors who exit the Liquid
Fund within 7 days of their investment.
To ensure uniformity across the industry, AMFI had been advised to
prescribe the minimum exit load in a liquid and overnight fund on a
graded basis as specified above in consultation with SEBI.
4.6 Prudential Norms regarding holding of liquid assets in Open ended
Debt Schemes119:
4.6.1 All open ended debt schemes (except Overnight Fund, Liquid Fund,
Gilt Fund and Gilt Fund with 10-year constant duration) shall hold
at least 10% of their net assets in liquid assets. For this purpose,
‘liquid assets’ shall include Cash, Government Securities, T-bills and
Repo on Government Securities.
4.6.2 The liquid assets specified above shall not be included for
determining the scheme characteristics of the open ended debt
schemes as specified under Part IV of Chapter 2 of this Master
Circular120. In this regards it is clarified that –
4.6.2.1 For all regulatory limit calculations other than Asset Allocation
Limits (e.g. for Macaulay Duration, Risk-o-meter, investment
restrictions pertaining to issuer, sector and group), the base to
be considered is 100% of Net Assets
4.6.2.2 For asset allocation limits (applicable for Banking and PSU Bond
Fund, Floater Fund, Credit Risk Fund and Corporate Bond
Funds scheme categories in terms of Part IV of Chapter 2 on
‘Categorization and Rationalization of Mutual Fund Schemes’ of
this Master Circular the base shall be considered as Net assets
excluding the extent of minimum stipulated liquid assets i.e.
10%. Illustration is given below -
119 SEBI Circular No.SEBI/HO/IMD/DF3/CIR/P/2020/229 dated November 06, 2020
120 SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/583 dated June 25, 2021
80 Master Circular for Mutual Funds as on March 31, 2023
Name of Name of scheme Current Name of scheme
scheme Asset Current Asset
Current
Asset
Banking Minimum investment in Minimum 72%**
and PSU debt instruments of banks, allocation to
Bond Fund Public Sector Banking & PSU
Undertakings, Public Assets
Financial Institutions and
Municipal Bonds – 80% of
total assets
**80% of (100% reduced to the extent of minimum stipulated
liquid assets i.e. 10%), i.e. 80% of 90% of Net Assets.
4.6.3 In case, the exposure in such liquid assets / securities falls below the
threshold mandated at paragraph 4.6.1 above, the AMCs shall
ensure compliance with the above requirement before making any
further investments.
4.6.4 AMFI has prescribed a suitable framework, in consultation with
SEBI, for liquidity risk management for open ended debt schemes
(except Overnight Fund, Gilt Fund and Gilt Fund with 10-year
constant duration). The said framework has come into effect from
December 01, 2021, for all existing open ended debt schemes (except
Overnight Fund, Gilt Fund and Gilt Fund with 10-year constant
duration) and schemes to be launched on or thereafter.
4.7 Cyber Security and Cyber Resilience Framework for Mutual Funds/
AMCs121
4.7.1 With rapid technological advancement in securities market, there is
greater need for maintaining robust cyber security and to have cyber
resilience framework to protect integrity of data and guard against
breaches of privacy.
121 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/12 dated January 10, 2019, Refer
SEBI email dated February 17, 2021 & August 04, 2022
81 Master Circular for Mutual Funds as on March 31, 2023
4.7.2 As part of the operational risk management, the Mutual Funds /
Asset Management Companies (AMCs) need to have robust cyber
security and cyber resilience framework in order to provide essential
facilities and services and perform critical functions in securities
market.
4.7.3 Based on the recommendation of SEBI’s High Powered Steering
Committee - Cyber Security, it has been decided that the framework
prescribed vide SEBI circular CIR/MRD/DP13/2015 dated July 06,
2015 on cyber security and cyber resilience also be made applicable
to all Mutual Funds / AMC. Accordingly, all Mutual Funds / AMCs
shall comply with the provisions of Cyber Security and Cyber
Resilience as placed at Annexure-6.
4.7.4 The information/ reports mentioned under Annexure-6 shall be
shared through the dedicated e-mail ids: vapt_reports@sebi.gov.in
and cybersecurity_amc@sebi.gov.in122
4.7.5 Further, the Mutual Funds/ AMCs are mandated to conduct
comprehensive cyber audit at least 2 times in a financial year. Along
with the cyber audit reports, henceforth, all Mutual Funds/ AMCs
are directed to submit a declaration from the Managing Director
(MD)/ Chief Executive Officer (CEO) certifying compliance by the
Mutual Funds/ AMCs with all SEBI Circulars and advisories related
to cyber security from time to time. 123
4.7.6 Mutual Funds/ AMCs have been advised to take necessary steps to
put in place systems for implementation of aforesaid requirement.
4.8 Technology Committee for Mutual Funds/ AMCs124
4.8.1 With rapid technological advancement in securities market,
technology is playing a very important role in asset management
122 SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF2/P/CIR/2022/81 dated June 09, 2022
123 SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF2/P/CIR/2022/81 dated June 09, 2022
124 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/058 dated April 11, 2019
82 Master Circular for Mutual Funds as on March 31, 2023
business and have a major impact on the various processes and
controls designed and implemented by AMCs. The role of technology
related aspects has become even more critical in managing risks
related to asset management business.
4.8.2 In order to deal with various technology related issues, AMCs are
advised to constitute a Technology Committee comprising experts
proficient in technology. Such committee shall have at least one
independent external expert with adequate experience in the area of
technology in Mutual Fund industry / BFSI.
4.8.3 The aforementioned committee shall, inter alia, review the cyber
security and cyber resilience framework for Mutual Funds / AMCs in
terms of Paragraph 7 of Annexure-6 and
also review the system audit related aspects of AMCs in terms of
Paragraph 6.15.3 of this Master Circular on system audit framework
for mutual funds / AMCs.
4.9 Reporting for Artificial Intelligence (AI) and Machine Learning (ML)
applications and systems offered and used by Mutual Funds125
4.9.1 There is increasing usage of AI (Artificial Intelligence) and ML
(Machine Learning) as product offerings by market intermediaries
and participants (e.g.: “robo advisors”) in investor and consumer
facing products.
4.9.2 As most AI / ML systems are black boxes and their behavior cannot
be easily quantified, it is imperative to ensure that any advertised
financial benefit owing to these technologies in investor facing
financial products offered by intermediaries should not constitute to
misrepresentation.
Scope definition
125 SEBI Circular No. SEBI/HO/IMD/DF5/CIR/P/2019/63 dated May 09, 2019
83 Master Circular for Mutual Funds as on March 31, 2023
4.9.3 Any set of applications / software / programs / executable / systems
(computer systems) – cumulatively called application and systems,
a. that are offered to investors (individuals and institutions) or
used internally by Mutual Funds to facilitate investing and
trading or for any other purpose,
OR
b. to disseminate investments strategies and advice,
OR
c. to carry out compliance / operations / activities,
where AI / ML is portrayed as a part of the public product
offering or under usage for compliance or management
purposes, is included in the scope of this Chapter. Here, “AI” /
“ML” refers to the terms “Artificial Intelligence” and “Machine
Learning” used as a part of the product offerings. In order to
make the scope of this chapter inclusive of various AI and ML
technologies in use, the scope also covers Fin-Tech and Reg-
Tech initiatives undertaken by market participants that involves
AI and ML.
4.9.4 Technologies that are considered to be categorized as AI and ML
technologies in the scope of this chapter, are explained in Annexure
7.
Regulatory requirements
4.9.5 All registered Mutual Funds offering or using applications or systems
as defined in the Annexure 7, should participate in the reporting
process by completing the AI / ML reporting format126.
126 Please see the formats section (SEBI Circular No. SEBI/HO/IMD/DF5/CIR/P/2019/63
dated May 09, 2019)
84 Master Circular for Mutual Funds as on March 31, 2023
4.9.6 All the registered Mutual Funds using AI / ML based application or
system as defined in Annexure 7, are required to fill in the form as
per the format127 and make submissions on quarterly basis within 15
calendar days of the expiry of the quarter to AMFI.
4.9.7 AMFI shall consolidate the information on AI / ML applications and
systems reported by Mutual Funds on quarterly basis and submit to
SEBI at email id AIML_MF@sebi.gov.in within 30 calendar days of the
expiry of the quarter.
4.9.8 AMFI shall ensure that confidentiality is maintained regarding the
information received by them from Mutual Funds.
4.10 Swing pricing framework for mutual fund schemes128
4.10.1 Swing pricing framework has been introduced for open ended debt
mutual fund schemes (except overnight funds, Gilt funds and Gilt
with 10-year maturity funds).
4.10.2 Under this framework, to begin with, the swing pricing framework
will be made applicable only for scenarios related to net outflows from
the schemes. The framework shall be a hybrid framework with:
4.10.2.1 a partial swing during normal times and
4.10.2.2 a mandatory full swing during market dislocation times for high
risk open ended debt schemes.
4.10.3 Swing pricing for normal times
4.10.3.1 For normal times, the swing pricing framework is stipulated as
under:
127 Please see the format no. 9 under the section on formats (SEBI Circular No.
SEBI/HO/IMD/DF5/CIR/P/2019/63 dated May 09, 2019)
128 SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/631 dated September 29,
2021 and SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2022/24 dated February
25, 2022, Refer SEBI letter No. SEBI/HO/ IMD-II/DOF3/ OW/P/2022/5274/1 dated
February 08, 2021
85 Master Circular for Mutual Funds as on March 31, 2023
i. AMFI shall prescribe broad parameters for determination of
thresholds for triggering swing pricing which shall be followed
by the AMCs. AMFI shall also prescribe an indicative range of
swing threshold to the industry for normal times.
ii. Additionally, AMC may be allowed to have other parameters,
if it desires so, considering the nature and characteristics of
the mutual fund scheme.
iii. For normal times, AMCs shall decide on the applicability of
swing pricing and the quantum of swing factor depending on
scheme specific issues.
iv. All of the above shall be disclosed by the AMC in its Scheme
Information Document (SID).
4.10.3.2 AMCs may, if they desire so, implement the swing pricing
framework for normal period, after incorporating clauses
pertaining to the same in their SIDs and the same shall be
considered as a Fundamental Attribute Change of the scheme in
terms of regulation 18(15A) of SEBI (Mutual Fund) Regulations,
1996.
4.10.4 Swing pricing for market dislocation
4.10.4.1 For the purpose of determining market dislocation, AMFI shall
develop a set of guidelines/parameters/model for recommending
the same to SEBI. SEBI will determine ‘market dislocation’ either
based on AMFI’s recommendation or suo moto. Once market
dislocation is declared, it will be notified by SEBI that swing
pricing will be applicable for a specified period.
4.10.4.2 Subsequent to the announcement of market dislocation, the
swing pricing framework shall be mandated only for open ended
debt schemes (except overnight funds, Gilt funds and Gilt with
10-year maturity funds) in terms of Part IV of Chapter 2 on
86 Master Circular for Mutual Funds as on March 31, 2023
‘Categorization and Rationalization of Mutual Fund schemes’,
which:
i. have High or Very High risk on the risk-o-meter in terms of
Paragraph 17.4 of this Master Circular (as of the most recent
period at the time of declaration of market dislocation); and
ii. classify themselves in the cells A-III, B-II, B-III, C-I, C-II and
C-III of Potential Risk Class (PRC) Matrix in terms of
Paragraph 17.5 of this Master Circular as tabulated below.
4.10.4.3 A minimum swing factor as under shall be made applicable to the
schemes mentioned at paragraph 4.10.4.2 above and the NAV will
be adjusted for swing factor.
Table
Minimum swing factor for open ended debt schemes*
Max Credit Risk Class A (CRV** Class B (CRV Class C (CRV
of scheme→ <10)
>=12) >=10)
Max Interest
Rate Risk of the
scheme ↓
Class I: (MD<=1 Optional Optional 1.5%
year)
Class II: (MD<=3 Optional 1.25% 1.75%
years)
87 Master Circular for Mutual Funds as on March 31, 2023
Class III: Any 1% 1.5% 2%
Macaulay
duration
*: Scheme can levy higher swing factor, based on pre-defined parameters,
redemption pressure and current portfolio of the scheme subject to a cap
on swing factor to be decided by AMC.
**CRV: Credit Risk Value
4.10.4.4 All the open ended debt schemes (except overnight funds, Gilt
funds and Gilt with 10-year maturity funds) mentioned at
paragraph 4.10.4.2 above were advised to incorporate the
provision pertaining to mandatory swing factor as stipulated at
Table above in their offer documents within a period of three
months starting from September 29, 2021, and the same was not
considered as a Fundamental Attribute Change of the scheme in
terms of regulation 18(15A) of SEBI (Mutual Fund) Regulations,
1996. However, optional swing factor or higher than as specified
in Table above shall be considered as Fundamental Attribute
Change of the scheme in terms of regulation 18(15A) of SEBI
(Mutual Fund) Regulations, 1996
4.10.5 Other aspects pertaining to swing pricing
4.10.5.1 When swing pricing framework is triggered and swing factor is
made applicable (for normal time or market dislocation, as the
case may be), both the incoming and outgoing investors shall get
NAV adjusted for swing factor.
4.10.5.2 All AMCs shall make clear disclosures along with illustrations in
the SIDs including information on how the swing pricing
88 Master Circular for Mutual Funds as on March 31, 2023
framework works, under which circumstances it is triggered and
the effect on the NAV for incoming and outgoing investors.
4.10.5.3 Swing pricing shall be made applicable to all unitholders at PAN
level with an exemption for redemptions upto Rs. 2 lacs for each
mutual fund scheme for both normal times and market
dislocation.
4.10.5.4 AMCs shall have laid down policies and procedures pertaining to
swing pricing which are approved by board of AMC and Trustee.
4.10.5.5 The scheme performance shall be computed based on unswung
NAV.
4.10.5.6 Disclosures pertaining to NAV adjusted for swing factor along
with the performance impact shall be made by the AMCs in
following format in their SIDs and in scheme wise Annual Reports
and Abridged summary and the same may be disclosed on their
website prominently only if swing pricing framework has been
made applicable for the said mutual fund scheme:
Sr Period of Scheme Unswung Swing Whether
No. applicability of name NAV factor optional or
swing pricing applied Mandatory
89 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 5: DISCLOSURES & REPORTING NORMS
PART I – DISCLOSURES
5.1 Portfolio Disclosures129
5.1.1. Mutual Funds/ AMCs shall disclose portfolio (along with ISIN) as on
the last day of the month / half-year for all their schemes on their
respective website and on the website of AMFI within 10 days from
the close of each month/ half-year respectively in a user-friendly and
downloadable spreadsheet format. For debt schemes, such
disclosure shall be done on fortnightly basis within 5 days of every
fortnight. In addition to the current portfolio disclosure, yield of the
instrument shall also be disclosed.
5.1.2. In case of unit holders whose e-mail addresses are registered, the
Mutual Funds/ AMCs shall send via email both the monthly and half-
yearly statement of scheme portfolio within 10 days from the close of
each month/ half-year respectively.
5.1.3. Mutual Funds/ AMCs shall publish an advertisement every half-year
disclosing the hosting of the half-yearly statement of its schemes
portfolio on their respective website and on the website of AMFI and
the modes such as SMS, telephone, email or written request (letter)
through which a unit holder can submit a request for a physical or
electronic copy of the statement of scheme portfolio. Such
advertisement shall be published in the all India edition of at least
two daily newspapers, one each in English and Hindi.
5.1.4. Mutual Funds/ AMCs shall provide a physical copy of the statement
of its scheme portfolio, without charging any cost, on specific request
received from a unit holder.
129 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012,
SEBI/HO/IMD/DF2/CIR/P/2018/92 dated June 05, 2018 and SEBI Circular No.
SEBI/HO/IMD/DF3/CIR/P/2020/130 dated July 22, 2020, Refer SEBI email dated
September 30, 2020, Refer SEBI Email dated November 17, 2022
90 Master Circular for Mutual Funds as on March 31, 2023
5.1.5. The format130 for disclosure of portfolio is placed at format section.
The format for monthly portfolio disclosure shall be same as that of
half yearly portfolio disclosures.
5.1.6. Mutual funds/AMCs may disclose additional information (such as
ratios, etc.) subject to compliance with the Advertisement Code.
5.2 Disclosure of derivatives in Half Yearly Portfolios131
5.2.1 A format132 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.
5.2.2 Further, while listing net assets, the margin amounts paid should be
reported separately under cash or bank balances.
5.3 Unaudited Half Yearly Financials133
5.3.1 The publication of the unaudited half-yearly results shall be made in
line with provisions of the Regulations134, in the format prescribed in
Twelfth Schedule. For the purpose of easy reference by the investors,
all mutual funds shall display unaudited half yearly results on the
website of AMFI before the expiry of 1 month before the close of each
half year.
5.3.2 The half yearly disclosures135 of the unaudited financial results
on respective website should be made in a user-friendly and
downloadable format (preferably in a spreadsheet).
130 For formats on portfolio disclosure, please refer format no. 3.C under the section on
formats
131 SEBI Circular Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010
132 For formats on disclosure of derivatives, please refer to format no. 3.C under the section
on Formats
133 SEBI Circular MFD/CIR/1/200/2001 dated April 20, 2001 & SEBI Circular No.
IMD/CIR No.8/132968/2008 dated July 24, 2008
134 Regulation 59 of SEBI (Mutual Funds) Regulations, 1996
135 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012
91 Master Circular for Mutual Funds as on March 31, 2023
5.4 Providing Annual Report or Abridged Summary136
For providing annual report137 or abridged summary thereof, the
following shall be adhered
5.4.1 The scheme wise annual report shall be hosted on the website of the
Mutual Funds/ AMCs and on the website of AMFI. The Mutual
Funds/ AMCs shall display the link prominently on their websites
and make the physical copies available to the unit holders, at their
registered offices at all times.
5.4.2 Mutual Funds/ AMCs shall e-mail the scheme annual reports or
abridged summary thereof to those unit holders, whose email
addresses are registered with the Mutual Fund. 138AMCs shall
provide a feature wherein a link is provided to investors to their
registered email to enable the investor to directly view/download only
the portfolio of schemes subscribed by the said investor.
5.4.3 In case of unit holders whose email addresses are not registered with
the Mutual Fund, the Mutual Funds/ AMCs shall undertake an
exercise of communicating to the unit holders, through a letter
enclosing self-addressed envelope enabling unit holders to 'opt-in'
within 30 days, to continue receiving a physical copy of the scheme-
wise annual report or abridged summary thereof.
5.4.4 To ensure that unit holders get sufficient opportunity to
communicate their preference of ‘opt-in’ or ‘opt-out’ with respect to
receiving the annual report or abridged summary thereof in physical
copy, Mutual Funds/ AMCs shall conduct one more round of similar
exercise for those unit holders who have not responded to the ‘opt-in’
136 SEBI Circular No. IMD/CIR No.8/132968/2008 dated July 24, 2008, Circular No.
Cir/IMD/DF/16/2011 dated September 08, 2011 and SEBI/HO/IMD/DF2/CIR/P/2018/92
dated June 05, 2018, Refer SEBI letter No. SEBI/HO/IMD-II/DoF8/OW/P/05031/2022-
dated February 07, 2022
137 For format of abridged scheme wise report, please refer format no. 3.B under the section
on formats
138 SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/621 dated August 31, 2021
92 Master Circular for Mutual Funds as on March 31, 2023
communication as stated at paragraph 5.4.3 above, after a period of
not less than 30 days from the date of issuance of the first
communication. Further, a period of 15 days from the date of
issuances of the second communication may be given to unit holders
to exercise their option of ‘opt-in’ or ‘opt-out’.
5.4.5 Mutual Funds/ AMCs shall publish an advertisement every year
disclosing the hosting of the scheme wise annual report on their
respective website and on the website of AMFI and the modes such
as SMS, telephone, email or written request (letter), etc. through
which unit holders can submit a request for a physical or electronic
copy of the scheme wise annual report or abridged summary thereof.
Such advertisement shall be published in the all India edition of at
least two daily newspapers, one each in English and Hindi.
5.4.6 Mutual Funds/ AMCs shall provide a physical copy of the abridged
summary of the Annual Report, without charging any cost, on
specific request received from a unit holder.
5.4.7 The ‘opt-in’ facility to receive physical copy of the scheme-wise annual
report or abridged summary thereof shall be provided in the
application form for new subscribers.
5.4.8 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 place139.
5.5 Disclosure of large unit holdings140
5.5.1 The number of investors holding over 25 % of the NAV141 in a scheme
and their total holdings in percentage terms shall be disclosed in the
139 SEBI Cir No – MFD/CIR/15/041/2002 dated March 14,2002
140 SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001.
, 1 41 For further details, refer Part II – Scheme Governance in the Chapter 6 on ‘Governance
Norms’
,
93 Master Circular for Mutual Funds as on March 31, 2023
Statement of Accounts issued after the NFO and also in the Half
Yearly and Annual Results142.
5.6 Asset Under Management (AUM) disclosure143
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.
5.6.2 Mutual Funds shall disclose the following on monthly basis on their
website and also share the same with Association of Mutual
Funds in India (AMFI)144:
a. Monthly AAUM145 from different categories of schemes such
as equity schemes, debt schemes, etc.
b. Contribution to Monthly AAUM from B-30146 cities (i.e. other
than top 30 cities as identified by AMFI) and T-30 cities (Top
30 cities).
c. Contribution to Monthly AAUM from sponsor and its
associates.
d. Contribution to Monthly AAUM from entities other than
sponsor and its associates.
e. Contribution to Monthly AAUM from investors type (retail,
corporate, etc.) in different scheme type (equity, debt, ETF,
etc.).
142 Please refer format no. 3.A & 3.B under the section on Formats
143 SEBI Circular No. Cir/IMD/DF/13/2011 dated August 22, 2011
144 SEBI Circular No. CIR/IMD/DF/05/2014 dated March 24, 2014
145 SEBI Circular No. CIR/IMD/DF/07/2014 dated April 2, 2014
146 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/16 dated February 02, 2018, Refer
SEBI letter No. SEBI/HO/IMD/DF2/OW/P/2019/26551/1 dated October 09, 2019.
94 Master Circular for Mutual Funds as on March 31, 2023
f. Monthly AAUM garnered through sponsor group/ non-
sponsor group distributors.
g. State-wise/Union Territory-wise contribution to Monthly
AAUM.
5.6.3 In order to have a holistic picture, Mutual Fund wise and
consolidated data on the above parameters shall also be disclosed on
AMFI website. The above shall be disclosed as per the format147.
5.6.4 AMCs shall disclose the above on their website (in spreadsheet
format) and forward to AMFI within 7 working days from the end of
the month. AMFI in turn shall disclose the consolidated data in this
regard on its website (in spreadsheet format).
5.7 Commission disclosure148
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: -
5.7.1.1 Multiple point of presence (More than 20 locations)
5.7.1.2 AUM raised over Rs.100 crores across industry in the non-
institutional category but including high net worth individuals
(HNIs).
5.7.1.3 Commission received of over Rs.1 crore p.a. across industry
5.7.1.4 Commission received of over Rs.50 lakhs from a single Mutual
Fund/AMC.
5.7.2 Mutual Fund / AMCs shall, in addition to the total commission and
expenses paid to distributors, make additional disclosures149
regarding distributor-wise gross inflows (indicating whether the
147 For formats, please refer to format 3.D under the section on Formats
148 SEBI Circular No. Cir/IMD/DF/13/2011 dated August 22, 2011
149 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012.
95 Master Circular for Mutual Funds as on March 31, 2023
distributor is an associate or group company of the sponsor(s) of the
mutual fund), net inflows, average assets under management and
ratio of AUM to gross inflows on their respective website on an
yearly basis.
In case the data mentioned above suggests that a distributor has an
excessive portfolio turnover ratio, i.e. more than two times the
industry average, AMCs shall conduct additional due-diligence of
such distributors.
5.7.3 Mutual Funds / AMCs shall also submit the data mentioned in 5.7.1
and 5.7.2 to AMFI and the consolidated data in this regard shall be
disclosed on AMFI website.
5.8 Scheme Related Disclosures150
In order to improve transparency as well as ease of access to Mutual
Fund (MF) scheme related information:
5.8.1 Mutual Funds shall provide the following additional disclosures in
the offer documents (Scheme Information Document (SID) / Key
Information Memorandum (KIM)) of Mutual Fund scheme (for
existing scheme / new scheme, as applicable):
5.8.1.1 The tenure for which the fund manager has been managing the
scheme shall be disclosed, along with the name of scheme’s fund
manager(s);
5.8.1.2 Scheme’s portfolio holdings (top 10 holdings by issuer and fund
allocation towards various sectors), along with a website link to
obtain scheme’s latest monthly portfolio holding;
5.8.1.3 In case of FoF schemes, expense ratio of underlying scheme(s);
150 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016
96 Master Circular for Mutual Funds as on March 31, 2023
5.8.1.4 Scheme’s portfolio turnover ratio.
5.8.2 Further, the following additional disclosures shall be provided in SID
of the MF scheme:
5.8.2.1 The aggregate investment in the scheme under the following
categories:
a) AMC’s Board of Directors
b) Concerned scheme’s Fund Manager(s) and
c) Other key personnel151.
5.8.2.2 Illustration of impact of expense ratio on scheme’s returns (by
providing simple example).
5.8.3 Separate SID / KIM for each MF scheme managed by AMC shall also
be made available on MFs / AMCs website.
5.8.4 Each MF is required to have a dashboard on their website providing
performance and key disclosures pertaining to each scheme managed
by AMC. The information should include scheme’s AUM, investment
objective, expense ratios, portfolio details, scheme’s past
performance, among others. Such information shall be provided in a
comparable, downloadable (spreadsheet) and machine readable
format.
5.9 Disclosure of scheme performance152
AMCs shall disclose the performance of all schemes on the website of
AMFI. AMFI shall facilitate the disclosure in the following manner:
5.9.1 In case of all schemes, the scheme returns vis-à-vis the benchmark
return (Total Return Index) shall be disclosed in terms of CAGR for
151 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
152 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018
97 Master Circular for Mutual Funds as on March 31, 2023
various periods viz. 1 year, 3 year, 5 year, 10 year and since
inception. Such disclosure of performance (since inception) shall be
made since the date of allotment of the units in the scheme153.
Provided154 that all schemes that are in existence for less than one
year, other than overnight fund, liquid fund, ultrashort duration
fund, low duration fund, and money market fund as defined in Part
IV of Chapter 2 on ‘Categorization and Rationalization of Mutual
Fund Schemes’, shall be exempted from the aforesaid disclosure.
5.9.2 In addition to the above, in case of schemes falling in categories such
as overnight fund, liquid fund, ultrashort duration fund, low duration
fund, and Money Market Fund as defined in Part IV of Chapter 2 on
‘Categorization and Rationalization of Mutual Fund Schemes’,
scheme performance is also to be disclosed for a period of 7 days, 15
days, 1 month, 3 months and 6 months.
5.9.3 The said disclosure should be made for all plans and shall be updated
daily based on previous day NAV.
5.9.4 The said disclosure should be in investor friendly format with filtering
feature based on scheme-type, plan-type, etc. and sorting feature
based on return periods.
5.9.5 155The disclosure should include other important fields such as
scheme AUM (excluding overnight and liquid scheme) and previous
day NAV. In case of AUM of overnight and liquid schemes, the closing
AUM and the AAUM of the previous month has to be disclosed on
AMFI website on daily basis.
However, the day the AUM movement (both upward and downward)
of both overnight and liquid scheme is more than 10% cumulatively
153 SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
154 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
155 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
98 Master Circular for Mutual Funds as on March 31, 2023
from the previous disclosed AUM, the AUM of that day has to be
disclosed. Such disclosed AUM becomes the reference AUM for future
disclosure of AUM for the month.
Further, it has been decided that an appropriate disclosure regarding
the AUM of overnight and liquid schemes disclosed on AMFI website
on monthly basis including the trigger limit of 10% is to be made as
an explanation through footnote.
5.9.6 Trustees and AMCs shall ensure compliance of the provisions
mentioned at paragraph 5.9 above and trustees shall confirm the
same to SEBI in the half yearly trustee report.
5.10 Annual report of the AMC156
5.10.1 The annual report containing accounts of the AMC should be
displayed on the websites of the mutual funds immediately after
approval in Annual General Meetings within a period of four months,
from the date of closing of the financial year. It should also be
mentioned in the annual report of mutual fund schemes that the
unitholders, if they so desire, may request for the annual report of
the AMC. Further, the annual report of AMCs shall be displayed on
their websites in machine readable format.
5.11 Submission of bio data of key personnel157
5.11.1 AMCs are required to submit the bio data of all key personnel to
Trustees and the Board158.
5.11.2 159 The term “Key Personnel” is defined as under:
156MFD/CIR/9/120/2000 dated November 24, 2000 and SEBI Circular No.
SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
157 IIMARP/CIR /08/845/97 dated May 7,1997, IIMARP/MF/CIR/05/788/97 date April
28,1997
158 For format of bio-data of key personnel, please refer format no. 1 under the section on
Formats
159 SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
99 Master Circular for Mutual Funds as on March 31, 2023
“Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief
Risk Officer (CRO), Chief Information Security Officer (CISO), Chief
Operation Officer (COO), Fund Manager(s), Compliance Officer, Sales
Head, Investor Relation Officer(s) (IRO), heads of other departments,
Dealer(s) of the AMC and such other persons as deemed fit and
identified as such by the AMC and the Trustees.”
5.12 Disclosure Of Executive Remuneration160
With the underlying objective to promote transparency in
remuneration policies so that executive remuneration is aligned with
the interest of investors, MFs /AMCs shall make the following
disclosures pertaining to a financial year on the MF/AMC website
under a separate head – 'Remuneration':
5.12.1 Name, designation and remuneration of Chief Executive Officer
(CEO), Chief Investment Officer (CIO) and Chief Operations Officer
(COO) or their corresponding equivalent by whatever name called.
5.12.2 Name, designation and remuneration received by top ten employees
in terms of remuneration drawn for that financial year.
5.12.3 Name, designation and remuneration of every employee of MF/AMC
whose:
5.12.3.1 Annual remuneration was equal to or above one crore and two
lakh rupees for that financial year;
5.12.3.2 Monthly remuneration in the aggregate was not less than eight
lakh and fifty thousand rupees per month, if the employee is
employed for a part of that financial year.
160 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016 and
SEBI/HO/IMD/DF2/CIR/P/2017/35 dated April 28, 2017
100 Master Circular for Mutual Funds as on March 31, 2023
5.12.4 The ratio of CEO’s remuneration to median remuneration of MF/AMC
employees.
5.12.5 MF's total AAUM, debt AAUM and equity AAUM and rate of growth
over last three years.
For this purpose, remuneration shall mean remuneration as defined
in clause (78) of section 2 of the Companies Act, 2013. The
AMCs/MFs shall disclose this information within one month from the
end of the respective financial year (effective from FY 2016-17).
5.13 Disclosure of investor complaints with respect to Mutual
Funds161
5.13.1 Mutual Funds shall disclose162 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 in the
annual report should be vetted and signed off by the Trustees of the
concerned Mutual Fund. 163 Mutual Funds shall disclose the details
of investor complaints on their respective websites as well as on AMFI
website on a monthly basis, as per the format. The information shall
be made available within 7th of succeeding month.
5.13.2 The Mutual Funds are advised to:
5.13.2.1 Include the report in their annual reports, as part of the Report
of the Trustees.
5.13.3 Further, in order to facilitate awareness of investors about various
activities which an investor deals with, SEBI has prepared an
Investor Charter for Mutual Funds164, inter-alia, detailing the
161 SEBI Circular No. Cir /IMD/DF/2/2010 dated May 13, 2010
162 For disclosure format please refer format no. 7.D under the section on Formats.
163 SEBI Circular No. SEBI/HO/IMD-II/IMD-II_DOF10/P/CIR/2021/00677 dated December
10,2021
164 For Investor Charter for Mutual Funds, please refer format no. 12 under the section on
formats
101 Master Circular for Mutual Funds as on March 31, 2023
services provided to Investors, Rights of Investors, various activities
of Mutual Funds with timelines, DOs and DON’Ts for Investors and
Grievance Redressal Mechanism.
5.13.4 In this regard, Mutual Funds are advised to bring the Investor
Charter for Mutual Funds to the notice of their unit holders (existing
as well as new unit holders) through disclosing the Investor Charter
on their websites, making them available at prominent places in the
office, etc.
5.13.5 Further, Mutual Funds are advised to display link/option to lodge
complaint with them directly on their websites and mobile apps.
Additionally, link to SCORES website/ link to download mobile app
(SEBI SCORES) shall also be provided on their website.
5.14 Brokerage and commission paid to associates165
5.14.1 Regulations166 govern payment of brokerage or commission if any, to
the sponsor or any of its associates, employees or their relatives.
5.14.2 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
prescribed167.
165 SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010
166 Regulation 25 (8) of SEBI (Mutual Funds) Regulations, 1996
167 Please refer format no. 7.B on Brokerage and Commission Paid to Associates under section
on Formats
102 Master Circular for Mutual Funds as on March 31, 2023
5.15 Updating contact details
5.15.1 Mutual Funds/ AMCs shall make continuous efforts to update email
ID and mobile number of all unit holders. The said contact details
shall be used for sending e-mails and SMS.168
5.16 Risk-O-Meter related disclosures
5.16.1 169Mutual Funds/AMCs shall disclose the following in all disclosures,
including promotional material or that stipulated by SEBI:
5.16.1.1 risk-o-meter of the scheme wherever the performance of the
scheme is disclosed
5.16.1.2 risk-o-meter of the scheme and benchmark wherever the
performance of the scheme vis-à-vis that of the benchmark is
disclosed.
5.16.2 The disclosure requirement of the risk-o-meter of benchmark is
applicable for primary benchmark which is specified in the Scheme
Information Document.
5.16.3 For international benchmarks, risk-o-meter score may be assigned
in line with risk-o-meter score assigned to foreign securities as
specified in Paragraph 16.4 of this Master Circular.
5.16.4 AMCs shall enter into arrangements with their selected Index
providers to provide the risk-o-meter for their benchmarks to the
AMCs latest by the fifth day subsequent to the end of the month.
168 SEBI/HO/IMD/DF2/CIR/P/2018/92 dated June 05, 2018
169 SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/621 dated August 31, 2021
103 Master Circular for Mutual Funds as on March 31, 2023
5.17 Details of Portfolio
5.17.1 Mutual Funds/ AMCs shall send the details of the scheme portfolio
while communicating the fortnightly, monthly and half-yearly
statement of scheme portfolio via email only for the schemes in which
the unitholders are invested. 170Further the portfolio disclosure shall
also include the scheme risk-o-meter, name of benchmark and risk-
o-meter of benchmark.
170 SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/621 dated August 31, 2021
104 Master Circular for Mutual Funds as on March 31, 2023
PART II – REPORTS
5.18 Monthly Cumulative Report (MCR)171
5.18.1 Date and Mode of Submission:
5.18.1.1 MCR shall be submitted to the Board by 3rd working day of each
month by way of an email (to Email ID: mfdata@sebi.gov.in).
5.18.1.2 In line with Part IV of Chapter 2 on “Categorization and
Rationalization of Mutual Fund Schemes”, the format of MCR172
has been revised.
5.18.1.3 As per the existing provision, a Mutual Fund scheme is permitted
to invest certain percentage of its AUM in schemes of same
Mutual Fund or other Mutual Funds. In order to avoid such
investments being considered by both the investee and investing
scheme, it is clarified that the investing scheme shall exclude the
same while reporting the data on AUM in the MCR173.
5.18.2 Other Guidelines:
5.18.2.1 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.
171 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, SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42
dated March 18, 2016, SEBI/HO/IMD/DF3/CIR/P/2019/020 dated January 22, 2019 and
SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
172 For format of Monthly Cumulative Report, please refer to format no. 2.D under the section
on formats
173 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2019/020 dated January 22, 2019
105 Master Circular for Mutual Funds as on March 31, 2023
5.18.2.2 Further, additional report on overseas investment174 by Mutual
Funds in ADRs/GDRs, foreign securities and overseas exchange
traded funds (ETFs) shall also be provided as per the prescribed
format175.
5.18.2.3 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.
5.19 New Scheme Report (NSR)176
5.19.1 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 format177. Mutual funds should confirm compliance with
the provisions of Regulation 28(3) of SEBI (Mutual Funds)
Regulations, 1996 while filing the New Scheme Report178.
5.20 Quarterly Compliance Test Reports179
5.20.1 The CTRs180 should be submitted by the AMC to the Board on a
quarterly basis, by 21st calendar day of succeeding month for the
quarters ending March, June, September and December. As a
compliance of SEBI Regulations is a continuous process, AMCs are
advised to incorporate the modifications/additions under the
174 SEBI Circular No. SEBI/IMD/CIR NO 15/87045/07 dated February 22,2007
175 Please refer to format no. 2.D under the section on formats
176 SEBI Circular No. SEBI/IMD/CIR NO 13/118899/08 dated February 29, 2008, SEBI
Circular No MFD/CIR/12/16588/2002 dated August 28, 2002, SEBI Circular No.
MFD/CIR/09/247/2002 dated July 23, 2002, SEBI Circular No. IIMARP/10772/93 dated
July 14,1993,
177 Please refer to format no. 2.A under the section on formats
178 SEBI Circular No. SEBI/IMD/CIR No.9/74364/06 dated August 14, 2006
179 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, Refer SEBI email dated July 09, 2021
180 Please refer to format no. 2.B under the section on Formats
106 Master Circular for Mutual Funds as on March 31, 2023
relevant sections of the format, based on amendments to the
Regulations/guidelines issued in the future from time to time.
5.21 Half Yearly Trustee Report by Trustees to SEBI (HYTR)181
5.21.1 The Trustees shall submit HYTR to SEBI, containing the broad
coverage of report as prescribed in the format. The Trustees shall
submit corrective steps taken with respect to the non-compliance
reported in the HYTR. Trustees shall submit the report for Half year
ending September and March within two months from the end of the
half year.
5.22 Quarterly Report by AMC to Trustees (QR)182
5.22.1 The AMC shall submit QR to the trustees, as required in sub-
regulation (4) of Regulation 25 of MF Regulations, on its activities and
the compliance with MF Regulations and various circulars issued
thereunder. The format of QR is prescribed at the format section. The
same shall be submitted by AMC to Trustees by 21st calendar day of
succeeding month for the quarters ending March, June, September
and December.
5.23 Annual Statistical Report (ASR)183
5.23.1 AMC should submit the annual statistical report to SEBI in the
prescribed format184 by 30th of April each year. The ASR shall be
submitted to the Board through email only (to email ID:
mfdata@sebi.gov.in)185.
181 SEBI/HO/IMD/IMD-I DOF2/P/CIR/2021/550 dated April 12, 2021 & For HYTR format,
please refer to format no. 2.C under the section on Formats
182 SEBI/HO/IMD/IMD-I DOF2/P/CIR/2021/550 dated April 12, 2021 & For QR format,
please refer to format no. 2.G under the section on Formats
183 IIMARP/CIR /08/845/97 dated May 7,1997, MFD/CIR/02/110/02 dated April 26,2002
184 For format of ASR, please refer to format no. 2.E under the section on Formats
185 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
107 Master Circular for Mutual Funds as on March 31, 2023
5.24 Daily Transaction Report186
5.24.1 All Mutual Funds shall submit details of transactions in secondary
market on daily basis in the prescribed format187. Accordingly,
Mutual Funds are advised to make necessary arrangements with
their custodians for the submission of reports on a daily basis. As it
is clear in the format, the information is required of total
repurchases/ sales of equity/ debt and not of each scrip. Further,
the information on total purchases/sales of sensitive index scrips
need not be sent.
5.24.2 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).
5.25 Responsibilities of AMC(s) and Trustees188
5.25.1 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.
5.25.2 The Trustee(s) shall also review all information and documents
received from the AMC(s) as required under the compliance process.
5.25.3 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 Trustees189.
186 SEBI Circular No. MFD/CIR/07/384/99 dated December 17, 1999 and
MFD/CIR/08/23026/99 dated December 23, 1999
187 For format of daily transaction report, please refer to format no. 2.F under the section on
formats
188 SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000
189 Please refer to format no. 2.G under the section on formats
108 Master Circular for Mutual Funds as on March 31, 2023
5.25.4 The half-yearly report on the activities of the mutual fund to be
submitted by the trustees to the Board under the Mutual Funds
Regulations190 shall cover all issues mentioned in the prescribed
format as well as any other issue relevant to the operation of the
Mutual Fund191. 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.
5.25.5 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.
5.25.6 To comply with the requirement of sub-regulation (16) of regulation
18 of the SEBI (Mutual Funds) Regulations, 1996, the trustees shall
call for the details of transactions in securities by the key personnel
of the asset management company in their own name or on behalf of
the AMC on a quarterly basis192.
5.26 Filing of Annual Information Return by Mutual Funds193
5.26.1 Mutual funds are required to submit the Annual Information Return
(AIR) under section 285 BA of the Income Tax Act, and various
guidelines notified by Central Board of Direct Taxes (CBDT). As per
this requirement, Trustees of Mutual Funds or such other person
managing the affairs of the Mutual Funds (as may be duly authorized
190 Regulation 18(23)(a) of SEBI (MF) Regulations, 1996
191 For format of Trustee Report, please refer format no. 2.C under the section on formats.
< 1 < 92 SEBI Circular No- IIMARP/MF/CIR/01/294/98 dated February 4, 1998, SEBI Circular
No- SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2021/550 dated April 12, 2021
193 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
109 Master Circular for Mutual Funds as on March 31, 2023
by the trustees in this behalf) have to report specified financial
transactions through electronic medium to Income Tax Department
giving PAN of the transacting parties in an Annual Information
Return (AIR).
5.27 Reporting of offsite inspection data to SEBI194
5.27.1 As a part of off-site inspection and surveillance of Mutual Funds and
to monitor the compliance of the SEBI (Mutual Funds) Regulations,
1996 and circulars issued therein, SEBI has framed the data
structure and all the Mutual Funds along with RTAs associated with
them are required to furnish the data to SEBI. The standard format
for submission of data by Mutual Funds is given under formats
section of this Master Circular.
5.27.2 Mutual Funds shall submit the daily data in monthly file as per the
specified formats on quarterly basis within 10 calendar days from
end of the quarter. RTAs shall submit the said data on an ongoing
basis.
5.27.3 Details of the requirements prescribed under various paragraphs of
this Master Circular which are covered through the reporting
formats, as mentioned in the paragraph 5.27.1 above, are specified
under formats section of this Master Circular195.
5.27.4 Any change in the prescribed formats shall be communicated by the
Board from time to time.
194 For formats on reporting of off-site inspection, please refer to Format no. 13 under the
section on formats
195 Refer to section D of Format no. 13 under the section on formats
110 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 6: GOVERNANCE NORMS
PART I - FUND GOVERNANCE
6.1 Formation of Audit and Valuation Committees by the Trustees
and/or AMC196
6.1.1 Audit Committee of Trustees
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 Audit Committee of Asset Management Companies197
AMCs of mutual funds shall be required to constitute an Audit
Committee. The role, responsibility, membership and other features
of the Audit Committee of AMC are –
6.1.2.1 Role: The Audit Committee of the AMC shall be responsible for
oversight of financial reporting process, audit process, company’s
system of internal controls, compliance to laws and regulations
and other related process, with specific reference to operation of
its Mutual Fund business. In this regard, the Audit Committee
shall, inter-alia, have the following mandates:
a) To review the financial reporting processes, the system
of internal controls and the audit processes for the
Mutual Fund operations of the AMC;
b) To ensure that the rectifications, if any, suggested by
internal and external auditors, etc. are acted upon.
196 SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000.
< 1 97 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/17 dated February 09, 2022
which is applicable from August 1, 2022.
<
111 Master Circular for Mutual Funds as on March 31, 2023
6.1.2.2 Membership:
a. The Audit Committee of AMC shall have minimum three
directors as members.
b. At least two-third members of the Audit Committee shall be
independent directors of AMC. If two-third of the total strength
results into fraction, then higher number after rounding up
shall be considered.
c. The members of the Audit Committee will be appointed by the
Board of Directors of AMC.
d. All members of Audit Committee shall be persons with ability
to read and understand the financial statement and at least
one member shall have experience and background in finance
and accounts.
e. The Chairperson of the Committee shall be an independent
director, with adequate experience in the areas of finance and
financial services.
6.1.2.3 Meetings:
a. The Chairperson of the Audit Committee shall call the meeting
as and when required. However, atleast four meetings shall be
called in a financial year and not more than one hundred and
twenty days shall elapse between two meetings.
b. The quorum for meeting shall either be two members or one
third of the members of the Audit Committee, whichever is
greater, with at least two independent directors.
If one-third of the total strength results into fraction, then higher
number after rounding up shall be considered for the quorum.
6.1.2.4 Reporting:
a. The internal auditor shall submit its report to the Audit
Committees of AMC and the Board of AMC;
The Audit Committee of AMC shall forward their observations
on internal audit report, if any, to the Trustees.
112 Master Circular for Mutual Funds as on March 31, 2023
6.1.2.5 Powers and Responsibility:
I. Financial Reporting
a. Oversight of the Mutual Fund Schemes’ and AMC’s financial
reporting process.
b. Considering and recommending for approval of AMC Board, all
accounting policy issues for the Schemes and the AMC,
including any proposed changes to the accounting policies and
practices for transactions with related parties, etc.
c. Review of audit opinion issued by the statutory auditors.
d. Considering and recommending to the AMC Board, adoption of
financial statements including half yearly unaudited financial
results prepared for the Scheme and the financial statements
of the AMC.
e. Any other relevant matters.
II. Audit (Internal and Statutory) and Internal Controls
a. Considering and recommending for approval, the appointment,
re-appointment and, if required, the replacement or removal of
the Statutory Auditor of the Mutual Fund, Internal Auditor of
the Mutual Fund, etc. and the fixation of fees for audit and any
other services rendered by the Statutory Auditors with respect
to the Mutual Fund.
b. Reviewing the scope of Internal Auditors and recommending for
approval of the Board of AMC.
c. Reviewing the Internal Audit Reports of the Schemes of Mutual
Fund (Including Internal Audit Report of critical activities
outsourced by the AMC such as Custodian, Fund Accounting,
the Registrar and Transfer Agent activity, etc.).
d. Discussions with internal and statutory auditors on any
significant findings and follow up there on.
113 Master Circular for Mutual Funds as on March 31, 2023
e. Reviewing the findings of any internal investigations by the
AMC / internal auditors into matters where there is suspected
fraud or irregularity or a failure of internal control systems of
a material nature or issues highlighted or referred through
whistle blower complaints, etc.
f. Reviewing Regulatory Inspection Reports.
g. Reviewing implementation status of all outstanding action
points arising out of Internal Audit Reports, Statutory Audit
Reports, Systems Audit Reports, Inspection Reports etc.
h. Reviewing the adequacy of the internal control systems,
including defining metrics for measuring internal controls,
seeking comments of the internal auditors about Internal
Control Systems, etc. and the steps taken towards improving
the effectiveness of internal control system including through
automation.
i. Interacting with the statutory and internal auditors of the
Mutual Fund, at least once annually without engagement of
management of the AMC. Besides the mandatory requirement
specified, such interactions may be held whenever felt
necessary by the independent directors of the Audit
Committee.
j. The Audit Committee of the AMC should interact with the Audit
Committee of the Trustees at least once annually.
III. Regulatory Compliance and other Functions
a. Evaluating various internal control measures in terms of
applicable SEBI (Mutual Funds) Regulations and various
circulars issued thereunder.
b. Reviewing periodic report on compliance with applicable laws
and regulations, including the details of non-compliance along
with the corrective actions, as applicable.
c. Reviewing the Annual Compliance Report in relation to the
“Policy on Prohibition of Insider Trading” of the AMC.
114 Master Circular for Mutual Funds as on March 31, 2023
d. Assess that the AMC has been managing the mutual fund
schemes independently of other activities and have taken
adequate steps to ensure that the interest of investors of one
scheme are not being compromised with those of any other
scheme or of other activities of the asset management
company.
IV. In addition to the above responsibilities, AMC Board from time to
time may also assign such other responsibilities to the Audit
Committee, as deemed fit.
6.1.2.6 The Audit Committee of AMC shall comply with these guidelines
in addition to the requirements of The Companies Act, 2013 and
SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015, as applicable.
6.1.3 Valuation Committee
6.1.3.1 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 Transactions198
6.2.1 Reporting of transactions
6.2.1.1 Transaction(s) by directors of the AMC
a. Directors of the AMC shall file with the trustees on a quarterly
basis details of transactions in securities exceeding Rs.1
lac199.
198 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.
1 99 SEBI Circular No. SEBI/MFD/CIR/10/039/2001 dated February 9, 2001.
115 Master Circular for Mutual Funds as on March 31, 2023
6.2.1.2 Trustee(s) Directors
a. Trustees are required to report to Mutual Funds only those
transactions in securities that exceed 200INR Five lakhs in
value201. The same shall be filed by the trustees within one
month from the end of respective quarters (March, June,
September and December).
6.2.2 Review of transactions
6.2.2.1 Trustees shall review all transactions of the Mutual Fund with
the associates on a regular basis and ensure that Regulations202
are complied with.
6.3 Role of Independent Director on the Board of the AMC and
Independent Trustees203
6.3.1 An Independent Trustee shall not be associated in any manner with
the Sponsor(s)204. 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 trustees205.
6.3.2 An ‘associate’ shall be defined as:
6.3.2.1 Relatives206 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
2 00 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021.
2 01 Regulation 18(11) of SEBI (MF) Regulations, 1996 and SEBI Circular No.
MFD/CIR/09/014/2000 dated January 5, 2000.
202 Regulations 18(6) and 18(7) of SEBI (Mutual Funds), Regulations, 1996
, 2 , 03 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.
204 Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996.
205 Regulation 21(d) of the SEBI (Mutual Funds) Regulations, 1996
206 As defined under Section 2(77) of the Companies Act 2013
116 Master Circular for Mutual Funds as on March 31, 2023
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”207 as defined above cannot be appointed as
Independent Director even after he/she ceases to be an
“Associate” unless a cooling off period of three years has elapsed
from the date of his disassociation.
6.3.3.2 For the sake of clarity and to avoid any ambiguity, an example is
given here. Supposing an employee of the sponsor or their
associate companies or AMC or trustee company resigns on
December 1, 2021, then he cannot be appointed as an
independent director till December 1, 2024. During this
intervening period, he can be appointed only as associate
director. However, once he is taken as an associate director, say
on December 2, 2021, he cannot be considered as "independent"
from December 2, 2024. There must be a cooling off period of 3
years from the date he ceases to be an associate director.
6.3.4 The clarifications at Paragraphs 6.3.1, 6.3.2 and 6.3.3.1 shall be
followed in case of directors of trustee companies and AMCs.
6.3.5 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 respectively208. In case the composition of the directors does
not meet these requirements, Mutual Funds are required to inform
the Board along with the steps proposed to ensure compliance.
207 Regulation 2(c) of the SEBI (Mutual Funds) Regulations, 1996
< 2 08 Regulation 21(d) and Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996
117 Master Circular for Mutual Funds as on March 31, 2023
6.3.6 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 Directors209 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.
6.3.7 On appointment of new directors of the AMC or Trustee, their bio-
data210 shall be filed with the Board for information or approval
respectively.
6.4 Tenure of independent trustees and independent directors211
6.4.1 Regulation 16 (5) and Regulation 21 (1) (d) of SEBI (Mutual Funds)
Regulations, 1996 mandate appointment of independent trustees of
MFs (“independent trustees”) and independent directors of
AMCs (“independent directors”) respectively. With respect to
tenure of independent trustees and independent directors, it has
been decided that:
6.4.1.1 An independent trustee and independent director shall hold office
for a maximum of 2 terms with each term not exceeding a period
of 5 consecutive years.
6.4.1.2 No independent trustee or independent director shall hold office
for more than two consecutive terms, however such individuals
209 For bio data of directors (AMC and Trustee), please refer to format no. 1 under the section
on Formats
210 For bio data of directors (AMC and Trustee), please refer to format no. 1 under the section
on Formats
211 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/125 dated November 30, 2017.
118 Master Circular for Mutual Funds as on March 31, 2023
shall be eligible for re-appointment after a cooling-off period of 3
years. During the cooling-off period, such individuals should not
be associated with the concerned MF, AMC & its subsidiaries and
/ or sponsor of AMC in any manner whatsoever.
6.4.1.3 Existing independent trustees and independent directors shall
hold office for a maximum of 10 years (including all preceding
years for which such individual has held office). In this respect,
the following may be noted:
a. Individuals who have held office for less than 9 years (as on
November 30, 2017) may continue for the residual period of
service.
b. Individuals who have held office for 9 years or more (as on
November 30, 2017) to continue in their respective position
for a maximum of 2 additional years.212
c. Such individuals shall subsequently be eligible for re-
appointment after a cooling-off period of 3 years, in terms of
Paragraph 6.4.1.1 and Paragraph 6.4.1.2 above.
6.5 Auditors of Mutual Funds213:
6.5.1 The auditor of a mutual fund, appointed in terms of Regulation 55
(1) of MF Regulations shall be a firm, including a limited liability
partnership, constituted under the LLP Act, 2008214.
6.5.2 Period of appointment: With respect to appointment of auditors in
terms of Regulation 55 (1) of SEBI (MFs) Regulation, 1996, it has been
decided that:
6.5.2.1 No MF shall appoint an auditor for more than 2 terms of
maximum five consecutive years. Such auditor may be re-
appointed after cooling off period of 5 years.
212 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/19 dated February 07, 2018.
213 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/125 dated November 30, 2017.
214 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
119 Master Circular for Mutual Funds as on March 31, 2023
6.5.2.2 Further, during the cooling-off period of five years, the incoming
auditor may not include:
a. Any firm that has common partner(s) with the outgoing audit
firm
b. Any associate215 firm(s) of the outgoing audit firm which
are under the same network of audit firms wherein the
term “same network” includes the firms operating or
functioning, hitherto or in future, under the same brand
name, trade name or common control.
6.5.2.3 Existing auditors may be appointed for a maximum of 10 years
(including all preceding years for which an auditor has been
appointed in terms of Regulation 55 (1) of SEBI (Mutual Funds)
Regulation, 1996). In this respect, the following may be noted:
a. Auditors who have conducted audit of the Mutual Fund for
less than 9 years (as on November 30, 2017) may continue for
the residual period of service.
b. Auditors who have conducted audit of the Mutual Fund
for 9 years or more (as on November 30, 2017) may continue
till the end of F.Y. 2018-19216.
c. Such auditors shall subsequently be eligible for re-
appointment after a cooling-off period of 5 years, in terms of
Paragraph 6.5.2.1 and Paragraph 6.5.2.2.
6.6 Investment and/or for / Trading in Securities by the employees of
the AMC(s) and Trustee(s)217
The guidelines enumerated below specify the minimum requirements
that have to be followed. The AMC(s) and Trustees are free to set more
215 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
216 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/19 dated February 07, 2018.
217 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/654 dated October 28, 2021
modified provisions of SEBI Circular No. MFD/CIR No.4/216/2001 dated May 8, 2001, SEBI
Cir MFD/CIR/05/432/2002 June 20, 2002, SEBI Circular No. SEBI/IMD/CIR
No.7/13391/03 dated July 11, 2003, SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/
2009 dated December 15,2009, SEBI/IMD/DF/10/2014 dated May 22, 2014, SEBI Circular
120 Master Circular for Mutual Funds as on March 31, 2023
stringent norms for investment and/or trading in securities by their
employees. 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 Board218.
6.6.1 Guidelines for Investment and/or Trading in Securities by Employees
of AMC(s) and Trustees:
6.6.1.1 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:
i. In the name of employees, either individually or jointly,
ii. In the name of the employees’ spouse,
iii. As a member of HUF,
iv. In the name of parent, sibling or child of the employee or
of the spouse of such employee, any of whom is either
dependent financially on such employee or spouse of
employee, or consults such employee or spouse of
employee in taking decisions relating to trading in
securities.
No. SEBI/HO/IMD/DF2/CIR/P/2016/124 dated November 17, 2016 and SEBI Circular No.
SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021. SEBI Circular No.
SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/654 dated October 28, 2021
218 Regulation 25(9) of SEBI (Mutual Funds) Regulations, 1996
121 Master Circular for Mutual Funds as on March 31, 2023
6.6.1.2 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. To ensure that the employees of AMC(s), Board members of
AMC(s) and Board members of Trustees, including Access
Persons shall not take undue advantage of any sensitive
information that they may have about any company or its
securities or about the AMC’s schemes or its units.
Explanation: 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),
Executive Directors, Chief Investment Officer, Chief Risk
Officer, Chief Operation Officer, Chief Information Security
Officer, 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.
Non-Executive Directors of the AMC/trustee company or
trustees who are in possession of / have access to any non-
public information which could materially impact the price of
the securities, NAV of the schemes or interest of the
unitholders shall also be deemed as Access Persons
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.
122 Master Circular for Mutual Funds as on March 31, 2023
6.6.2 General
6.6.2.1 Investments Covered:
a. These Guidelines cover transactions for purchase or sale of any
securities such as shares, debentures, bonds, warrants,
derivatives and units of schemes floated by Mutual Funds /
AMCs where the concerned persons (in terms of the
applicability stated at 6.6.1.1.a above) are employed.
b. These Guidelines do not apply to the following investments by
the employees:
1. Investments in fixed deposits with banks/financial
institutions/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.,
where there is no likely conflict between the Mutual
Fund’s interest and the employees’ interest.
3. Investments in government securities, overnight schemes
and schemes floated by other Mutual Funds.
6.6.2.2 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.
6.6.2.3 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
123 Master Circular for Mutual Funds as on March 31, 2023
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 7 trading days from
the date of approval.
e. If a transaction approved by Compliance Officer has not
been effected within seven trading days from the date of
its approval, 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 transaction. 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.
124 Master Circular for Mutual Funds as on March 31, 2023
This clause shall not be applicable in case of investments
and redemptions made in Mutual Fund units as per the
provisions Paragraph 6.10 of this Master Circular.
6.6.3 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.
6.6.3.1 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 may
participate in private placement of equity by any company
subject to there being no conflict with the interest of investors
of the mutual fund and disclosure of such investments to the
Compliance Officer immediately.
b. Notwithstanding anything stated in 6.6.3.1.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 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.
125 Master Circular for Mutual Funds as on March 31, 2023
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.
d. The employees of AMC and Trustees may avail discretionary
Portfolio Management Services (PMS) subject to compliance
with all applicable SEBI Regulations and circulars. AMCs and
Trustees shall adhere to the guidelines issued by AMFI in this
regard.
6.6.3.2 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.
126 Master Circular for Mutual Funds as on March 31, 2023
b. The Compliance Officer shall clear these requests if the
following conditions are met:
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 the 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.
3. However, trades executed pursuant to a trading plan
submitted by the employees in terms of SEBI (PIT)
Regulations, 2015, shall be exempt from the requirement
of a “cooling off” period, provided that such trading plan:
i. Is in compliance with the norms prescribed in SEBI
(PIT) Regulations, 2015.
ii. Is publicly disclosed on the website of the concerned
Mutual Fund
The Compliance Officer shall also properly monitor trades
of the MF scheme and that of the access person, as per
127 Master Circular for Mutual Funds as on March 31, 2023
the trading plan, in order to ensure that such trading plan
does not entail trading in securities for market abuse.
4. Provisions of the “cooling off” period may be relaxed for
Access Persons, subject to the following:
i. Such relaxation shall be given by Compliance Officer
for not more than 2 times in a financial year per Access
Person.
ii. Such relaxation shall be applicable only for sale of
securities.
iii. Such relaxation shall be applicable only for securities
held by the Access Person for not less than a period of
one year.
iv. Access Person may apply anytime during the financial
year for such relaxation to the Compliance Officer.
Compliance Officer shall decide on the said application
within 5 days of receipt of such application.
v. Access Person may sell the securities within 10 trading
days from the date of clearance by the Compliance
Officer.
vi. Roll over of unexecuted portion, if any, shall not be
allowed. However, a second request can be made
within the financial year as stated at (i) above.
vii. The Access Person shall ensure that from the time of
making an application under clause (iv) till the
conclusion of the sale of the concerned securities,
he/she is not in possession of / does not have access
to any non-public information which could materially
impact the price of the concerned securities.
Compliance Officer shall not grant clearance for such
transaction, where the Asset Management Company is
128 Master Circular for Mutual Funds as on March 31, 2023
in possession of / has access to any non-public
information which could materially impact the price of
the concerned securities.
viii. The Compliance Officer shall maintain all other
regulatory checks and obtain necessary undertakings
from the Access Person.
5. In case of pre-existing pledges / encumbered
arrangements (i.e., securities pledged prior to becoming
an Access Person), the provisions of “cooling off” period
shall not be applicable in the event of sale of securities
by lenders due to shortfall of margin, subject to the
following:
i. Access person shall, on the date of applicability of
these provisions or on the date of joining the AMC or
on the date of being designated as such, declare to the
Compliance Officer (i) details of all the pre-existing
pledges / encumbered arrangements in which the
securities held by him/her are pledged or encumbered
and (ii) details of ESOPs bought with borrowed funds,
along with the agreement with such lender.
ii. Any instances of sale of securities by lender shall be
promptly intimated to the Compliance Officer. The
Access Person shall ensure the following and submit a
self-declaration to the following effect:
a. that the Access Person has not engaged directly or
indirectly in front-running, self-dealing, trading
while in possession of non-public information
which could materially impact the price of the
concerned securities or any other prohibited
activities.
129 Master Circular for Mutual Funds as on March 31, 2023
b. that the sale by the lender was due to shortfall of
margin as per the terms of agreement with the
lender and he had not entered into any other
arrangement with the lender in this regard.
iii. Access Person shall also submit the margin notice
received for the said shortfall of margin to the
compliance officer.
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.
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
130 Master Circular for Mutual Funds as on March 31, 2023
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.
6.6.4 Investments in units of Mutual Fund Schemes
6.6.4.1 Access persons as well as other employees do not require prior
clearance of the Compliance Officer for purchase or sale of units
of Mutual Fund schemes. However, details of each such
transaction, excluding transactions in overnight schemes shall be
reported by them to the Compliance Officer within 7 calendar
days from the date of transaction.
This clause shall not be applicable in case of investments and
redemptions made in Mutual Fund units as per provisions of
Paragraph 6.10 of this Master Circular.
6.6.4.2 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.
6.6.4.3 Notwithstanding anything mentioned earlier, employees of
AMC(s), Board members of AMC(s) and Board members of
131 Master Circular for Mutual Funds as on March 31, 2023
Trustees, including Access Persons shall not purchase or sell or
repurchase or redeem units of any scheme, including overnight
scheme of their Mutual Fund, where any information available to
the Mutual Fund is not yet communicated to the unitholders and
which could materially impact the NAV or interest of unitholders,
including scenarios where there is a likelihood of:
a. a change in the investment objectives of the concerned
Mutual Fund Scheme(s);
b. a change in the accounting policy;
c. a material change in the valuation of any asset, or class
of assets;
d. conversion of a close ended scheme to an open-ended
scheme or an open-ended scheme to a close ended
scheme;
e. restrictions on redemptions, winding up of scheme(s);
f. creation of segregated portfolio;
g. material change in the liquidity position of the concerned
Mutual Fund Scheme(s);
h. default in the underlying securities which is material to
the concerned Mutual Fund Scheme(s) etc.
6.6.5 Periodic Disclosures
6.6.5.1 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:
132 Master Circular for Mutual Funds as on March 31, 2023
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.
6.6.5.2 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.
b. A statement of holding in securities as on March 31 within
30 calendar days from the end of every financial year
ending March 31.
c. A declaration shall also be included in the reporting form
on the lines of Paragraph 6.6.3.2.(f) and 6.6.3.2.(g)
regarding Front Running and Self-Dealing.
6.6.6 Review by the Board of Directors of AMC and the Trustee(s)
6.6.6.1 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
133 Master Circular for Mutual Funds as on March 31, 2023
shall report compliance and any violations and remedial action
taken by them in their reports submitted to the Board.
6.6.7 Applicability of Insider Trading Regulations
6.6.7.1 Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 2015 shall be followed strictly by the
Trustees, Asset Management Companies and their employees and
directors.
6.7 Responsibilities of AMC & Trustees219
6.7.1 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.
6.8 Resources for Trustees of Mutual Funds: 220
6.8.1 Trustees shall appoint a dedicated officer having professional
qualification and minimum 5 years of experience in finance and
financial services related field.
6.8.1.1 The officer so appointed shall be employee of Trustees and directly
report to Trustees.
6.8.1.2 The scope of the work of the said officer shall be specified by the
Trustee from time to time to support the role and responsibilities
219 MFD/CIR/09/014/2000 dated January 5, 2000
220 SEBI Cir. No. SEBI/HO/IMD/DF4/CIR/P/2020/151 dated August 10, 2020, SEBI
Circular no. SEBI/HO/IMD/DF4/CIR/P/2020/178 dated September 23, 2020.
<<
134 Master Circular for Mutual Funds as on March 31, 2023
of the Trustees. The officer shall accordingly assist the Trustees
and discharge the activities assigned to him.
6.8.1.3 The said officer shall be treated as access person in terms of
Paragraph 6.6.1.2.b of this Master Circular.
6.8.2 Further, Trustees shall have standing arrangements with
independent firms for special purpose audit and/or to seek legal
advice in case of any requirement as identified and whenever
considered necessary;
6.8.3 The expenditure incurred for the above shall be charged under the
clause 52(b)(iv) “fees and expenses of trustees” of SEBI (Mutual
Funds) Regulations, 1996.
6.8.4 Notwithstanding the above, the Trustees shall however continue to
be liable for discharge of various fiduciary responsibilities as cast
upon them in the SEBI (Mutual Funds) Regulations, 1996.
6.9 221 222Alignment of interest of Asset Management Companies
(AMCs) with the Unitholders of the Mutual Fund Schemes
6.9.1 In terms of sub-regulation 16(A) in Regulation 25 of SEBI (Mutual
Funds) Regulations,1996 (‘MF Regulations’), asset management
companies (‘AMCs’) are required to invest such amount in such
scheme(s) of the mutual fund, based on the risk associated with the
scheme.
6.9.2 Accordingly, based on the risk value assigned to the scheme(s), in
terms of Paragraph 17.4 of this Master Circular, AMCs shall invest
minimum amount as a percentage of assets under management
(‘AUM’) in their scheme(s) as provided below –
221 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2020/100 Dated June 12, 2020 –
provisions stand rescinded in terms of SEBI Circular SEBI/HO/IMD/IMD-
IDOF5/P/CIR/2021/624 dated September 2, 2021, Refer SEBI letter No.
SEBI/HO/IMD/DF5/OW/P/2021/24745/1 dated September 20, 2021
222 SEBI Circular SEBI/HO/IMD/IMD-IDOF5/P/CIR/2021/624 dated September 2, 2021.
135 Master Circular for Mutual Funds as on March 31, 2023
Risk Value Risk Level as Per Minimum percentage
Risk-O-Meter of AUM to be invested
in scheme
≤ 1 Low 0.03
> 1 to ≤ 2 Low to Moderate 0.05
> 2 to ≤ 3 Moderate 0.07
> 3 to ≤ 4 Moderately High 0.09
> 4 to ≤ 5 High 0.11
> 5 Very High 0.13
6.9.3 For the above purpose,
6.9.3.1 The risk value of the scheme as per the risk-o-meter of the
immediate preceding month shall be considered.
6.9.3.2 The investment shall be maintained at all points of time till the
completion of tenure of the scheme or till the scheme is wound up.
6.9.3.3 AMCs shall, except in case of close ended scheme(s), conduct a
quarterly review to ensure compliance with the requirement of
investment of minimum amount in the scheme(s) which may
change either due to change in value of the AUM or in the risk
value assigned to the scheme. Further, based on review of
quarterly average AUM, shortfall in value of the investment in
scheme(s), if any, shall be made good within 7 days of such review.
AMC shall have the option to withdraw any excess investment than
what is required pursuant to such review.
6.9.3.4 AMCs may invest from their net worth or the sponsor may fund the
AMC to fulfil the aforesaid obligations, if required. However, the
AMCs shall be required to make good the shortfall in the minimum
networth to comply with the requirement of the MF Regulations in
case of sustenance of temporary Mark to Market loss for two
consecutive quarters. AMC shall ensure that such temporariness
of the Mark to Market loss is certified by the statutory auditor.
136 Master Circular for Mutual Funds as on March 31, 2023
6.9.3.5 AMCs shall not be required to invest in ETFs, Index Funds,
Overnight Funds, Funds of Funds scheme(s) and in case of close
ended funds wherein the subscription period has closed as on date
of coming into force of MF Amendment Regulations.
6.9.4 The mandatory contribution already made by the AMCs in
compliance with the applicable MF Regulations shall not be
withdrawn. However, such contribution can be adjusted against the
investment required by the AMC as per Paragraph 6.9 of this Master
Circular.
6.9.5 The compliance of the Paragraph 6.9 of this Master Circular shall be
ensured by the AMCs and monitored by the Trustees. Any non-
compliance in this regard, shall be reported in the Quarterly CTR and
half-yearly Trustee Report.
6.9.6 Details of investment by AMCs in each of their mutual fund scheme(s)
shall be disclosed on the website of AMCs and AMFI.
6.10 223Alignment of interest of 224Designated Employees of Asset
Management Companies (AMCs) with the Unitholders of the Mutual
Fund Schemes:
6.10.1 In order to align the interest of the Designated Employees of the
AMCs with the unitholders of the mutual fund schemes, it has been
decided that, a part of compensation of the Designated employees of
the AMCs shall be mandatorily invested in units of the scheme(s), as
under:
223 SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/553 Dated April 28, 2021,
Refer SEBI Letter No. SEBI/HO/IMD/DF5/OW/P/2021/24745/1 dated September 20,
2021, Refer SEBI letter No. SEBI/HO/IMD/DF5/OW/P/2021/30715/1 dated October 29,
2021
224 SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/629 Dated September 20,
2021 read with SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/582 dated
June 25, 2021.
137 Master Circular for Mutual Funds as on March 31, 2023
6.10.1.1 A minimum of 20% of the salary/ perks/ bonus/ non-cash
compensation (gross annual CTC) net of income tax and any
statutory contributions (i.e. PF and NPS) of the Designated
Employees of the AMCs shall be mandatorily invested in units of
Mutual Fund schemes in which they have a role/oversight.
However, for junior employees, the above provision shall be
implemented in phased manner, i.e. 10% during October 01,
2021 to September 30, 2022 and 15% during October 01, 2022
to September 30, 2023. Thus from October 01, 2023 all junior
employees shall mandatorily invest 20% while other designated
employees shall comply with the provision from October 01, 2021.
The phased implementation for junior employees shall cease to
apply from the date such employee attains the age of 35 years.
For this purpose, a designated employee of the AMC below the
age of 35 years (excluding CEO, head of any department and
Fund Managers), shall be deemed as “junior employee”.
6.10.1.2 The contribution of the Designated Employees in close ended
schemes launched on or after October 1, 2021 shall be made in
the units of any open ended schemes having (a) risk value
equivalent to or higher than and (b) underlying portfolio of similar
nature as, the mandated close ended schemes.
6.10.1.3 Similarly, for interval schemes, schemes having restrictions on
individual investments or lump-sum investments or having
temporary suspensions on subscription or solution oriented
schemes (retirement fund, children’s fund etc.) or schemes having
lock-in period of more than 3 years, investments required under
the relevant provisions of Paragraph 6.10 above shall be made in
the units of any open ended schemes having (a) risk value
equivalent to or higher than and (b) underlying portfolio of similar
nature as, the aforesaid schemes
138 Master Circular for Mutual Funds as on March 31, 2023
6.10.1.4 The compensation mandatorily invested in units, as mentioned
above, shall be:
a. proportionate to the AUM of the schemes in which the
Designated Employee has a role/oversight. For this purpose,
Exchange Traded Funds (ETFs), Index Funds, Overnight Funds
and existing (i.e. as on September 30, 2021) close ended
schemes shall be excluded.
b. paid proportionately over 12 months on the date of payment
of such salary/ perks/ bonus/ non-cash compensation. In all
cases of deferred compensation including Employee Stock
Options, the AMC shall decide whether the deduction of 20%
of such deferred compensation (perquisite value less taxes),
should be on the date of grant or exercise. However, the policy
should be same for all Designated Employees of the AMC, in a
given financial year.
c. locked-in for a minimum period of 3 years or tenure of the
scheme whichever is less.
d. invested in ‘Growth option’ of the mutual fund schemes. For
schemes where growth option is not available, the investment
shall be made in the ‘Reinvestment of Income Distribution cum
capital withdrawal option’. For schemes where both the above
options are not available, investment shall be made in the
‘Payout of Income Distribution cum capital withdrawal option’
6.10.1.5 Further, with a view to allow the Designated Employees to
diversify their unit holdings, in case of dedicated fund managers
managing only a single scheme / single category of schemes, 50%
of the aforementioned compensation shall be by way of units of
the scheme/category managed by the fund manager and the
remaining 50% can, if they so desire, be by way of units of those
schemes whose (a) risk value as per the risk-o-meter is equivalent
139 Master Circular for Mutual Funds as on March 31, 2023
or higher than and (b) whose underlying portfolio is of similar
nature as, the scheme managed by the fund manager. This is also
applicable to dedicated fund managers of overseas funds.
6.10.1.6 Investment in units of the scheme, shall be made on the day of
payment of salary.
6.10.1.7 The previous month’s closing AUM shall be taken for apportioning
the investment across eligible schemes.
6.10.1.8 All non-cash benefits and perks shall be accounted for in CTC at
the perquisite value as per the Form 16 under Income Tax Act,
1961. However, superannuation benefits and Gratuity paid at the
time of death/retirement, shall not be included in the CTC.225
6.10.1.9 The perquisite value of interest on loan availed by the Designated
Employees against the units from the AMC as specified in
Paragraph 6.10.2.1 of this Master Circular shall not be included
in the CTC.
6.10.1.10 Any unconditional compensation in any form which was granted
before April 28, 2021, but is unpaid as on April 28, 2021 shall
not be included in the CTC.
6.10.1.11 Designated Employees may set off their existing investments as
on July 01, 2021, if any, against the fresh investments as
required in the same schemes.
6.10.1.12 Designated Employees may set off their units, for which the
required lock-in period of 3 years is expired, against the fresh
investments required to be made in the same schemes as per
Paragraph 6.10 of this Master Circular. In such cases, AMC
shall ensure that such units are locked in for the further period
of 3 years or tenure of the scheme, whichever is less.
225 Refer SEBI Letter No. SEBI/HO/IMD/DF5/OW/ P/2021/ 30715/1 dated October 29,
2021
140 Master Circular for Mutual Funds as on March 31, 2023
6.10.2 Redemption of units:
6.10.2.1 No redemptions of the said units shall be allowed during the
lock-in period. However, AMC may decide to have a provision of
borrowing from the AMC by Designated Employees against such
units in exigencies such as medical emergencies or on
humanitarian grounds, as per the policy laid down by the AMC.
6.10.2.2 No redemption of such units shall be allowed within the lock-in
period in case of resignation or retirement before attaining the
age of superannuation as defined in the AMC service rules.
However, in case of retirement on attaining the superannuation
age, such units shall be released from the lock-in and the
Designated Employee shall be free to redeem the units, except
for the units in close ended schemes where the units shall
remain locked in till the tenure of the scheme is over.
6.10.2.3 Liquid Schemes: Units of Designated Employee invested in
terms of the above would get automatically redeemed on expiry
of the mandatory lock-in period.
6.10.2.4 Open Ended Schemes: After the expiry of the mandatory lock-in
period, designated employee can redeem their units in open
ended schemes twice in a financial year, with the prior approval
of the Compliance Officer by following the procedure prescribed
below:
a. Any time after the expiry of the mandatory lock-in period,
the designated employee may make application to the
Compliance Officer for redemption of the units. The
Compliance Officer shall decide on the said application
within 5 days of receipt of such application;
141 Master Circular for Mutual Funds as on March 31, 2023
b. If approved, the designated employee may submit request for
redemption of such units within 10 trading days from the
date of grant of such approval;
c. The unexecuted portion, if any, shall not be rolled over on
the expiry of the period mentioned at (b) above. However, a
second application can be made within the year as stated
above. The Compliance Officer shall maintain all other
regulatory checks and obtain necessary confirmation from
the concerned designated employee;
d. Where the concerned Designated Employee is in possession
of any material information, which is not yet communicated
to investors and which could materially impact the NAV /
interest of unitholders, such Designated Employee shall not
make application for redemption or submit redemption
request during such period; and
e. Where the Asset Management Company is in possession of
any material information, which is not yet communicated to
investors and which could materially impact the NAV /
interest of unitholders, Compliance Officer shall not grant
approval for such application.
6.10.2.5 In case of request for redemptions made by the Compliance
Officer, the competent person to approve the same shall be
“Chief Executive Officer”.
6.10.3 In the Fund of Funds schemes, only Fund Managers of such schemes
shall be required to invest.
6.10.4 Fund of Funds schemes investing only in a single ETF shall also be
covered in the exclusions mentioned in the paragraph 6.10.1.4 (a) of
this Master Circular.
142 Master Circular for Mutual Funds as on March 31, 2023
6.10.5 Units, allotted in terms of the Paragraph 6.10 of this Master Circular,
shall be released from the mandatory lock-in period in case of death
of the Designated Employee.
6.10.6 AMC shall ensure that necessary audit trail is maintained to verify
compliance with the provisions of Paragraph 6.10 of this Master
Circular.
6.10.7 Clawback:
6.10.7.1 Units allotted to the Designated Employees shall be subject to
clawback in the event of violation of Code of Conduct, fraud,
gross negligence by them, as determined by SEBI. Upon
clawback, the units shall be redeemed and amount shall be
credited to the scheme.
6.10.8 Oversight:
6.10.8.1 The compliance with Paragraph 6.10 of this Master Circular
shall be ensured by the AMCs and monitored by the Trustees.
Any non-compliance in this regard, shall be reported in the
quarterly CTR and half yearly trustee report.
6.10.8.2 For the purpose of Paragraphs 6.10.1.2, 6.10.1.3 and 6.10.1.5,
the risk value based on the risk-o-meter of the immediate
preceding month shall be considered. Further, AMCs and
Trustees shall have a policy in place to ensure that such open
ended schemes are similar to the mandated scheme in terms of
the nature of the underlying portfolio
6.10.8.3 Every scheme shall disclose the ‘compensation, in aggregate,
mandatorily invested in units to the Designated Employees’,
under the provisions of this Master Circular, on the website of
the AMC. The disclosure shall be at monthly aggregate level
showing the total investment across all relevant employees in
that specific scheme.
143 Master Circular for Mutual Funds as on March 31, 2023
6.10.9 Designated employees
Designated Employees of the AMCs shall include:
6.10.9.1 Chief Executive Officer (CEO), Chief Investment Officer (CIO),
Chief Risk Officer (CRO), Chief Information Security Officer (CISO),
Chief Operation Officer (COO), Fund Manager(s), Compliance Officer,
Sales Head, Investor Relation Officer(s) (IRO), heads of other
departments, Dealer(s) of the AMC;
6.10.9.2 Direct reportees to the CEO (excluding Personal
Assistant/Secretary);
6.10.9.3 Fund Management Team and Research team;
6.10.9.4 Other employees as identified & included by AMCs and Trustees
6.10.10 These provisions shall not be applicable to Designated Employees
having role/ oversight only over ETFs, Index Funds, Fund of Funds
schemes investing only in a single ETF, Overnight Funds and
existing (i.e. as on September 30, 2021) close ended schemes.
144 Master Circular for Mutual Funds as on March 31, 2023
PART II -SCHEME GOVERNANCE
6.11 Minimum Number of investors226
6.11.1 Applicability for an open-ended scheme
6.11.1.1 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).
6.11.1.2 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.
6.11.1.3 In case the Scheme / Plan(s) does not have a minimum of 20
investors in the stipulated period, the provisions of Regulation227
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.
6.11.1.4 The average net assets of the scheme would be calculated daily
and any breach of the 25 % holding limit by an investor would be
determined. At the end of the quarter, the average of daily holding
by each such investor is computed to determine whether that
investor has breached the 25 % limit over the quarter. 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 %
226 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.
< 2 <, 27 Regulation 39(2)(c) of the SEBI (MF) Regulations, 1996
145 Master Circular for Mutual Funds as on March 31, 2023
limit within the aforesaid 15 days would lead to automatic
redemption by the Mutual Fund on the applicable Net Asset Value
on the 15th day of the notice period.
6.11.1.5 The two conditions mentioned above shall also be complied within
each subsequent calendar quarter thereafter, on an average
basis, as specified by SEBI.
6.11.1.6 The Fund shall adhere to the requirements prescribed by SEBI
from time to time in this regard.
6.11.2 Applicability for a Close ended scheme/Interval scheme
6.11.2.1 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).
6.11.2.2 These conditions will be complied with immediately after the close
of the NFO itself i.e. at the time of allotment.
6.11.2.3 In case of non-fulfillment with the condition of minimum 20
investors, the Scheme(s)/Plan(s) shall be wound up in accordance
with Regulation228 automatically without any reference from
SEBI.
6.11.2.4 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
exposure over 25% limits will lead to refund within 6 weeks of the
date of closure of the New Fund Offer.
228 Reg. 39 (2) (c) of SEBI (MF) Regulations, 1996
146 Master Circular for Mutual Funds as on March 31, 2023
6.11.2.5 For interval scheme the aforesaid provision will be applicable at
the end of NFO and specified transaction period.
6.11.2.6 Requisite disclosure in this regard shall be made in the SID.
6.11.3 Determination of breach:
6.11.3.1 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.
6.11.3.2 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.
6.11.4 Applicability
6.11.4.1 These Guidelines are applicable at the Portfolio level.
6.11.4.2 These Guidelines are not applicable to Exchange Traded Funds
(ETFs).
6.11.5 Redemptions
6.11.5.1 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).
6.11.6 Reporting to the Board
6.11.6.1 Compliance with these Guidelines shall be reported in
Compliance Test Reports (CTRs) and Half Yearly Trustee Reports
(HYTRs).
147 Master Circular for Mutual Funds as on March 31, 2023
6.12 Minimum Assets under Management (AUM) of Debt Oriented
Schemes 229
6.12.1 It has been observed that many debt oriented schemes are operating
with a very low AUM. In the interest of investors, it is important
that debt oriented schemes have an adequate corpus to ensure
adherence to the investment objectives as stated in Scheme
Information Document and compliance with investment restrictions
specified under SEBI (Mutual Funds) Regulations, 1996.
6.12.2 In this regard, it has been decided that:
6.12.2.1 The minimum subscription amount of debt oriented and balanced
schemes at the time of new fund offer shall be at least 20 crore
and that of other schemes shall be at least 10 crore, except for
following:
i. Minimum subscription amount at the time of New Fund Offer
(NFO) for Debt ETFs/ Index Funds and other ETFs/ Index
Funds shall be INR 10 Cr. and INR 5 Cr. respectively.230
6.12.2.2 An average AUM of 20 crore on half yearly rolling basis shall be
maintained for open ended debt oriented schemes.
6.12.2.3 The confirmation on compliance of the above shall be reported to
SEBI in the Half Yearly Trustee Reports.
6.12.2.4 Alternative to launch of NFO for ETFs, the AMC may contribute
the initial fund for unit creation. Subsequently, the AMC can
transfer the units of such ETFs to Market Makers or other
investors, subject to compliance with all applicable provisions for
launch of ETFs. 231
229 SEBI Circular No. Cir/IMD/DF/15/2014 dated June 20, 2014
230 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022
231 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022
148 Master Circular for Mutual Funds as on March 31, 2023
6.13 Scheme Performance Review
6.13.1 AMCs and Trustees shall review the performance of their schemes
on periodic basis232. 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 quarterly233 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).
6.14 Benchmarking of Scheme's performance to Total Return Index234
6.14.1 Total Return variant of an Index (TRI) takes into account all
dividends/ interest payments that are generated from the basket of
constituents that make up the index in addition to the capital gains.
Hence, TRI is more appropriate as a benchmark to compare the
performance of mutual fund schemes.
6.14.2 With an objective to enable the investors to compare the
performance of a scheme vis-a-vis an appropriate benchmark, it has
been decided that -
6.14.2.1 Selection of a benchmark for the scheme of a mutual fund shall
be in alignment with the investment objective, asset allocation
pattern and investment strategy of the scheme.
232 SEBI Circular No. dated July 27, 2000 & SEBI Cir 16/400/02 dated March 26, 2002.
233 SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2018/04 dated January 04, 2018. Also refer
Paragraph 1.9 of this Master Circular
234 SEBI circular no. HO/IMD/IMD-I DOF2/P/CIR/2021/550 dated April 12, 2021
149 Master Circular for Mutual Funds as on March 31, 2023
6.14.2.2 The performance of the schemes of a mutual fund shall be
benchmarked to the Total Return variant of the Index chosen as
a benchmark as stated in paragraph 6.14.2.1 above.
6.14.2.3 (i) Mutual funds shall use a composite CAGR figure of the
performance of the PRI benchmark (till the date from which TRI
is available) and the TRI (subsequently) to compare the
performance of their scheme in case TRI is not available for that
particular period(s).
(ii) The calculation of composite CAGR is elaborated with an
example in the following paragraph.
For instance, ABC scheme had been launched on August 2, 1995. The
benchmark PRI values are available from the date of inception of the fund.
The benchmark TRI values are available from June 30, 1999. The calculation
of a composite benchmark performance return in CAGR terms would be as
given below:
150 Master Circular for Mutual Funds as on March 31, 2023
1
(Time period from
the last day of the
month preceding
the date of
advertisement –
date of inception
of the scheme)
Benchmark PRI value as Benchmark TRI value as on last -1
on date of introduction of day of the month preceding the
TRI value . X date of advertisement
Benchmark PRI value as Benchmark TRI value as on date
on date of inception of the of introduction of TRI value
scheme
The aforesaid is explained with an example:
Example: Consolidated Benchmark CAGR (PRI and TRI)
Date Benchmark PRI values Benchmark TRI values
02/08/1995 1007.57
30/06/1999 1187.70 1256.38
30/11/2017 10226.55 13966.58
CAGR 12.20%
Thus, in the above example (for advertisements in the month of December,
2017 the last of the preceding month would be November 30, 2017),
CAGR= [(1187.70/1007.57)*(13966.58/1256.38) ^ (1/22.3452)]-1
[1 year= 365
days]
CAGR= 12.20%
(iii) Mutual funds shall use the composite CAGR as explained
above, subject to making the following disclosure:
*As TRI data is not available since inception of the scheme,
benchmark performance is calculated using composite CAGR of XYZ
(name of the benchmark index) PRI values from date.... to date... and
TRI values since date...."
151 Master Circular for Mutual Funds as on March 31, 2023
PART III -SYSTEMS AUDIT FRAMEWORK FOR MUTUAL FUNDS /
AMCs235
6.15 Systems audit framework for Mutual Funds/ AMCs
6.15.1 Considering the importance of systems audit in technology driven
asset management activity and to enhance and standardize the
systems audit, guidelines in this regard are placed at Annexure 8.
These guidelines are indicative and not exhaustive in nature.
6.15.2 The aforementioned audit should be 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.
6.15.3 Mutual Funds / AMCs are advised to conduct systems audit on an
annual basis by an independent CISA / CISM qualified or equivalent
auditor to check compliance of provisions of Paragraph 6.15 of this
Master Circular.
6.15.4 Mutual Funds / AMCs are further advised to take necessary steps
to put in place systems for implementation of these provisions. The
exception report as per the format236 provided should be placed
before the Technology Committee for review. The Technology
Committee after review shall place the same before the AMC &
Trustee Board. Thereafter, exception observation report along with
trustee comments starting from the financial year April 2019 –
March 2020 should be communicated to SEBI within six months of
235 SEBI Circular No SEBI/HO/IMD/DF2/CIR/P/2019/57dated April 11, 2019
236 For format, please refer to format no. 10 under the section on formats
152 Master Circular for Mutual Funds as on March 31, 2023
the respective financial year. Further, System Audit Reports shall
be made available for inspection.
153 Master Circular for Mutual Funds as on March 31, 2023
PART IV – ROLE OF MUTUAL FUNDS IN CORPORATE GOVERNANCE OF
PUBLIC LISTED COMPANIES237
6.16 Role of Mutual Funds in Corporate Governance of Public Listed
Companies:
6.16.1 MFs should play an active role in ensuring better corporate
governance of listed companies.
6.16.2 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 2010-11238.
6.16.3 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.
 Corporate governance matters, including changes in the state
of incorporation, merger and other corporate restructuring,
and anti-takeover provisions
 Changes to capital structure, including increases and
decreases of capital and preferred stock issuances.
 Stock option plans and other management compensation
issues;
 Social and corporate responsibility issues.
 Appointment and Removal of Directors.
237 SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010, Refer
SEBI Letter No. SEBI/HO/IMD-II/IMD-II_DOF11/P/OW/2022/52316/1 dated October 14,
2022
238 Refer SEBI emails dated June 23, 2011
154 Master Circular for Mutual Funds as on March 31, 2023
 Any other issue that may affect the interest of the shareholders
in general and interest of the unit-holders in particular.
6.16.4 AMCs shall be required to record and disclose specific rationale
supporting their voting decision (for, against or abstain) with
respect to each vote proposal239.
6.16.5 AMCs shall additionally be required to publish summary of the votes
cast across all its investee company and its break-up in terms of
total number of votes cast in favor, against or abstained from.
6.16.6 240AMCs shall be required to make disclosure of votes cast on their
website (in machine readable spreadsheet format) on a quarterly
basis, within 10 working days from the end of the quarter as per the
format enclosed241. A detailed report in this regard along with
summary thereof shall also be disclosed on their website. The format
for disclosure of vote cast by Mutual Funds in respect of resolutions
passed in general meetings of the investee companies and the
format for presenting summary of votes cast by Mutual Funds is as
per format enclosed242. Further, AMCs shall provide the web link in
their annual reports regarding the disclosure of voting details.
6.16.7 Further, on an annual basis, AMCs shall be required to obtain
certification on the voting reports being disclosed by them. Such
certification shall be obtained from a “scrutinizer” in terms of Rule
20 (3) (ix) of Companies (Management and Administration) Rules,
2014 and any future amendment/s to the said Rules thereof. The
same shall be submitted to the trustees and also disclosed in the
relevant portion of the Mutual Funds' annual report & website. 243
239 SEBI Circular No. CIR/IMD/DF/05/2014 dated March 24, 2014
240 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2021/024 dated March 04, 2021
241 Refer format no. 7.C under the section on Formats.
242 Refer format no. 7.C under the section on Formats.
243 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/68 dated August 10, 2016
155 Master Circular for Mutual Funds as on March 31, 2023
6.16.8 Board of AMCs and Trustees of Mutual Funds shall be required to
review and ensure that AMCs have voted on important decisions
that may affect the interest of investors and the rationale recorded
for vote decision is prudent and adequate. The confirmation to the
same, along with any adverse comments made by auditors, shall
have to be reported to SEBI in the half yearly trustee reports.
6.16.9 The format244 for disclosure of voting by mutual funds in general
meetings of listed companies is provided.
6.16.10 245Mutual Funds including their passive investment schemes like
Index Funds, Exchange Traded Funds etc. shall be required to cast
votes compulsorily in respect of the following resolutions with effect
from April 1, 2021:
i. Matters mentioned at Paragraph 6.16.3 of this Master Circular
i.e.:
a) Corporate governance matters, including changes in the state
of incorporation. merger and other corporate restructuring,
and anti-takeover provisions.
b) Changes to capital structure, including increases and
decreases of capital and preferred stock issuances.
c) Stock option plans and other management compensation
issues.
d) Social and corporate responsibility issues.
e) Appointment and Removal of Directors.
f) Any other issue that may affect the interest of the
shareholders in general and interest of the unit-holders in
particular.
ii. Related party transactions of the investee companies (excluding
own group companies). For this purpose, “Related Party
244 For disclosure of voting by mutual funds in general meetings of listed companies, please
refer to the section on formats
245 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2021/29 dated March 05, 2021
156 Master Circular for Mutual Funds as on March 31, 2023
Transactions” shall have same meaning as assigned to them in
clause (zc) of Sub-Regulation (1) of Regulation (2) of the SEBI
(Listing Obligation and Disclosure Requirements) Regulations,
2015.
6.16.11 Further, for all remaining resolutions which are not covered above,
Mutual Funds shall also compulsorily be required to cast their votes
with effect from April 01, 2022.
6.16.12 In case of the Mutual Funds having no economic interest on the day
of voting, it may be exempted from compulsorily casting of votes.
6.16.13 The vote shall be cast at Mutual Fund Level. However, in case Fund
Manager/(s) of any specific scheme has strong view against the
views of Fund Manager/(s) of the other schemes, the voting at
scheme level shall be allowed subject to recording of detailed
rationale for the same.
6.16.14 Fund Managers/Decision makers shall submit a declaration on
quarterly basis to the Trustees that the votes cast by them have not
been influenced by any factor other than the best interest of the unit
holders. Further, Trustees in their Half Yearly Trustee Report to
SEBI, shall confirm the same.
6.16.15 All Mutual Funds shall mandatorily follow the Stewardship Code as
placed at Annexure 10, in relation to their investment in listed
equities. 246
246 SEBI Circular No. CIR/CFD/CMD1/ 168 /2019 dated December 24, 2019 and SEBI
Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/55 dated March 30, 2020.
157 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 7: SECONDARY MARKET ISSUES
7.1 Non Applicability of Listing Deposit247
7.1.1 The requirement of collecting listing deposit as specified under
Circular No. SE/2936 dated April 6, 1992 shall not be applicable to
Mutual Funds in respect of the schemes floated by them for public
subscription which are sought to be listed on the stock exchanges.
7.2 Listing of Mutual Fund Schemes under process of winding up248:
7.2.1 As per MF Regulations, there are several steps envisaged with respect
to winding up of Mutual Fund schemes before the scheme ceases to
exist. During this process, such units can be listed and traded on a
recognized stock exchange, which may provide an exit to investors;
7.2.2 The units of Mutual Fund schemes which are in the process of
winding-up in terms of Regulation 39(2)(a) of MF Regulations, shall
be listed on recognized stock exchange, subject to compliance with
listing formalities as stipulated by the stock exchange;
7.2.3 Trading on stock exchange mechanism will not be mandatory for
investors, rather, if they so desire, may avail an optional channel to
exit provided to them.
7.2.4 Initially, trading in units of such a listed scheme that is under the
process of winding up, shall be in dematerialised form;
7.2.5 AMCs shall enable transfer of such units which are held in form of
Statement of Account (SoA) / unit certificates.
7.2.6 The AMC, its sponsor, employees of AMC and Trustee shall not be
permitted to transact (buy or sell) in the units of such schemes that
247 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.
< 2 48 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2020/086 dated May 20, 2020
158 Master Circular for Mutual Funds as on March 31, 2023
are under the process of being wound up. The compliance of the same
shall be monitored both by the Board of AMC and Trustee.
7.2.7 Detailed operational modalities for trading and settlement of units of
MF schemes that are under the process of winding up, shall be
finalized by the stock exchanges where units of such schemes are
being listed, in consultation with SEBI. The operational modalities
shall include the following:
a) Mechanism for order placement, execution, payment and
settlement;
b) Enabling bulk orders to be placed for trading in units;
c) Issue related to suspension of trading, declaration of date for
determining the eligibility of unitholders etc. in respect of
payments to be made by the AMC as part of the winding up
process;
d) Disclosures to be made by AMCs including disclosure of NAV
on daily basis and scheme portfolio periodically etc.
7.2.8 The stock exchange shall develop a mechanism along with RTA for
trading and settlement of such units held in the form of SoA/ Unit
Certificate.
7.3 Payment of Margins249
7.3.1 The applicable margins shall be paid as per the guidelines issued by
SEBI and as directed by stock exchanges from time to time.
249 SEBI Circular No. MFD/CIR/9/230/2001 dated August 14, 2001
159 Master Circular for Mutual Funds as on March 31, 2023
7.4 Unique Client Codes250
7.4.1 Mutual Funds are not permitted to operate in the securities market
without furnishing a valid Unique Client Code (UCC).251 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 launched252. Such UCC should be obtained before
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.253 The UCC can be shared with
the unit holders to facilitate tax benefits linked to payment of
Securities Transaction Tax (STT).
7.5 Trading in Exchange Traded Derivatives Contracts254
7.5.1 For trading in Exchange Traded Derivatives Contracts, following
should be observed:
7.5.1.1 Mutual Fund schemes can participate in derivatives market as per
the guidelines issued by SEBI in this regard from time to time.
7.5.1.2 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
250 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
251 SEB I Circular No. SMDRP/Policy/Cir-39/2001 dated July 18, 2001.
252 SEBI Circular No. SEBI/IMD/CIR No.01/1756/04 dated January 27, 2004.
253 SEBI Circular No. MRD/DoP/SE/Cir-35/2004 dated October 26, 2004.
254 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.
160 Master Circular for Mutual Funds as on March 31, 2023
schemes of Mutual Funds will be treated as clients like sub-
accounts of FIIs255.
7.5.1.3 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.
7.5.1.4 The combined futures and options position limit of Mutual
Funds for stock derivatives contracts shall be 20% of the
applicable Market Wide Position Limit (MWPL). 256
7.5.1.5 Existing schemes of Mutual Funds, whose SIDs do not envisage
investments in derivatives, may participate in derivatives market
subject to the following conditions257:
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) Prior to commencing participation in derivatives, the scheme
shall comply with the provisions of Regulation 18 (15A) of
SEBI (Mutual Funds) Regulations, 1996 and all unit holders
shall be given at least 30 days to exercise option to exit at
prevailing NAV without charging of exit load.
7.5.1.6 Positions limits as specified by SEBI for Mutual Funds and its
schemes from time to time shall be applicable258.
255 SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005.
256 SEBI Circular No. SEBI/HO/MRD/DP/CIR/P/2016/143 dated December 27, 2016.
257 Please refer SEBI Circular No SEBI/HO/IMD/DF2/CIR/P/2017/13 dated February 20,
2017 ‘Participation in derivatives market by Mutual Funds.’
258 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.
161 Master Circular for Mutual Funds as on March 31, 2023
7.6 Trading in Interest Rate Derivatives259
7.6.1 Mutual Fund schemes are permitted to undertake transactions in
Forward Rate Agreements and Interest Rate Swaps with banks, PDs
& FIs as per applicable RBI Guidelines260, mutual funds can also
trade in interest rate derivatives through the Stock Exchanges
subject to requisite disclosures in the SID261.
7.6.2 The following position limits262 in IRF shall be applicable for Mutual
Fund level and scheme level:
a. Mutual Funds shall have position limits as applicable to trading
members presently.
b. Schemes of Mutual Funds shall have position limits as applicable
to clients presently.
7.7 Transactions of mutual funds in Government Securities in
dematerialised form263
7.7.1 According to Regulation264, the Mutual Funds having an aggregate of
securities worth Rs.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.
259 SEBI Circular No. SEBI/MFD/CIR No.03/158/03 dated June 10, 2003.
260 RBI Circular dated November 1, 1999.
261 SEBI Circular No. SEBI/MFD/CIR No.03/158/03 dated June 10, 2003.
262 SEBI Circular No. CIR/MRD/DRMNP/26/2014 dated September 15, 2014
263 SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002
264 Regulation 44(1A) of SEBI (Mutual Funds) Regulations, 1996
162 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 8: NET ASSET VALUE265
8.1 Disclosure of Net Asset Value266
8.1.1 Mutual Funds/ AMCs shall prominently disclose the NAVs of all
schemes under a separate head on their respective website and on
the website of Association of Mutual Funds in India (AMFI). Further,
Mutual Funds/ AMCs shall extend facility of sending latest available
NAVs to unit holders through SMS, upon receiving a specific request
in this regard.
8.1.2 NAV of all Mutual Fund schemes except for Fund of Fund Schemes
shall be updated on AMFI’s website and the Mutual Funds’ websites
by 11:00 p.m. of the same day267.
8.1.3 Fund of Fund Schemes shall have an extended time up to 10 a.m.
the following business day in this regard268.
8.1.4 Delay beyond 10 a.m. of the following business day in case of Fund
of Fund schemes and 11:00 p.m. on the same day for all other
schemes shall be explained in writing to AMFI. Mutual Funds shall
report in the quarterly Compliance Test Reports (CTRs)269 the
number of days when mutual funds were not able to adhere to the
above mentioned time limit for uploading their NAVs on the AMFI
website with reasons thereof and the corrective action taken by the
AMC to reduce the number of such occurrences270.
265 Regulation 48 of SEBI (Mutual Funds) Regulations, 1996
266 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 and SEBI/HO/IMD/DF2/CIR/P/2018/92 dated June 05, 2018
< 2 67 SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006 and SEBI
Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019.
268 SEBI Circular No. SEBI/IMD/CIR No.5/96576/2007 dated June 25, 2007.
269 For format of CTR, please refer to format no. 2.B. under the section on formats
, 2 ,, 70 SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.
,,
163 Master Circular for Mutual Funds as on March 31, 2023
8.1.5 271 Mutual Funds/ AMCs shall explain the methodology of calculating
the sale and repurchase price of unit with the help of a simple
numerical example at all relevant places such as on their respective
website, AMFI website and Scheme Information Documents, etc.
8.1.6 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 NAVs272.
8.2 Review of time limit for disclosure of NAV of Mutual Fund schemes
investing overseas273
8.2.1 To address the difficulties being faced in calculation of NAV for
schemes investing overseas due to differences in time zones and
market hours, partial modification with regard to timelines for
declaration of NAV is prescribed depending on investment objective
and asset allocation of schemes, which is tabulated below:
(Timelines in Business days)
SR Existing New
Scheme type
timeline timeline
All schemes other than
1 11 PM on T day
those mentioned below
For schemes having
2 9 AM on T+1 day
exposure to ETCDs
Fund of Funds (FoFs)
3 10 AM on T+1 day
schemes
Schemes investing atleast
80% of total assets in
4
permissible overseas 10 AM on
11 PM on T day
investments T+1 day
Index funds and ETFs
5
investing atleast 80% of
271 SEBI/HO/IMD/DF2/CIR/P/2018/92 dated June 05, 2018
272 SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.
, 2 73 SEBI Circular No. SEBI/HO/IMD/IMD-I POD2/P/CIR/2023/48 dated March 29, 2023
,,
164 Master Circular for Mutual Funds as on March 31, 2023
total assets in permissible
overseas investments
Such time as
Schemes unable to disclose per
NAV as per timeline 11 PM on T day disclosure
mentioned above due to Or made in SID
6
inability in capturing same 10 AM on T+1 along with
day valuation of underlying day reasons for
investments such delayed
disclosure
8.2.2 While complying with the new timelines for declaration of NAV, AMCs
as a principle shall ensure that NAV of schemes is disclosed based
on the value of underlying securities/ Funds as on the T day (i.e. date
of investment in MF units in India).
8.2.3 Provisions regarding revised timelines for disclosure of NAV as
mentioned at Paragraph 8.2.1 & Paragraph 8.2.2 above shall come
into force with effect from July 01, 2023. Pursuant to applicability of
revised timelines for disclosure of NAV (i.e. from July 01, 2023),
relevant provisions regarding disclosure of NAV as mentioned in this
Master Circular shall stand modified to that extent.
8.3 Rounding of NAVs274
8.3.1 To ensure uniformity, Mutual Funds shall round off NAV up to four
decimal places for index funds and all types of debt oriented schemes.
8.3.2 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
274 SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002, SEBI Circular No.
MFD/CIR/11/16159/2002 dated August 22, 2002
165 Master Circular for Mutual Funds as on March 31, 2023
desire275. Relevant disclosure in this regard shall be made in the
SID/SAI276.
8.4 Uniform Cut off Timings for applicability of Net Asset Value of
Mutual Fund scheme(s) and/ or plan(s)277
8.4.1 Mutual Funds should follow the Guidelines enumerated below with
respect to uniform Cut -off Timings:
8.4.2 Definitions:
8.4.2.1 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 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 & Overnight fund schemes and plans’ shall mean
the schemes and plans of a Mutual Fund as specified in the
guidelines issued by SEBI in this regard278.
8.4.3 Applicability
8.4.3.1 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:
275 SEBI Circular No. MFD/CIR/11/16159/2002 dated August 22, 2002.
, 2 76 SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002.
277 SEBI Circular No. SEBI/IMD/CIR No. 11/78450/06 dated October 11, 2006.
, 2 78 SEBI Circular No.SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009 & SEBI
Circular No. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017
166 Master Circular for Mutual Funds as on March 31, 2023
a. International schemes and
b. Transactions in Mutual Fund units undertaken on a
recognized Stock Exchange.
8.4.4 Fixation of uniform Cut-off Timings
8.4.4.1 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.
8.4.4.2 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 Paragraph 8.4.4.1 above.
8.4.4.3 AMCs shall compensate any loss occasioned to any investor or to
the scheme and/or plan on account of non-compliance with
Paragraph 8.4.4.2 above.
8.4.5 Cut-off Timings for liquid fund & overnight fund schemes and plans
For determining the applicable NAV279:
8.4.5.1 The following cut-off timings shall be observed by a mutual fund
in respect of purchase of units in liquid fund & overnight fund
schemes and their plans, and the following NAVs shall be applied
for such purchase:
a. where the application is received up to 1.30 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;
279 SEBI Circular No SEBI/IMD/DF/19/2010 dated November 26, 2010, SEBI Circular No
SEBI/HO/IMD/DF2/CIR/P/2019/101 dated September 20, 2019
167 Master Circular for Mutual Funds as on March 31, 2023
b. where the application is received after 1.30 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.
8.4.5.2 For allotment of units in respect of purchase in liquid fund &
overnight fund schemes, it shall be ensured that:
a. Application is received before the applicable cut-off time.
b. Funds for the entire amount of subscription/purchase as per
the application are credited to the bank account of the
respective liquid & overnight 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 & overnight schemes.
8.4.5.3 For allotment of units in respect of switch-in to liquid fund &
overnight fund 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.
168 Master Circular for Mutual Funds as on March 31, 2023
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.
8.4.5.4 The following Cut-off Timings shall be observed by Mutual Funds
with respect to repurchase of units in liquid fund & overnight 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.
Explanation: “Business Day” does not include a day on which the
Money Markets are closed or otherwise not accessible.
8.4.5.5 280Mutual Funds shall calculate NAV for each calendar day for
their liquid fund & overnight fund schemes and plans.
8.4.6 Cut-off Timings for schemes and plans other than liquid fund &
overnight fund schemes and plans
8.4.6.1 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 & overnight fund schemes and plans
8.4.6.2 In respect of purchase of units of mutual fund schemes (except
liquid and overnight schemes), closing NAV of the day on which
the funds are available for utilization shall be applicable
irrespective of the size and time of receipt of such application281.
280 SEBI Circular No. SEBI/IMD/CIR No. 11/78450/06 dated October 11, 2006
281 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012 and SEBI Circular
No. SEBI/HO/IMD/DF2/CIR/2020/175 dated September 17, 2020
169 Master Circular for Mutual Funds as on March 31, 2023
8.4.6.3 For allotment of units in respect of purchase in income/debt
oriented mutual fund schemes/plans other than liquid & overnight
schemes, it shall be ensured that282:
8.4.6.3.1 Application is received before the applicable cut-off time (i.e.
3.00 pm).
8.4.6.3.2 Funds for the entire amount of subscription/purchase as per
the application are credited to the bank account of the
respective schemes before the cut-off time (i.e. 3.00 pm).
8.4.6.3.3 The funds are available for utilization before the cut-off time
(i.e. 3.00 pm) without availing any credit facility whether intra-
day or otherwise, by the respective scheme.
8.4.6.4 For allotment of units in respect of switch-in to income/debt
oriented mutual fund schemes/plans other than liquid fund and
overnight fund schemes from other schemes, it shall be ensured
that:
8.4.6.4.1 Application for switch-in is received before the applicable cut-
off time.
8.4.6.4.2 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.
8.4.6.4.3 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.
8.4.6.5 The following Cut-off Timings shall be observed by Mutual Funds
in respect of repurchase of units in its other schemes and their
282 SEBI Circular No. SEBI/IMD/DF/19/2010 dated November 26, 2010
170 Master Circular for Mutual Funds as on March 31, 2023
plans, and the following NAVs shall be applied for such
repurchase:
8.4.6.5.1 Where the application is received up to 3.00 pm – closing NAV
of the day on which the application is received; and
8.4.6.5.2 An application received after 3.00 pm – closing NAV of the next
business day.
8.4.7 Switch and Sweep Transactions
8.4.7.1 Paragraphs 8.4.5 and 8.4.6 of this Master Circular shall apply to
‘switch in’ transactions as if they were purchase transactions and
to ‘switch out’ transactions as if they were repurchase
transactions.
8.4.7.2 Paragraphs 8.4.5 and 8.4.6 of this Master Circular shall apply to
‘sweep’ transactions as if they were purchase transactions and to
‘reverse sweep’ transactions as if they were repurchase
transactions.
8.4.7.3 In case of ‘switch’ transactions from one scheme to another, the
allocation shall be in line with redemption payouts.
8.4.8 Time Stamping
8.4.8.1 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.
8.4.8.2 Cut off timings as prescribed under Paragraphs 8.4.5 and 8.4.6 of
this Master Circular shall apply with reference to the point of time
at which the applications are received at such official points of
acceptance.
171 Master Circular for Mutual Funds as on March 31, 2023
8.4.8.3 Time stamping machines at all official points of acceptance shall
be in compliance with the requirements mentioned in Paragraph
8.5 of this Master Circular.
8.4.9 Compliance Reporting
8.4.9.1 Status of compliance with these Guidelines shall be reported to the
Board in the CTR(s)283 of the AMC(s) and the Half Yearly Trustee
Reports284.
8.4.9.2 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.
8.4.9.3 Further, the substance of these Guidelines shall be disclosed to
investors in the SID or in any addendum thereto.
8.4.9.4 Encumbrance of the scheme property285
Regulations286 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.
8.5 Requirements with respect to time stamping machines [pursuant
to Paragraph 8(4)]287
8.5.1 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.
283 For CTR format, please refer format no. 2.B. under the section on formats
, 2 ,,,, 84 For Trustee report, please refer format no. 2.C under the section on formats
,
2 85 SEBI Circular No. SEBI/IMD/DF/19/2010 dated November 26, 2010
286 Fourth Schedule of Securities and Exchange Board of India (Mutual Funds) Regulations,
1996
287 SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006
172 Master Circular for Mutual Funds as on March 31, 2023
8.5.2 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.
8.5.3 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.
8.5.4 Different applications shall not be bunched together with the same
serial number.
8.5.5 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.
8.5.6 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.
8.5.7 Breakage of seal and/or breakdown of the time stamping process
shall be duly recorded and reported to the Trustees.
8.5.8 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
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.
173 Master Circular for Mutual Funds as on March 31, 2023
8.5.9 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.
8.5.10 Mutual Funds shall maintain and preserve all applications/
requests, duly time stamped as aforesaid, at least for a period of eight
years288 to be able to produce them as and when required by the
Board or auditors appointed by the Board.
8.6 Uniformity in calculation of sale and repurchase price289
8.6.1 The following method is being prescribed
8.6.1.1 To streamline the calculation of sale and repurchase price of
mutual fund units290,
8.6.1.2 To avoid variation in the amounts payable to investors and/or
number of units allotted to them, and
8.6.1.3 To make the calculations more comprehensible to the investors.
8.6.2 291Exit 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. 292The provisions of
Regulation 49(3) of MF Regulations applies on all open ended mutual
fund schemes wherever exit load is applicable.
8.6.3 The formula for the same is as follows:
8.6.3.1 Sale Price = Applicable NAV
8.6.3.2 Repurchase Price = Applicable NAV *(1 – Exit Load, if any)
288 Regulation 50(2) of SEBI (Mutual Funds) Regulations, 1996
289 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
, 2 , 90 Regulation 49(3) of the SEBI (Mutual Funds) Regulations, 1996.
291 Refer SEBI email dated July 07, 2010
292 SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021.
174 Master Circular for Mutual Funds as on March 31, 2023
8.7 Intra-day NAV for transacting in units of Exchange Traded Funds
directly with AMCs 293
8.7.1 For transactions in units of Exchange Traded Funds (ETFs) by
Authorized Participants / large investors directly with the AMCs
intra-day NAV, based on the executed price at which the securities
representing the underlying index or underlying commodity(ies) are
purchased / sold, shall be applicable.
8.7.2 Appropriate disclosure in this regard shall be provided in the Scheme
Information Document, Key Information Memorandum and Common
application form.
293 SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/0606 dated July 30, 2021
175 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 9: VALUATION294
9.1 Definitions295
9.1.1 Non Traded Securities296
9.1.1.1 When a security (other than Government Securities, money market
and debt 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.
9.1.1.2 A money market or debt security shall be considered as non-traded
when, on the date of valuation, there are no trades (in marketable
lots) in such security on any recognized Stock Exchange or no
trades (in marketable lots) have been reported on trade reporting
platform of recognized stock exchanges or the Clearing Corporation
of India Ltd. (CCIL).
9.1.2 Thinly Traded Securities
9.1.2.1 Thinly traded equity/ equity related securities:297
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 Rs.5 lacs and the total volume is less
than 50,000 shares, the security shall be considered as thinly
traded security and valued accordingly.
294 Refer SEBI letter No. SEBI/HO/OW/IMD-II/DOF3/P/2020/12151/1 dated July 31, 2020
read with Email dated August 12, 2020
295 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000, SEBI Circular No.
MFD/CIR/14/088/2001 dated March 28, 2001, SEBI Circular No. MFD/CIR/14/442/2002
dated February 20, 2002 and SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102
dated September 24, 2019.
296 SEB<I, Circular No. MFD/CIR/8/92/2000 dated September 18, 2000 & SEBI Circular No.
SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019.
, 2 97 SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001.
176 Master Circular for Mutual Funds as on March 31, 2023
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
Rs.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
Rs.6,00,000, the shares do not qualify as thinly traded.
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 Traded money market / debt security298:
9.1.3.1 A money market or debt security shall be considered as traded
when, on the date of valuation, there are trades (in marketable lots)
in that security on any recognized Stock Exchange or there are
trades reported (in marketable lots) on the trade reporting platform
of recognized stock exchanges or The Clearing Corporation of India
Ltd. (CCIL). In this regard, the marketable lots shall be defined by
AMFI, in consultation with SEBI.
298 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
177 Master Circular for Mutual Funds as on March 31, 2023
9.1.4 Below investment grade and default299:
9.1.4.1 A money market or debt security shall be classified as “below
investment grade” if the long term rating of the security issued by
a SEBI registered Credit Rating Agency (CRA) is below BBB- or if
the short term rating of the security is below A3.
9.1.4.2 A money market or debt security shall be classified as “Default” if
the interest and / or principal amount has not been received, on
the day such amount was due or when such security has been
downgraded to “Default” grade by a CRA. In this respect, Mutual
Funds shall promptly inform to the valuation agencies and the
CRAs, any instance of non-receipt of payment of interest and / or
principal amount (part or full) in any security.
9.2 Valuation of Securities
9.2.1 Traded Securities (other than money market and debt securities):300
9.2.1.1 When a security (other than Government security, money market
and 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.
9.2.2 Non-Traded /and/or Thinly Traded Equity Securities:301
9.2.2.1 AMCs shall value non traded and/or thinly traded securities “in
good faith” based on the Valuation norms prescribed below:
299 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
300 SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002 and SEBI Circular
No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
301 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000 and SEBI Circular
No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
178 Master Circular for Mutual Funds as on March 31, 2023
9.2.2.2 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
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
179 Master Circular for Mutual Funds as on March 31, 2023
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 valuation302.
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.
9.2.3 Debt and Money Market Securities303
a. Valuation of money market and debt securities with residual
maturity of upto 30304 days:
1. Amortization based valuation is permitted for money market
and debt securities including floating rate securities, with
residual maturity of upto 30 days. Further, the amortized
price shall be compared with the reference price which shall
be the average of the security level price of such security as
provided by the agency(ies) appointed by AMFI for said
purpose (hereinafter referred to as “valuation agencies”). The
amortized price shall be used for valuation only if it is within
a threshold of ±0.025% of the reference price. In case of
deviation beyond this threshold, the price shall be adjusted
to bring it within the threshold of ±0.025% of the reference
price.
302 SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001
303 Refer SEBI letter No. SEBI/HO/IMD/DF4/OW/P/2019/24760 dated September 20, 2019
304 SEBI Circular No. SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010
Cir/IMD/DF/4/2010 dated June 21, 2010, SEBI Circular No. Cir/IMD/DF/6/2012 dated
February 28, 2012, SEBI/HO/IMD/DF4/CIR/P/2019/41 dated March 22, 2019 and SEBI
Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
180 Master Circular for Mutual Funds as on March 31, 2023
2. It is further clarified that in case of floating rate securities
with floor and caps on coupon rate and residual maturity of
upto 30 days then those shall be valued on amortization
basis taking the coupon rate as floor.
3. In case security level prices given by valuation agencies are
not available for a new security (which is currently not held
by any Mutual Fund), then such security may be valued on
amortization basis on the date of allotment / purchase.
4. Further, with effect from April 01, 2020 onwards,
amortization based valuation shall be dispensed with and
irrespective of residual maturity, all money market and debt
securities shall be valued in terms of paragraph b below.
b. Valuation of money market and debt securities with residual
maturity of over 30305 days:
1. All money market and debt securities including floating rate
securities, with residual maturity of over 30 days shall be
valued at average of security level prices obtained from
valuation agencies.
2. In case security level prices given by valuation agencies are
not available for a new security (which is currently not held
by any Mutual Fund), then such security may be valued at
purchase yield on the date of allotment / purchase.
305 SEBI Circular No. SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010,
Cir/IMD/DF/4/2010 dated June 21, 2010, SEBI Circular No. Cir/IMD/DF/6/2012 dated
February 28, 2012, SEBI/HO/IMD/DF4/CIR/P/2019/41 dated March 22, 2019 and SEBI
Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
181 Master Circular for Mutual Funds as on March 31, 2023
c. Methodology: 306
For arriving at security level pricing, a waterfall approach shall
be followed for the valuation of money market and debt
securities.
1. AMFI shall ensure that valuation agencies have a
documented waterfall approach for valuation of money
market and debt securities. The said waterfall approach
shall be documented in consultation with SEBI.
2. The following broad principles should be adopted as part of
the aforesaid waterfall approach, for arriving at the security
level prices:
i. All traded securities shall be valued on the basis of
traded yields, subject to identification of outlier trades
by the valuation agencies.
ii. Volume Weighted Average Yield (VWAY) for trades in
the last one hour of trading shall be used as the basis
for valuation of Government Securities (including T-
bills). Valuation of all other money market and debt
securities (including Government securities not traded
in last one hour) shall be done on the basis of VWAY of
all trades during the day.
iii. An indicative list of exceptional events shall form part
of the documented waterfall approach mentioned
above. In case of any exceptional events on a day, only
VWAY of trades post such event may be considered for
valuation. Further, all exceptional events along-with
306 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019,
Refer SEBI letter No. SEBI/HO/IMD/DF4/OW/P/2019/29520 dated November 07, 2019
182 Master Circular for Mutual Funds as on March 31, 2023
valuation carried out on such dates shall be
documented with adequate justification.
iv. All trades on stock exchanges and trades reported on
trade reporting platforms till end of the trade reporting
time (excluding Inter-scheme transfers), should be
considered for valuation on that day. Towards this end,
the timing for disclosure of Net Asset Value (NAV) on
website of respective AMCs and AMFI, stands extended
as per paragraph 8.1.2 (paragraph 8.2 from July 01,
2023) of this Master Circular.
v. Considering the importance of polling in the valuation
process307, guidelines shall be issued by AMFI on
polling by valuation agencies and on the
responsibilities of Mutual Funds in the polling process,
as part of the aforesaid waterfall approach. These
guidelines shall inter-alia include the following:
(a) Valuation agencies shall identify the Mutual Funds
who shall participate in the polling process on a
particular day, taking into account factors such as
diversification of poll submitters and portfolio
holding of the Mutual Funds. Mutual Funds who
are identified by the valuation agencies shall
necessarily participate in the polling process.
However, in case any Mutual Fund does not
participate in the polling process, detailed reason
for the same shall be recorded and made available
during SEBI inspections.
307 Refer SEBI letter No. SEBI/HO/IMD/IMD-I PoD-1/P/ON/2022 dated September 27, 2022
183 Master Circular for Mutual Funds as on March 31, 2023
(b) The minimum number of polls to be considered for
valuation along-with the operational modalities of
polling, shall be specified.
(c) AMCs shall have a written policy, approved by the
Board of AMC and Trustees, on governance of the
polling process. The aforesaid policy shall include
measures for mitigation of potential conflicts of
interest in the polling process and shall identify
senior officials responsible for polling.
(d) AMCs shall ensure that participation in the polling
process is not mis-used to inappropriately
influence the valuation of securities. The officials of
the AMC who are responsible for polling in terms of
paragraph (c) above, shall also be personally liable
for any mis-use of the polling process.
(e) AMCs shall maintain an audit trail for all polls
submitted to valuation agencies.
3. The aforesaid waterfall approach shall form part of the
valuation policy of individual AMCs which is uploaded on
their respective websites. AMFI shall ensure that the said
waterfall approach is also available on the website of the
valuation agencies.
d. Deviation from valuation guidelines:308
1. As per the Principles of Fair Valuation specified in Eighth
Schedule of SEBI (Mutual Funds) Regulations, 1996, AMCs
are responsible for true and fairness of valuation and correct
308 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
184 Master Circular for Mutual Funds as on March 31, 2023
NAV. Considering the same, in case an AMC decides to
deviate from the valuation price given by the valuation
agencies, the detailed rationale for each instance of deviation
shall be recorded by the AMC.
2. The rationale for deviation along-with details such as
information about the security (ISIN, issuer name, rating
etc.), price at which the security was valued vis-a-vis the
price as per the valuation agencies and the impact of such
deviation on scheme NAV (in amount and percentage terms)
shall be reported to the Board of AMC and Trustees.
3. The rationale for deviation along-with details as mentioned
under paragraph 9.2.3.d.2 above shall be disclosed
immediately and prominently, under a separate head on the
website of AMC.
4. Further, while disclosing the total number of instances of
deviation in the monthly and half-yearly portfolio
statements, AMCs shall also provide the exact link to their
website for accessing the information mentioned at
paragraph 9.2.3.d.3 above.
e. Valuation of money market and debt securities which are rated
below investment grade309:
1. In order to have uniformity and consistency across the
Mutual Fund industry on valuation of money market and
debt securities rated below investment grade, the following
has been decided:
309 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/41 dated March 22, 2019 and SEBI
Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
185 Master Circular for Mutual Funds as on March 31, 2023
i. All money market and debt securities which are rated
below investment grade shall be valued at the price
provided by valuation agencies.
ii. Till such time the valuation agencies compute the
valuation of money market and debt securities classified as
below investment grade, such securities shall be valued on
the basis of indicative haircuts provided by these agencies.
These indicative haircuts shall be applied on the date of
credit event i.e. migration of the security to sub-investment
grade and shall continue till the valuation agencies
compute the valuation price of such securities. Further,
these haircuts shall be updated and refined, as and when
there is availability of material information which impacts
the haircuts.
iii. Consideration of traded price for valuation:
(a) In case of trades during the interim period between date of
credit event and receipt of valuation price from valuation
agencies, AMCs shall consider such traded price for
valuation if it is lower than the price post standard haircut.
The said traded price shall be considered for valuation till
the valuation price is determined by the valuation
agencies.
(b) In case of trades after the valuation price is computed by
the valuation agencies as referred above and where the
traded price is lower than such computed price, such
traded price shall be considered for the purpose of
valuation and the valuation price may be revised
accordingly.
186 Master Circular for Mutual Funds as on March 31, 2023
(c) The trades referred above shall be of a minimum size as
determined by valuation agencies.
iv. AMCs may deviate from the indicative haircuts and/or the
valuation price for money market and debt securities rated
below investment grade provided by the valuation agencies
subject to the following:
(a) The detailed rationale for deviation from the price post
haircuts or the price provided by the valuation agencies
shall be recorded by the AMC.
(b) The rationale for deviation along-with details such as
information about the security (ISIN, issuer name, rating
etc.), price at which the security was valued vis-a-vis the
price post haircuts or the average of the price provided by
the valuation agencies (as applicable) and the impact of
such deviation on scheme NAV (in amount and
percentage terms) shall be reported to the Board of AMC
and Trustees.
(c) The rationale for deviation along-with details as mentioned
at Paragraph (b) above shall also be disclosed to investors.
In this regard, all AMCs shall immediately disclose
instances of deviations under a separate head on their
website. Further, the total number of such instances shall
also be disclosed in the monthly and half-yearly portfolio
statements for the relevant period along-with an exact link
to the website wherein the details of all such instances of
deviation are available.
187 Master Circular for Mutual Funds as on March 31, 2023
v. Treatment of accrued interest, future interest accrual and
future recovery310:
(a) The treatment of accrued interest and future accrual of
interest, in case of money market and debt securities
classified as below investment grade or default, is detailed
below:
1. The indicative haircut that has been applied to the
principal should be applied to any accrued interest.
2. In case of securities classified as below investment
grade but not default, interest accrual may continue
with the same haircut applied to the principal. In case
of securities classified as default, no further interest
accrual shall be made.
(b) The following shall be the treatment of how any future
recovery should be accounted for in terms of principal or
interest:
1. Any recovery shall first be adjusted against the
outstanding interest recognized in the NAV and any
balance shall be adjusted against the value of principal
recognized in the NAV.
2. Any recovery in excess of the carried value (i.e. the
value recognized in NAV) should then be applied first
towards amount of interest written off and then
towards amount of principal written off.
310 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019.
Further, the Guidelines for Identification and Provisioning for Non-Performing Assets (Debt
Securities) have been deleted vide SEBI Circular No. SEBI/HO/IMD/DF4/ CIR/P/2019/102
dated September 24, 2019.
188 Master Circular for Mutual Funds as on March 31, 2023
9.3 Valuation of securities with Put/Call Options:311
9.3.1 The option embedded securities would be valued as follows:
9.3.1.1 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.
9.3.1.2 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.
9.3.1.3 Securities with both Put and Call option on the same day
a. Only securities with put / call options on the same day and
having the same put and call option price, shall be deemed to
mature on such put / call date and shall be valued accordingly.
In all other cases, the cash flow of each put / call option shall
be evaluated and the security shall be valued on the following
basis:
311 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000 and SEBI Circular
No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
189 Master Circular for Mutual Funds as on March 31, 2023
1. Identify a ‘Put Trigger Date’, a date on which ‘price to put
option’ is the highest when compared with price to other put
options and maturity price.
2. Identify a ‘Call Trigger Date’, a date on which ‘price to call
option’ is the lowest when compared with price to other call
options and maturity price.
3. In case no Put Trigger Date or Call Trigger Date (‘Trigger Date”)
is available, then valuation would be done to maturity price.
In case one Trigger Date is available, then valuation would be
done as to the said Trigger Date. In case both Trigger Dates
are available, then valuation would be done to the earliest
date.
9.3.2 If a put option is not exercised by a Mutual Fund when exercising
such put option would have been in favour of the scheme, in such
cases the justification for not exercising the put option shall be
provided to the Board of AMC and Trustees.
9.3.3 312In respect of valuation of securities with multiple put options
present ab-initio wherein put option is factored into valuation of the
security by the valuation agency, If the put option is not exercised by
a Mutual Fund, while exercising the put option would have been in
favour of the scheme;
1. A justification for not exercising the put option shall be
provided by the Mutual Fund to the Valuation Agencies, Board
of AMC and Trustees on or before the last date of the notice
period.
312 SEBI Circular No. SEBI/HO/IMD/DF4/P/CIR/2021/593 dated July 9, 2021 effective
from October 1, 2021
190 Master Circular for Mutual Funds as on March 31, 2023
2. The Valuation Agencies shall not take into account the
remaining put options for the purpose of valuation of the
security.
9.3.4 The put option shall be considered as ‘in favour of the scheme’ if the
yield of the valuation price ignoring the put option under evaluation
is more than the contractual yield/coupon rate by 30 basis points.
9.4 Valuation of Perpetual Bonds: 313
9.4.1 Valuation of bonds with call and/or put options shall be in line with
Paragraph 9.3. above irrespective of the nature of issuer.
9.4.2 The maturity of all perpetual bonds shall be treated as 100 years from
the date of issuance of the bond for the purpose of valuation.
9.4.3 The deemed residual maturity for the purpose of valuation of existing
as well as new bonds issued under Basel III framework shall be as
below:
Deemed Deemed
Time Period Residual Residual
Maturity of Maturity of Basel
Basel III AT-1 III Tier 2 Bonds
bonds (Years) (Years)
10 10 years or
Till March 31, Contractual
2022 Maturity
whichever is
earlier
20 Contractual
April 01, 2022 – Maturity
September 30,
2022
30 Contractual
October 01, Maturity
2022 – March 31,
2023
313 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2021/032 dated March 10, 2021 and SEBI
Circular No. SEBI/HO/IMD/DF4/CIR/P/2021/034 dated March 22, 2021, Refer SEBI letter
No. IMD/DoF4/OW/P/6697/1 dated March 22, 2021
191 Master Circular for Mutual Funds as on March 31, 2023
100* Contractual
April 01, 2023 Maturity
onwards
*100 years from the date of issuance of the bond.
9.4.4 Macaulay Duration for bonds issued under Basel III framework shall
be calculated based on the deemed residual maturity as mentioned
in the above table.
9.4.5 If the issuer does not exercise call option for any ISIN then the
valuation and calculation of Macaulay Duration shall be done
considering maturity of 100 years from the date of issuance for AT-1
Bonds and Contractual Maturity for Tier 2 bonds, for all ISINs of the
issuer. In addition to the above, if the non-exercise of call option is
due to the financial stress of the issuer or if there is any adverse
news, the same shall be reflected in the valuation.
9.4.6 AMFI to issue detailed guidelines with respect to valuation of bonds
issued under Basel III framework.
9.5 Valuation of Government Securities314
9.5.1 Irrespective of the residual maturity, Government Securities
(including T-bills) shall be valued on the basis of security level prices
obtained from valuation agencies.
9.6 Valuation of other money market / debt securities, short-term
deposits with banks (pending deployment) and OTC derivatives:
315
9.6.1 The valuation of bills purchased under rediscounting scheme shall
be as per the guidelines mentioned for valuation of money market
instruments, at paragraphs 9.2.3.a and 9.2.3.b, as the case may be.
314 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated February 20, 2002, SEBI
Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
315 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
192 Master Circular for Mutual Funds as on March 31, 2023
9.6.2 Investments in short-term deposits with banks (pending deployment)
and repurchase (repo) transactions (including tri-party repo i.e.
TREPS) with tenor of upto 30 days, shall be valued on cost plus
accrual basis.
9.6.3 In order to have uniformity in valuation methodology, prices for all
OTC derivatives and market linked debentures shall be obtained from
valuation agencies.
9.7 Illiquid Securities316
9.7.1 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.
9.7.2 All Mutual Funds shall disclose as on March 31 and September 30
the scheme wise total illiquid securities in value and percentage of
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.
316 SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.
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:
All the illiquid securities above 20 per cent. of total assets of the scheme shall be assigned
zero value on September 30, 2001.
All the illiquid securities above 15 per cent. of total assets of the scheme shall be assigned
zero value on September 30, 2002.
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.
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
193 Master Circular for Mutual Funds as on March 31, 2023
9.7.3 Mutual Funds shall not be allowed to transfer illiquid securities
among their schemes.
9.8 Investment in Unlisted Equity Shares317
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.
317 SEBI Circular No. MFD/CIR/03/526/2002 dated May 9, 2002
194 Master Circular for Mutual Funds as on March 31, 2023
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
195 Master Circular for Mutual Funds as on March 31, 2023
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 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.
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 meetings318.
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 CTRs319 and Half Yearly Reports320
filed with the Board.
318 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.
319 For CTR format please refer to format no. 2.B under the section on formats
320 For Half Yearly Reports, please refer to format no. 2.C under the section on formats
196 Master Circular for Mutual Funds as on March 31, 2023
9.9 Valuation of securities not covered under the current valuation
policy321:
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
been approved by their independent trustees and the statutory
auditors.
9.10 Use of own trade for valuation322
9.10.1 Various instances have come to notice wherein Mutual Funds have
used their own trades of relatively small quantity in order to value
the entire holding of such security. In order to address possible mis-
use as mentioned above, Mutual Funds shall not use their own trades
for valuation of debt and money market securities and for Inter-
scheme transfers.
321 SEBI/IMD/CIR No.16/193388/2010 dated February 02, 2010 and Cir/IMD/DF/4/2010
dated June 21, 2010
322 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
197 Master Circular for Mutual Funds as on March 31, 2023
9.11 Inter-scheme transfers (IST) 323:
With respect to Inter-scheme transfers, it has been decided that:
9.11.1 AMCs shall seek prices for IST of any money market or debt security
(irrespective of maturity), from the valuation agencies.
9.11.2 AMFI, in consultation with valuation agencies shall decide a turn-
around-time (TAT), within which IST prices shall be provided by the
agencies.
9.11.3 If prices from the valuation agencies are received within the pre-
agreed TAT, an average of the prices so received shall be used for IST
pricing.
9.11.4 If price from only one valuation agency is received within the agreed
TAT, that price may be used for IST pricing.
9.11.5 If prices are not received from any of the valuation agencies within
the agreed TAT, AMCs may determine the price for the IST, in
accordance with Clause 3 (a) of Seventh Schedule of SEBI (Mutual
Funds) Regulations, 1996.
9.12 Changes in Terms of Investment 324
While making any change to terms of an investment, Mutual Funds shall
adhere to the following conditions:
9.12.1 Any changes to the terms of investment, including extension in the
maturity of a money market or debt security, shall be reported to
valuation agencies and SEBI registered Credit Rating Agencies (CRAs)
immediately, along-with reasons for such changes. 325
323 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
324 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
325 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/126 dated November 06, 2019
198 Master Circular for Mutual Funds as on March 31, 2023
9.12.2 Any extension in the maturity of a money market or debt security
shall result in the security being treated as “Default”, for the purpose
of valuation.
9.12.3 If the maturity date of a money market or debt security is shortened
and then subsequently extended, the security shall be treated as
“Default” for the purpose of valuation.
9.12.4 Any put option inserted subsequent to the issuance of the security
shall not be considered for the purpose of valuation and original
terms of the issue will be considered for valuation.
9.13 Dissemination of information:
9.13.1 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 data326 would
help in daily matrix generation and would improve uniformity and
accuracy of valuation in the mutual funds industry.
9.13.2 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 format327. These
disclosures shall be made settlement date wise on daily basis with a
time lag of 15 days. The above disclosure shall be in a comparable,
downloadable (spreadsheet) and machine readable format328.
326 SEBI Circular No.MFD/CIR/23 /066 / 2003 dated March 7, 2003 & SEBI Circular No.
SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010. For disclosure of transaction
details, please refer to the section on Formats
327 Please refer to Format no. 8 under the section on formats
328 SEBI Circular No. Cir/IMD/DF/6/2012 dated February 28, 2012 and SEBI Circular No.
SEBI/HO/IMD/DF4/CIR/P/2020/163 dated September 01, 2020
199 Master Circular for Mutual Funds as on March 31, 2023
9.13.3 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 2 to the agency
recommended by AMFI.329.
9.14 Valuation and disclosure of upfront fees330:
9.14.1 Guidelines for valuation of any upfront fee (or any other
consideration, by whatever name called) received in a Mutual Fund
scheme, shall be issued by AMFI, in consultation with SEBI.
9.15 Guidelines for investments in partly paid debentures331
9.15.1 Guidelines for investment by Mutual Funds in partly paid debentures
shall be issued by AMFI, in consultation with SEBI.
9.16 Guidelines to be issued by AMFI332:
9.16.1 The guidelines to be issued by AMFI, in consultation with SEBI under
paragraphs 9.1.3.1, 9.2.3.c.1, 9.4.5, 9.14 and 9.15 above shall
necessarily be followed by all Mutual Funds / AMCs. Any future
changes to these guidelines shall be made by AMFI in consultation
with SEBI, prior to implementation.
9.17 Consistency
9.17.1 All AMC’s shall ensure that similar securities held under its various
schemes shall be valued consistently.
329 SEBI Circular No. MFD/CIR.No 23 / 066 /2003 dated March 7,2003
330 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019,
Refer SEBI letter No. SEBI/HO/IMD/DF4/OW/P/2019/29520 dated November 07, 2019
331 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019,
Refer SEBI letter No. SEBI/HO/IMD/DF4/OW/P/2019/29520 dated November 07, 2019
332 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
200 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 10: LOADS, FEES, CHARGES AND EXPENSES
10.1 Limits on fees and expenses charged to schemes333
10.1.1 Mutual Funds may charge certain expenses to a scheme, as specified
under Regulations.334 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).335
10.1.2 Trustees and Asset Management Companies are advised to take
proper care and exercise due diligence to ensure that all expenses
charged to the scheme are clearly identified and disclosed in the offer
document and they are strictly in conformity with the Regulation.336
10.1.3 Additional TER337 can be charged up to 30 basis points on daily net
assets of the scheme as per Regulation 52338, if the new inflows from
retail investors339 from beyond top 30 cities340 are at least (a) 30% of
gross new inflows in the scheme or (b) 15% of the average assets
under management (year to date) of the scheme, whichever is higher.
Inflows of amount upto Rs.2,00,000/-341 per transaction, by
individual investors shall be considered as inflows from “retail
investor”.
333 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, Refer SEBI letter No.
SEBI/IMD/DF2/OW/P/2020/11099/1 dated June 29, 2020
334 Regulation 52(4) of the Mutual Funds Regulations,1996
335 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.
336 SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997
337 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012, Refer SEBI letter
No. SEBI/HO/IMD/IMD-SEC-3/P/OW/2023/5823/1 dated February 24, 2023
338 Regulation 52(6A)(b) of the Mutual Funds Regulations,1996
339 SEBI Circular no. SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018, SEBI
Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
340 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/16 dated February 02, 2018.
341 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
201 Master Circular for Mutual Funds as on March 31, 2023
In case inflows from beyond top 30 cities from retail investors is less
than the higher of (a) or (b) above, additional TER on daily net assets
of the scheme shall be charged as follows:
Daily net assets X 30 basis points X New inflows from retails investors from beyond top 30 cities
365* X Higher of (a) or (b) above
* 366, wherever applicable.
The top 30 cities shall mean top 30 cities based on Association of
Mutual Funds in India (AMFI) data on ‘AUM by Geography –
Consolidated Data for Mutual Fund Industry’ as at the end of the
previous financial year.
10.1.4 The additional TER on account of inflows from beyond top 30 cities
so charged shall be clawed back in case the same is redeemed within
a period of 1 year from the date of investment.
Accordingly, format no. 3.D. on ‘Disclosure of Monthly Average Assets
Under Management’ under the section on formats has been suitably
revised.
10.1.5 The additional commission for B 30 cities shall be paid as trail only.
342
10.1.6 Trustees and AMCs shall ensure compliance of the provisions
mentioned above at Paragraphs 10.1.3 and 10.1.5 of this Master
Circular and trustees shall confirm the same to SEBI in the half
yearly trustee report.
10.1.7 343Regulation 52 (6A) (c) of SEBI (Mutual Funds) Regulations,
1996, allows an AMC to charge additional expenses, incurred
towards different heads mentioned under Regulation 52 (2) and
342 SEBI Circular no. SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018
343 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/15 dated February 02, 2018
202 Master Circular for Mutual Funds as on March 31, 2023
Regulation 52 (4), not exceeding 0.05344 per cent of daily net
assets of the scheme.
In this respect, Mutual Fund schemes including close ended
schemes, wherein exit load is not levied / not applicable, the AMCs
shall not be eligible to charge the above mentioned additional
expenses for such schemes.
Further, existing Mutual Fund schemes including close ended
schemes (schemes as on February 02, 2018), wherein exit load is not
levied / not applicable, shall discontinue, with effect from February
02, 2018, the levy of above mentioned additional expenses, if any.
10.1.8 Total Expense Ratio – Change and Disclosure345
(a) AMCs shall prominently disclose on a daily basis, the TER
(scheme-wise, date-wise) of all schemes except infrastructure
debt fund (IDF) schemes under a separate head –“Total Expense
Ratio of Mutual Fund Schemes” on their website and on the
website of AMFI in a downloadable spreadsheet format.346
(b) Any change in the base TER (i.e. TER excluding additional
expenses provided in Regulation 52(6A)(b), 52(6A)(c) of SEBI
(Mutual Funds) Regulations, 1996 and Goods and Services Tax
on investment and advisory fees) in comparison to previous base
TER charged to any scheme/plan shall be communicated to
investors of the scheme/plan through notice via email or SMS at
least three working days prior to effecting such change. (For
344 Regulation 52(6A)(c) of the SEBI (Mutual Funds) Regulations, 1996 and SEBI circular
SEBI/HO/IMD/DF2/CIR/P/2018/91 dated June 05, 2018, Refer SEBI Letter No.
SEBI/HO/IMD/DF2/OW/P/2019/4263/1 dated February 21, 2019 and email dated
February 23, 2023
345 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/18 dated February 5, 2018,
SEBI/HO/IMD/DF2/CIR/P/2018/91 dated June 05, 2018 and
SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019, Refer SEBI letter No.
SEBI/HO/IMD/DF2/OW/P/2018/13813/1 dated May 09, 2018, Refer SEBI letter No.
SEBI/HO/IMD/DF2/OW/P/2018/22825/1 dated August 13, 2018
346 Please refer to format no. 7.E under the section on Formats.
203 Master Circular for Mutual Funds as on March 31, 2023
example, if changed TER is to be effective from January 8, 2018,
then notice shall be given latest by January 2, 2018, considering
at least three working days prior to effective date). Further, the
notice of change in base TER shall be updated in the aforesaid
section of website at least three working days prior to effecting
such change.
347Provided that any increase or decrease in TER in a mutual fund
scheme due to change in AUM and any decrease in TER in a
mutual fund scheme due to various other regulatory
requirements would not require issuance of any prior notice to
the investors.
10.1.9 348 The above change in the base TER in comparison to previous base
TER charged to the scheme shall be intimated to the Board of
Directors of AMC along with the rationale recorded in writing.
10.1.10 The changes in TER shall also be placed before the Trustees on
quarterly basis along with rationale for such changes.
10.1.11 Mutual funds/AMCs shall make complete disclosures in the half
yearly report of Trustees to SEBI regarding the efforts undertaken
by them to increase geographical penetration of mutual funds and
the details of opening of new branches, especially at locations
beyond top 30 cities.
10.1.12 Transparency in TER349
In order to bring transparency in expenses, reduce portfolio
churning and mis-selling in mutual fund (MF) schemes, the
following shall be adhered to:
347 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
348 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/18 dated February 05, 2018
349 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018
204 Master Circular for Mutual Funds as on March 31, 2023
(a) In terms of Regulation 52(1) of SEBI (Mutual Funds)
Regulations, 1996, all scheme related expenses including
commission paid to distributors, by whatever name it may be
called and in whatever manner it may be paid, shall
necessarily be paid from the scheme only within the
regulatory limits and not from the books of the Asset
Management Companies (AMC), its associate, sponsor,
trustee or any other entity through any route.
Provided350 that the expenses that are very small in value but
high in volume may be paid out of AMC’s books. Such
expenses can be paid out of AMC’s books at actuals or not
exceeding 2 bps of respective scheme AUM, whichever is
lower. A list of such miscellaneous expenses may be provided
by AMFI in consultation with SEBI. Such expenses incurred
by AMC should be properly recorded and audited in the books
of account of AMC at year end.
(b) MFs/ AMCs shall adopt full trail model of commission in all
schemes, without payment of any upfront commission or
upfronting of any trail commission, directly or indirectly, in
cash or kind, through sponsorships, or any other route.
However, upfronting of trail commission will be allowed only
in case of inflows through Systematic Investment Plans
(SIPs).
(c) In respect of inflows through SIPs into MF schemes, a carve
out has been considered only for new investors to the MF
industry (to be identified based on PAN). The upfronting of
trail commissions, based on SIP inflows, shall be up to 1%
payable yearly in advance, for a maximum period of three
years.
350 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
205 Master Circular for Mutual Funds as on March 31, 2023
(d) The payment of upfront trail commission would be subject to
the following 351:
i. The upfronting of trail commission may be for SIP of upto
Rs. 3,000 per month, per scheme, for an investor who is
investing for the first time in Mutual Fund schemes.
ii. For a new investor, as identified above, only the first SIP(s)
purchased by the investor shall be eligible for up-fronting.
In this regard, if multiple SIP(s) are purchased on different
dates, the SIP(s) in respect of which the instalment starts
on the earliest date shall be considered for upfronting.
iii. The upfront trail commission shall be paid from AMC’s
books.
iv. The said commission shall be amortized on daily basis to
the scheme over the period for which the payment has
been made. A complete audit trail of upfronting of trail
commissions from the AMC’s books and amortization of
the same to scheme(s) thereafter shall be made available
for inspection.
v. The said commission should be charged to the scheme as
‘commissions’ and should also account for computing the
TER differential between regular and direct plans in each
scheme.
vi. The commission paid shall be recovered on pro-rata basis
from the distributors, if the SIP is not continued for the
period for which the commission is paid.’
(e) In case of misuse of the carve out for SIPs, the same would
be discontinued and appropriate action would be taken
351 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
206 Master Circular for Mutual Funds as on March 31, 2023
against the errant participants. Further, the need of this
carve out would be reviewed by SEBI as and when required.
(f) All fees and expenses charged in a direct plan (in percentage
terms) under various heads including the investment and
advisory fee shall not exceed the fees and expenses charged
under such heads in a regular plan.
(g) No pass back, either directly or indirectly, shall be given by
MFs/ AMCs/Distributors to the investors.
(h) Training sessions and programmes conducted for
distributors should continue and should not be misused for
providing any reward or non-cash incentive to the
distributors.
10.1.13 Trustees and AMCs shall ensure compliance of the provisions
mentioned at Paragraph 10.1.12 above and trustees shall confirm
the same to SEBI in the half yearly trustee report.
10.1.14 352Brokerage and transaction cost353 incurred for the purpose
of execution of trade shall be charged to the schemes as provided
under Regulation 52 (6A) (a) upto 12 bps and 5 bps for cash market
transactions and derivatives transactions respectively. Any payment
towards brokerage and transaction costs, over and above the said
12 bps and 5 bps for cash market transactions and derivatives
transactions respectively may be charged to the scheme within the
maximum limit of Total Expense Ratio (TER) as prescribed under
regulation 52354.
352 Refer SEBI letter No. IMD/DF2/HB/18172/2016 dated June 27, 2016
353 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012 & SEBI Circular No.
CIR/IMD/DF/24/2012 dated November 19, 2012 stands replaced by SEBI SEBI/HO/IMD-
II/DOF8/P/CIR/2022/12 dated February 4, 2022.
354 Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996
207 Master Circular for Mutual Funds as on March 31, 2023
10.1.15 Soft-dollar arrangement refers to an arrangement between AMCs
and brokers in which the AMC executes trades through a particular
broker and in turn the broker may provide benefits such as free
research, hardware, software or even non-research-related services,
etc., to the AMC. It may be noted that such arrangements between
AMCs and brokers should be limited to only benefits (like free
research report, etc.) that are in the interest of investors and the
same should be suitably disclosed355.
10.1.16 Investor Education and Awareness356:
(a) Mutual Funds/AMCs shall annually set apart at least 2 basis
points on daily net assets within the maximum limit of TER as
per regulation 52 of the Regulations for investor education and
awareness initiatives, except the following357:
i. The charges applicable for investor education and
awareness initiatives from ETFs/ Index Funds shall be 1bps
of daily net assets of the scheme.
ii. Fund of Funds (FoFs) investing more than 80% of its NAV in
the underlying domestic funds shall not be required to set
aside 2bps of the daily net assets towards investor education
and awareness initiatives.
(b) AMCs and AMFI shall carry out focused investor education and
awareness initiatives for passive funds.
355 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016
356 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012, Refer SEBI letter
No. IMD/DF2/RS/813/2016 dated January 08, 2016, Refer SEBI letter No.
IMD/DF2/RS/201712507/1 dated May 31, 2017, Refer SEBI letter No.
SEBI/HO/IMD/DoF4/0W/P/2019/9576/1 dated April 12, 2019, Refer SEBI letter No.
SEBI/HO/IMD2/OW/P/27647/2019 dated October 29, 2019, Refer SEBI letter No.
SEBI/HO/OW/IMD-II/DOF3/P/2019/34582/1 dated December 24, 2019, Refer SEBI Letter
No. SEBI/HO/IMD-II/IMD-II_DOF11/P/OW/2022/60035/1 dated November 30, 2022,
Refer SEBI Letter No. SEBI/HO/IMD/IMD-SEC-1/P/OW/2023/9455/1 dated March 03,
2023
357 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022
208 Master Circular for Mutual Funds as on March 31, 2023
(c) Mutual Funds shall make complete disclosures in the half
yearly trustee report to SEBI regarding the investor education
and awareness initiatives undertaken.
(d) 358Certain portion of the 2 basis points of daily net assets is
being set aside by Mutual Funds/AMCs for investor education
and awareness initiatives at industry level.
(e) In this respect, for the purpose of increasing awareness of
Mutual Funds as a financial product category it has been
decided to permit celebrity endorsements359 at industry level,
subject to the following conditions:
i. Celebrity endorsement shall be allowed only at industry
level, for the purpose of increasing awareness of Mutual
Funds as a financial product category. Such celebrity
endorsements should not promote a scheme of a particular
Mutual Fund or be used as a branding exercise of a Mutual
Fund house/ AMC.
ii. Expenses towards such celebrity endorsements for
increasing awareness of Mutual Funds shall be limited to
the amounts that are aggregated by Mutual Funds at
industry level for the purpose of conducting investor
education and awareness initiatives, in terms of Paragraph
10.1.16.(a) of this Master Circular.
iii. Prior approval of SEBI shall be required for issuance of
any endorsement of Mutual Funds as a financial product,
358 SEBI Circular No. CIR/IMD/DF/23/2017 dated March 15, 2017
359 Refer SEBI letter No. SEBI/HO/IMD/IMD-PoD-2/P/OW/2022/59612/1 dated November
28, 2022
209 Master Circular for Mutual Funds as on March 31, 2023
which features a celebrity for the purpose of increasing
awareness of Mutual Funds.
10.1.17 360The following expenses cannot be charged to the schemes of
Mutual Funds:
a. Penalties and fines for infraction of laws.
b. Interest on delayed payment to the unit holders.
c. Legal, marketing, publication and other general expenses not
attributable to any scheme(s).
d. Fund Accounting Fees.
e. Expenses on investment management/general management.
f. Expenses on general administration, corporate advertising
and infrastructure costs.
g. Depreciation on fixed assets and software development
expenses.
h. Such other costs as may be prohibited by the Board.
10.1.18 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 Regulations361.
10.1.19 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 schemes362.
10.1.20 Provision of charging of additional management fees by the Asset
Management Companies in case of schemes launched on no load
basis363.
360 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000
361 SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998.
, 3 ,, 62 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.
363 SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
210 Master Circular for Mutual Funds as on March 31, 2023
a. AMC shall not collect any additional management fees referred
to in Regulation364.
b. Mutual Fund Schemes to be launched including those for which
observation letter have been issued under Regulation365 would
be required to carry out the changes in SID and file the same
with SEBI before the launch.
10.2 Restriction on paying brokerage or commission366
10.2.1 In case of investments made by the Sponsor(s), no brokerage or
commission shall be paid.
10.3 Restriction on charging Goods & Service Tax 367
10.3.1 AMC(s) can charge Goods & Service Tax, as per applicable Taxation
Laws, to the scheme(s) within the limits prescribed under
Regulations368
10.3.2 Mutual funds /AMCs may charge Goods & Service Tax on investment
and advisory fees to the scheme in addition to the maximum
limit of TER as prescribed in Regulation 52369.
10.3.3 Goods & Service Tax on other than investment and advisory fees, if
any, shall be borne by the scheme within the maximum limit of TER
as per Regulation 52370.
10.3.4 Goods & Service Tax on exit load, if any, shall be paid out of the exit
load proceeds and exit load net of Goods & Service Tax, if any, shall
be credited to the scheme.
364 Regulation 52(3) of SEBI Mutual Funds Regulation, 1996
365 Regulation 29 of SEBI (Mutual Funds) Regulations, 1996
366 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.
367 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012, SEBI Circular No.
SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021.
368 Reg.52(6) of the SEBI (Mutual Funds) Regulations, 1996.
369 Regulation 52 of SEBI (Mutual Funds) Regulations, 1996
370 Regulation 52 of SEBI (Mutual Funds) Regulations, 1996
211 Master Circular for Mutual Funds as on March 31, 2023
10.3.5 Goods & Service Tax on brokerage and transaction cost371 paid for
execution of trade, if any, shall be within the limit prescribed under
regulation 52 of the Regulations.
10.4 Empowering investors through transparency in payment of
commission and load structure372
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:
a. There shall be no entry load373 for all Mutual Fund schemes.
b. 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.
c. The load balances are maintained as ‘liabilities’ in the books of
the scheme and are not included in the net asset value (NAV). The
usage374 of the load account shall be subject to the following:
i. 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.
371 SEBI Circular No. CIR/ IMD/ DF/ 24/2012 dated November 19, 2012, Refer SEBI letter
No. IMD/DF2/HB/18172/2016 dated June 27, 2016
372 SEBI Circular No SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009
373 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.
374 SEBI Circular No. CIR/IMD/DF/4/2011 dated March 9, 2011
212 Master Circular for Mutual Funds as on March 31, 2023
ii. 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.
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 Paragraph (ii) above.
d. The exit load charged375, if any, after the commencement of
SEBI (Mutual Funds) (Second Amendment) Regulations, 2012,
shall be credited to the scheme.
e. 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.
10.4.2 The above guidelines became applicable for:
a. Investments in mutual fund schemes (including additional
purchases and switch-in to a scheme from other schemes)
w.e.f August 1, 2009
b. Redemptions from mutual fund schemes (including switch-
out from other schemes) w.e.f August 1, 2009
c. New mutual fund schemes launched on or after August 1,
2009
d. All Systematic Investment Plans (SIP) including SIPs
registered prior to August 1, 2009376.
375 Regulation 51A of SEBI (Mutual Funds) Regulations, 1996.
376SEBI Circular No. CIR/IMD/df/21/2012 dated September 13, 2012,
SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
213 Master Circular for Mutual Funds as on March 31, 2023
10.5 Transaction Charges377
10.5.1 A transaction charge per subscription of Rs. 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:
a. For existing investors in a Mutual Fund, the distributor may
be paid Rs.100/- as transaction charge per subscription of Rs.
10,000/- and above.
b. As an incentive to attract new investors, the distributor may be
paid Rs.150/- as transaction charge for a first time investor in
Mutual Funds.
c. The terms and conditions relating to transaction charge shall be
part of the application form in bold print.
d. 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.
e. 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.
f. 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. Further,
Distributors shall have also the option to either opt in or opt out
of levying transaction charge based on type of the product378.
377 SEBI Circular no. CIR/IMD/DF/13/2011 dated August 22, 2011
378 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012
214 Master Circular for Mutual Funds as on March 31, 2023
g. The AMCs shall be responsible for any malpractice/mis-selling by
the distributor while charging transaction costs.
h. There shall be no transaction charge on subscription below Rs.
10,000/-
i. In case of SIPs, the transaction charge shall be applicable only if
the total commitment through SIPs amounts to Rs. 10,000/- and
above. In such cases the transaction charge shall be recovered
in 3-4 installments.
j. 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.
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, 2011379.
10.6 No Load on Bonus Units and Units allotted on Reinvestment of
Dividend380
10.6.1 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 Board
379 Refer SEBI letter No. IMD/DF2/DS/24539/2017 dated October 10, 2017
380 SEBI Circular No. SEBI/IMD/CIR No. 14/120784/08 dated March 18, 2008
215 Master Circular for Mutual Funds as on March 31, 2023
10.7 Filing fees381
10.7.1 Filing fees382 as per the Second Schedule of SEBI (Mutual Funds)
Regulations, 1996 shall be applicable for offer documents and
placement memoranda.
10.8 Exit load parity383
10.8.1 While charging exit loads, no distinction among unit holders should
be made based on the amount of subscription384. While complying
with the same, Mutual Funds should ensure that “any imposition or
enhancement in the load shall be applicable on prospective
investments only.385
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.386
10.9 Borrowing Costs387
10.9.1 With regard to the cost of borrowings in terms of Regulation 44(2) of
SEBI (Mutual Funds) Regulations, 1996, it has been decided that for
a given scheme, the same shall be adjusted against the portfolio yield
of the scheme and borrowing costs in excess of portfolio yield, if any,
shall be borne by the AMC.
381 SEBI Circular No. SEBI Cir No. SEBI / IMD/ CIR No. 5 / 169030 / 2009 dated July 8,
2009, Refer SEBI Letter No. IMD/SG/8668/06 dated October 13, 2006
382 Gazette Notification No. LAD-NRO/GN/20014-15/03/1089on SEBI (Payment of Fees)
(Amendment) Regulations, 2014 dated 23 May, 2014, Second Schedule of SEBI (Mutual
Funds) Regulations, 1996
383 Refer SEBI email dated July 07, 2010, Refer SEBI letter No.
SEBI/HO/IMD/DF2/OW/P/2019/271771/1 dated October 15, 2019
384 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
385 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
386 SEBI Circular No - SEBI / IMD / CIR No. 7 /173650 / 2009 dated August 17,2009
387 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/42 dated March 25, 2019
216 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 11: DIVIDEND DISTRIBUTION PROCEDURE388,389
11.1 All the existing (i.e. schemes as on October 05, 2020) and proposed
Schemes of Mutual Funds shall name / rename the Dividend option(s)
in the following manner:
Option / Plan Name
Dividend Payout Payout of Income Distribution cum
capital withdrawal option
Dividend Re-investment Reinvestment of Income Distribution
cum capital withdrawal option
Dividend Transfer Plan Transfer of Income Distribution cum
capital withdrawal plan
11.2 Offer documents shall clearly disclose that the amounts can be
distributed out of investors capital (Equalization Reserve), which is part
of sale price that represents realized gains. Further, AMCs shall ensure
that the said disclosure is made to investors at the time of subscription
of such options/plans.
11.3 AMCs shall ensure that whenever distributable surplus is distributed,
a clear segregation between income distribution (appreciation on NAV)
and capital distribution (Equalization Reserve) shall be suitably
disclosed in the Consolidated Account Statement provided to investors.
11.4 390The payment of dividend to the unitholders shall be made within
seven working days from the record date.
11.5 Regulations391 permit Mutual Funds to distribute returns including
dividend. To introduce uniform practices in dividend distribution, the
following guidelines should be followed:
388 SEBI Circular No. SEBI/IMD/CIR No.1/64057/06 dated April 4, 2006, SEBI Circular No.
SEBI/HO/IMD/DF3/CIR/P/2020/194 dated October 05, 2020.
389 For details on advertisement on dividend please refer to Chapter No. 14 on
‘Advertisements’
1 3 4No. 90 Regulation 53(a) of the SEBI (Mutual Funds) Regulations, 1996 & SEBI Circular No.
SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/161 dated November 25, 2022
391 Regulation 53(a) of the SEBI (Mutual Funds) Regulations, 1996
217 Master Circular for Mutual Funds as on March 31, 2023
11.6 These guidelines are applicable to all Mutual Fund schemes/plans
which intend to declare the dividend irrespective of their dates of
launch.392
11.6.1 Unlisted Scheme(s)/ Plan(s)
11.6.1.1 The Trustees shall decide the quantum of dividend and the record
date in their meeting393. Dividend so decided, shall be paid, subject
to availability of distributable surplus.
11.6.1.2 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.
11.6.1.3 394Within one calendar day of the decision by the trustees, AMC
shall issue notice to the public communicating the decision
including the record date. The record date shall be two working
days395 from the date of publication in at least one English
newspaper or in a newspaper published in the language of the
region where the Head Office of the mutual fund is situated,
whichever is issued earlier.
11.6.1.4 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.
392 SEBI Circular No SEBI/IMD/CIR No. 3/65370/06 dated April 21,2006
393 Clause 20 of Third Schedule of SEBI (Mutual Funds) Regulations, 1996
394 SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
395 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/161 dated November 25,
2022
218 Master Circular for Mutual Funds as on March 31, 2023
11.6.1.5 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).
11.6.2 Liquid / Debt Schemes with frequent dividend distribution
11.6.2.1 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.
11.6.3 396With respect to declaration of dividends upto monthly frequency,
the trustees can delegate to the officials of AMC to declare and fix the
record date as well as decide the quantum of dividend, subject to the
following;
I.Record date is specified in the offer document and the same is
adhered to.
II.Such delegation to AMC officials shall mandatorily include CEO of
AMC and making him responsible for such declaration of
dividends, subject to adhering to the policy framework as
approved by Trustees.
III.The policy shall specify appropriate parameters or factors (for
example Growth in NAV from the last dividend declared, or
availability of adequate distributable surplus, or minimum
reserves to be maintained, etc.) to be considered prior to deciding
the quantum.
IV.Actual dividend declared to be ratified by the Trustees in its
immediately following Board meeting.
11.6.4 Listed Schemes/Plans
11.6.4.1 Listed scheme(s)/ plan(s) shall follow the requirements stipulated
in the Listing Agreement for dividend declaration and distribution.
396 SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
219 Master Circular for Mutual Funds as on March 31, 2023
11.7 Non availability of Unit Premium Reserve for dividend
distribution397
11.7.1 Regulations398 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.
11.7.2 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:
11.7.2.1 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 unrealized 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.
11.7.2.2 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 Regulations399.
397 SEBI circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
398 Ninth and Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996
399 Clause 2(a) (ix) of Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996
220 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 12: INVESTMENT BY SCHEMES
12.1 Investment in Listed and Unrated Debt Instruments400
12.1.1 Mutual fund scheme shall not invest in unlisted debt instruments
including commercial papers (CPs), other than (a) government
securities, (b) other money market instruments and (c) derivative
products such as Interest Rate Swaps (IRS), Interest Rate Futures
(IRF), etc. which are used by mutual funds for hedging.
However, mutual fund schemes may invest in unlisted Non-
Convertible Debentures (NCDs) not exceeding 10% of the debt
portfolio of the scheme subject to the condition that such unlisted
NCDs have a simple structure (i.e. with fixed and uniform coupon,
fixed maturity period, without any options, fully paid up upfront,
without any credit enhancements or structured obligations) and are
rated and secured with coupon payment frequency on monthly basis.
12.1.2 Clarification on existing grandfathered unlisted NCDs401
The existing investments of mutual fund schemes in unlisted debt
instruments, including NCDs, may be grandfathered till maturity
date (as stands as on October 01, 2019) of such instruments. The
grandfathering of the identified NCDs (existing grandfathered
unlisted NCDs) is applicable across the mutual fund industry.
Accordingly, mutual funds can transact in such identified NCDs and
the criteria specified in Paragraph 12.1.1 above is not applicable.
However, investments in such identified NCDs shall continue to be
subject to compliance with investment due diligence and all other
applicable investment restrictions.
12.1.3 For the purpose of the provisions of paragraph 12.1, listed debt
instruments shall include listed and to be listed debt instruments.
400 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2019/104 dated October 1, 2019, Refer
SEBI letter No. SEBI/HO/IMD/DF2/OW/P/2019/138/1 dated January 01, 2019
401 SEBI circular No. EBI/HO/IMD/DF2/CIR/P/2020/75 dated April 28, 2020
221 Master Circular for Mutual Funds as on March 31, 2023
12.1.4 All fresh investments by mutual fund schemes in CPs would be made
only in CPs which are listed or to be listed.
12.1.5 Further, investment in unrated debt and money market instruments,
other than government securities, treasury bills, derivative products
such as Interest Rate Swaps (IRS), Interest Rate Futures (IRF), etc.
by mutual fund schemes shall be subject to the following:
a. Investments should only be made in such instruments, including
bills re-discounting, usance bills, etc., that are generally not rated
and for which separate investment norms or limits are not
provided in SEBI (Mutual Fund) Regulations, 1996 and various
circulars issued thereunder.
b. Exposure of mutual fund schemes in such instruments, shall not
exceed 5% of the net assets of the schemes.
c. All such investments shall be made with the prior approval of the
Board of AMC and the Board of trustees.
d. The existing investments of mutual fund schemes in such
instruments in excess of the aforesaid limit of 5% may be
grandfathered till maturity date (as stands as on October 01,
2019) of such instruments.
e. 402The single issuer limit and the group exposure limit shall be
calculated at the issuing bank level as BRDS are issued with
recourse to the issuing bank.
f. Investment in BRDS by debt schemes of mutual funds shall be
considered as exposure to financial services sector for the
purpose of sector exposure limits.
402 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2021/683 dated December 10, 2021
222 Master Circular for Mutual Funds as on March 31, 2023
12.2 403Investment in Instruments having Special Features
12.2.1 Mutual Funds invest in certain debt instruments with special
features viz. subordination to equity (absorbs losses before equity
capital) and /or convertible to equity upon trigger of a pre-specified
event for loss absorption. Additional Tier I bonds and Tier 2 bonds
issued under Basel III framework are some instruments which may
have above referred special features. The debt instruments having
such special features, which otherwise are Non-Convertible
Debentures, may be treated as debt instruments until converted to
equity.
12.2.2 The investment limits of mutual funds in such instruments shall be
as under:
a) No Mutual Fund under all its schemes shall own more than
10% of such instruments issued by a single issuer;
b) A Mutual Fund scheme shall not invest
i. more than 10% of its NAV of the debt portfolio of the
scheme in such instruments; and
ii. more than 5% of its NAV of the debt portfolio of the
scheme in such instruments issued by a single issuer.
The above investment limit for a mutual fund scheme shall be
within the overall limit for debt instruments issued by a single
issuer as specified at clause 1 of the Seventh Schedule of SEBI
(Mutual Fund) Regulations, 1996, and other prudential limits
with respect to the debt instruments.
12.2.3 The investments of mutual fund schemes in such instruments in
excess of the limits specified under paragraph above as on March 10,
2021 may be grandfathered and such mutual fund schemes shall not
403 SEBI circular No. SEBI/HO/IMD/DF4/CIR/P/2021/032 dated March 10, 2021
223 Master Circular for Mutual Funds as on March 31, 2023
make any fresh investment in such instruments until the investment
comes below the specified limits.
12.3 Restrictions on Investment in debt instruments having
Structured Obligations / Credit Enhancements:404
12.3.1 The investment of mutual fund schemes in the following instruments
shall not exceed 10% of the debt portfolio of the schemes and the
group exposure in such instruments shall not exceed 5% of the debt
portfolio of the schemes:
a. Unsupported rating of debt instruments (i.e. without factoring-in
credit enhancements) is below investment grade and
b. Supported rating of debt instruments (i.e. after factoring-in credit
enhancement) is above investment grade.
For the purpose of this provision, ‘Group’ shall have the same
meaning as defined in Paragraph 12.9.3.3 of this Master Circular.
12.3.2 Investment limits as mentioned in Paragraph 12.3.1 above shall not
be applicable on investments in securitized debt instruments, as
defined in SEBI (Public Offer and Listing of Securitized Debt
Instruments) Regulations 2008.
12.3.3 Investment in debt instruments, having credit enhancements backed
by equity shares directly or indirectly, shall have a minimum cover of
4 times considering the market value of such shares.
AMCs may ensure that the investment in debt instruments having
credit enhancements are sufficiently covered to address the market
volatility and reduce the inefficiencies of invoking of the pledge or
cover, whenever required, without impacting the interest of the
investors. In case of fall in the value of the cover below the specified
404 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2019/104 dated October 1, 2019
224 Master Circular for Mutual Funds as on March 31, 2023
limit, AMCs should initiate necessary steps to ensure protection of
the interest of the investors.
12.3.4 The existing investments by mutual fund schemes in debt
instruments that are not in terms of the provisions of Paragraph 12.3
above may be grandfathered till maturity date (as stands as on the
October 01, 2019) of such debt instruments.
12.3.5 Details of investments in debt instruments having structured
obligations or credit enhancement features should be disclosed
distinctively in the monthly portfolio statement of mutual fund
schemes.
12.4 Transactions in Corporate Bonds/Commercial Papers through
Request for Quotes (“RFQ”) platform: 405 406
12.4.1 In order to increase the liquidity on exchange platform:
12.4.1.1 On monthly basis, Mutual Funds shall undertake minimum
25% of their total secondary market trades by value (excluding
Inter Scheme Transfer trades) in Corporate Bonds by
placing/seeking quotes through one-to-many mode on the
Request for Quote (RFQ) platform of stock exchanges and
12.4.1.2 On monthly basis, Mutual Funds shall now undertake minimum
10% of their total secondary market trades by value (excluding
Inter Scheme Transfer trades) in Commercial Papers by
placing/seeking quotes through one-to-many mode on the
Request for Quote (RFQ) platform of stock exchanges
405 SEBI circular No. SEBI/HO/IMD/DF3/CIR/P/2020/130 dated July 22, 2020, Refer SEBI
letter No. SEBI/HO/OW/IMD-II/DOF3/P/2021/1467/1 dated January 18, 2021
406 SEBI circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/641 dated October 6, 2021
225 Master Circular for Mutual Funds as on March 31, 2023
12.4.1.3 The percentage as specified shall be reckoned on the average of
secondary trades by value in immediate preceding three months
on rolling basis.
For example, for the month of October 2020, Mutual Funds shall
undertake 10% (by value) of their average secondary market
trades (excluding IST) done in immediate preceding three
months i.e. July 2020, August 2020 and September 2020 for
Corporate bonds by placing/seeking quotes through RFQ
platform for Stock exchanges.
12.4.1.4 All transactions in Corporate Bonds and Commercial Papers
wherein Mutual Fund is on both sides of the trade shall be
executed through RFQ platform of stock exchanges in one-to-
one mode.
12.4.1.5 Any transaction entered by mutual fund in Corporate Bonds in
one to many mode and gets executed with another mutual fund
shall also be counted for the aforesaid 10% requirement.
12.4.1.6 Mutual Funds are permitted to accept the Contract Note from
the brokers for transactions carried out in One to One (OTO) and
One to Many (OTM) modes of RFQ platform.
12.5 Investments by Index Funds:407
12.5.1 Investments by index funds shall be in accordance with the weightage
of the scrips in the specific index as disclosed in the SID408 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
407 SEBI Circular No - MFD/CIR/09/014/2000 dated January 5, 2000, Refer SEBI letter No.
SEBI/H0/0W/IMD-II/DOF3/P/24098/2022 dated June 10, 2022
408 See Clause 10, Seventh Schedule of Mutual Funds Regulations.
<
226 Master Circular for Mutual Funds as on March 31, 2023
representative sectoral index or sub index as disclosed in the SID or
10% of the NAV of the scheme, whichever is higher.
12.6 Investments by Liquid Schemes and plans409
12.6.1 The ‘liquid fund schemes and plans’ shall make investment in
/purchase debt and money market securities with maturity of upto
91 days only with effect from May 1, 2009410. This shall also be
applicable in case of inter scheme transfer of securities 411
12.6.1.1 Explanation:
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 days412
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.
12.6.2 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.
409 SEBI Circular No - SEBI/IMD/CIR No.13/150975 / 09 dated January 19, 2009
411 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 12.3.1 above shall
apply to such inter-se scheme transfers also.
< 4 12 Applicable with effect from May 01, 2009.
227 Master Circular for Mutual Funds as on March 31, 2023
12.7 Investments by close ended debt schemes:
12.7.1 Close ended debt schemes shall invest only in such securities which
mature on or before the date of the maturity of the scheme413
12.7.2 Close ended debt schemes shall not invest in perpetual bonds.414
12.8 Introduction of credit risk based single issuer limit for investment
by mutual fund schemes in debt and money market instruments415
12.8.1 As per Regulation 44(1) read with clause 1 of Seventh Schedule of
SEBI (Mutual Funds) Regulations, 1996 (“MF Regulation”), a mutual
fund scheme shall not invest more than 10% of its NAV in debt
instruments, issued by a single issuer, comprising money market
securities and non-money market securities rated investment grade
or above by a Credit Rating Agency (CRA). This overall investment
limit may be extended to 12% of the NAV of the scheme with the prior
approval of the Board of Trustees and Board of Directors of the Asset
Management Company.
12.8.2 In order to avoid inconsistency in investment by mutual funds in debt
instruments of an issuer, irrespective of the scheme being actively or
passively managed, it has been decided to introduce a credit rating
based single issuer limit for actively managed mutual fund schemes.
12.8.3 Accordingly, within the limits specified in the clause 1 of Seventh
Schedule416, following prudential limits shall be followed, for schemes
other than Credit risk funds:
12.8.3.1 A Mutual Fund scheme shall not invest more than:
413 SEBI Circular No IMD/CIR No 12/147132/08 dated December 11, 2008. Also refer
Regulations 32, 33, 52(4)(xiid), 18(4)(h), 48(2) for other provisions pertaining to close-ended
schemes.
414 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2021/032 dated March 10, 2021
415 SEBI Circular No. SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2022/164 dated November 29,
2022
416 SEBI (Mutual Funds) Regulations, 1996
228 Master Circular for Mutual Funds as on March 31, 2023
a) 10% of its NAV in debt and money market securities rated
AAA; or
b) 8% of its NAV in debt and money market securities rated AA;
or
c) 6% of its NAV in debt and money market securities rated A
and below issued by a single issuer
The above instrument limits may be extended by up to 2% of the
NAV of the scheme with prior approval of the Board of Trustees
and Board of Directors of the AMC, subject to compliance with
the overall 12% limit specified in clause 1 of Seventh
Schedule417.
12.8.4 The long term rating of issuers shall be considered for the money
market instruments. However, if there is no long term rating available
for the same issuer, then based on credit rating mapping of CRAs
between short term and long term ratings, the most conservative long
term rating shall be taken for a given short term rating. Exposure to
government money market instruments such as TREPS on G-Sec/ T-
bills shall be treated as exposure to government securities.
12.8.5 The above provisions shall be applicable for all the new schemes to
be launched with effect from November 29, 2022. Existing schemes
(as on November 29, 2022) shall be grandfathered from these
guidelines till the maturity of the underlying debt and money market
securities.
417 SEBI (Mutual Funds) Regulations, 1996
229 Master Circular for Mutual Funds as on March 31, 2023
12.9 Prudential limits and disclosures on portfolio concentration risk
in debt oriented mutual fund schemes418 419
12.9.1 420Mutual Funds/AMCs shall ensure that total exposure of debt
schemes of mutual funds in a particular sector (excluding
investments in Bank CDs, triparty repo on Government securities or
treasury bills421, G-Secs, TBills, short term deposits of Scheduled
Commercial Banks and AAA rated securities issued by Public
Financial Institutions and Public Sector Banks) shall not exceed 20%
of the net assets of the scheme;
Provided that an additional exposure to financial services sector (over
and above the limit of 20%) not exceeding 10% of the net assets of
the scheme shall be allowed only by way of increase in exposure to
Housing Finance Companies (HFCs); Further, an additional exposure
of 5% of the net assets of the scheme has been allowed for
investments in securitized debt instruments based on retail housing
loan portfolio and/or affordable housing loan portfolio.
However, the overall exposure in HFCs shall not exceed the sector
exposure limit of 20% of the net assets of the scheme.
Provided further that the additional exposure to such securities
issued by HFCs are rated AA and above and these HFCs are
registered with National Housing Bank (NHB) and the total
investment/ exposure in HFCs shall not exceed 20% of the net assets
of the scheme.
418 SEBI Circular No. CIR/IMD/ DF/ 21/ 2012 dated September 13, 2012 and SEBI Circular
No. CIR/IMD/DF/24/2012 dated November 19, 2012 SEBI/ HO/ IMD/
DF2/CIR/P/2016/35 dated February 15, 2016 and SEBI Circular No. SEBI/ HO/ IMD/
DF2/CIR/P/2016/68 dated August 10, 2016
419 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2019/104 dated October 1, 2019
420 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/14 dated February 22, 2017
421 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
230 Master Circular for Mutual Funds as on March 31, 2023
12.9.2 Further, appropriate disclosures in this regard shall be made in
Scheme Information Document (SID) and Key Information
Memorandum (KIM) of debt schemes.
12.9.3 Group Exposure –
12.9.3.1 Mutual Funds/ AMCs shall ensure that total exposure of debt
schemes of mutual funds in a group (excluding investments in
securities issued by Public Sector Units, Public Financial
Institutions and Public Sector Banks) shall not exceed 20% of
the net assets of the scheme. Such investment limit may be
extended to 25% of the net assets of the scheme with the prior
approval of the Board of Trustees.
12.9.3.2 The investments by debt mutual fund schemes in debt and
money market instruments of group companies of both the
sponsor and the asset management company shall not exceed
10% of the net assets of the scheme. Such investment limit may
be extended to 15% of the net assets of the scheme with the prior
approval of the Board of Trustees. 422
12.9.3.3 For this purpose, a group means a group as defined under
regulation 2 (mm) of SEBI (Mutual Funds) Regulations, 1996
(Regulations) and shall include an entity, its subsidiaries, fellow
subsidiaries, its holding company and its associates.
12.9.3.4 The investments of mutual fund schemes in debt and money
market instruments of group companies of both the sponsor and
the asset management company of the mutual fund in excess of
the limits specified therein, made on or before October 1, 2019
may be grandfathered till maturity date of such instruments.
The maturity date of such instruments shall be as applicable on
October 1, 2019.
422 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2019/104 dated October 1, 2019
231 Master Circular for Mutual Funds as on March 31, 2023
12.9.3.5 All AMCs shall publish on their respective website a list of their
group companies and those of their sponsor(s).423
12.9.3.6 AMFI shall publish on its website a list of all group companies
along with names and identifier of the respective group that are
considered for calculation of group exposure by mutual fund
schemes and also the sector to which each company belongs. 424
12.9.3.7 The disclosures at Paragraphs 12.9.3.5 and 12.9.3.6 above shall
be made on 1st working day of each calendar quarter starting
from January 1, 2020.425
12.9.4 Trustee shall review exposure of a mutual fund, across all its
schemes, towards individual issuers, group companies and sectors.
Trustee should satisfy themselves on the levels of exposure and
confirm the same to SEBI in the half-yearly trustee report starting
from the half-year ending March 31, 2016.
12.9.5 The revised investment restrictions at issuer level, sector level and
group level shall be applicable to all new schemes and fresh
investments by existing schemes from February 15, 2016.
12.9.6 Existing mutual fund schemes shall comply with the revised
investment restrictions at issuer level, sector level and group level
within a period of one year from February 15, 2016. Existing close
ended schemes shall not be required to sell their investments to
comply with the restrictions. However, if existing close ended
schemes sell their investments then their fresh investments shall be
subject to the restrictions.
423 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2019/152 dated December 10, 2019
424 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2019/152 dated December 10, 2019
425 SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2019/152 dated December 10, 2019
232 Master Circular for Mutual Funds as on March 31, 2023
12.10 426Investment in Non-Convertible Preference Shares(NCPSs):
12.10.1 NCPSs shall be treated as debt instruments and investment
restrictions as applicable on debt instruments as specified in MF
Regulations & circulars issued thereunder shall also be applicable
to NCPSs.
12.11 Stock Lending Scheme427
12.11.1 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.428
Existing schemes (schemes existing as on June 6, 2008) may
engage in short selling of securities as well as lending and
borrowing of securities after making additional disclosures
including risk factors in the SID in accordance with Paragraph
1.2.2 of this Master Circular, as amended from time to time.
12.11.2 Disclosure Requirements
12.11.2.1 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 issued by SEBI from time
to time.429
b. Exposure limit with regard to securities lending, both for the
scheme as well as for a single intermediary.
426 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
427 SEBI/IMD/CIR No.6/127947/08 dated June 6, 2008 read with SEBI Circular No
MFD/CIR/01/047/99 dated February 10, 1999.
, 4 28 Regulation 44(4) of the SEBI (Mutual Funds) Regulations, 1996.
429 SEBI Circular No - SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009
233 Master Circular for Mutual Funds as on March 31, 2023
c. Risks factors such as loss, bankruptcy etc. associated with
such transactions.
12.11.3 Reporting Requirement
12.11.3.1 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.
12.11.3.2 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.
12.11.3.3 The Trustees shall offer their comments on the above aspects in
the Half Yearly Trustee Report filed with the Board.430
12.11.4 Existing schemes
12.11.4.1 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.
12.12 Approval for Investment in Unrated Debt Instruments431
12.12.1 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
430 Regulation 18(23)(a) of the Mutual Funds Regulations. Further, for format of Half Yearly
Trustee Report, please refer to format no. 2.C under the section on Formats.
431 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.
234 Master Circular for Mutual Funds as on March 31, 2023
communicated by the AMCs to the Trustees in their periodical
reports, along with clear indication as to how the parameters set
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.
12.13 Investments in Units of Venture Capital Funds432
12.13.1 Mutual Fund schemes can invest in units of Venture Capital
Funds within the prescribed investment limits as applicable.433
12.14 Investment limits for Government guaranteed debt securities434
12.14.1 Prudential investment norms as per Regulations stipulating limits
for investments in debt securities435 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.
12.15 Investment Restrictions for Securitised Debt436
12.15.1 For investments made in Securitised Debt (mortgage backed
securities and asset backed securities), restrictions as per Clause
1 of Seventh Schedule437 shall not apply at the originator level.
432 SEBI Circular No. MFD/CIR/9/230/2001 dated August 14, 2001.
,4,, 33 Clauses 10 and 11, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996.
, 4 , 34 SEBI Circular No. SEBI/IMD/CIR No.8/18944/03 dated October 6, 2003.
, 4 35 Clauses 1 and 1A, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996.
, 4 , 36 SEBI Circular No. SEBI/IMD/CIR No.6/63715/06 dated March 29, 2006, Refer SEBI
email dated August 25, 2010
437 Clause I of Schedule VII of SEBI (Mutual Fund), Regulations, 1996
235 Master Circular for Mutual Funds as on March 31, 2023
12.16 Investments in Short Term Deposits (STDs) of Scheduled
Commercial Banks - pending deployment438
12.16.1 The guidelines for deployment of funds in short term deposits of
commercial banks for schemes are as under:
12.16.1.1 “Short Term” for parking of funds by Mutual Funds shall be
treated as a period not exceeding 91 days.
12.16.1.2 Such deposits shall be held in the name of the concerned
scheme.
12.16.1.3 No mutual fund scheme shall 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.
12.16.1.4 No mutual fund scheme shall park more than 10% of the net
assets in short term deposits with any one scheduled
commercial bank including its subsidiaries.
12.16.1.5 Trustees/AMCs shall ensure that no funds of a scheme is
parked in Short Term Deposit of a bank which has invested in
that scheme. Trustees/AMCs shall also ensure that the bank in
which a scheme has STD do not invest in the said scheme until
the scheme has STD with such bank.439
12.16.1.6 Asset Management Company (AMC) shall not be permitted to
charge investment management and advisory fees for parking of
438 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.
, 4 ,, 39 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/093 dated August 16, 2019.
,,,,,,
236 Master Circular for Mutual Funds as on March 31, 2023
funds in short term deposits of scheduled commercial
banks.440Half Yearly portfolio statements shall disclose all funds
parked in short term deposit(s) under a separate heading.
Details shall also include name of the bank, amount of funds
parked, percentage of NAV.
12.16.1.7 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).
12.16.1.8 Investments made in short term deposits pending deployment of
funds441 shall be recorded442 and reported to the Trustees
including the reasons for the investment especially comparisons
with interest rates offered by other scheduled commercial
banks.443
12.16.1.9 Except for Paragraph 12.16.1.7 above, the above guidelines shall
not apply to term deposits placed as margins for trading in cash
and derivatives market444. All term deposits placed as margins
shall be disclosed in the half yearly portfolio statements under a
separate heading. Details such as name of bank, amount of term
deposits, duration of term deposits, percentage of NAV may be
disclosed445.
440 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/101 dated September 20, 2019.
441 Clause 8, Schedule Seven, SEBI (Mutual Funds), Regulations, 1996.
, 4 ,,,,, 42 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.
,4, 43 SEB I Circul ar No. SEBI/IMD/CIR No.9/20306/03 dated November 12, 2003.
, 444 SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008.
445 SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008
237 Master Circular for Mutual Funds as on March 31, 2023
12.17 Reconciliation Procedure for Investment in Government
Securities446
12.17.1 According to the RBI guidelines447 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.
12.17.2 Mutual Funds shall reconcile the balances reported in the monthly
statements furnished by RBI with the transactions undertaken by
them.
12.17.3 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.
12.18 Participation of mutual funds in repo in corporate debt
securities448
12.18.1 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:
446 SEBI Circular No. MFD/CIR/19/22474/2002 dated November 20, 2002.
, 4 , 47 RBI Circular No.P.D.O.SGL.CIRR/1945/2002-2003 dated November 1, 2002.
448 SEBI Circular No. CIR/IMD/DF/19/2011 dated November 11, 2011
238 Master Circular for Mutual Funds as on March 31, 2023
12.18.1.1 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.
12.18.1.2 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.
12.18.1.3 Mutual funds shall participate in repo transactions only in
AA449 and above rated corporate debt securities.
12.18.1.4 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.
12.18.1.5 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
d. Applicable haircuts
12.18.1.6 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.
12.18.1.7 The details of repo transactions of the schemes in corporate debt
securities, including details of counterparties, amount involved
449 SEBI Circular No. CIR/IMD/DF/23/2012 dated November 15, 2012
239 Master Circular for Mutual Funds as on March 31, 2023
and percentage of NAV shall be disclosed to investors in the half
yearly portfolio statements and to SEBI in the half yearly trustee
report.
12.18.1.8 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.
12.19 Overseas Investment450 451
12.19.1 Applicable limits:
12.19.1.1 452Mutual Funds can make overseas investments subject to a
maximum of US $ 1 billion per Mutual Fund, within the overall
industry limit of US $ 7 billion.
12.19.1.2 Mutual Funds can make overseas investments in Exchange
Traded Fund (ETF(s)) subject to a maximum of US $ 300 million
per Mutual Fund, within the overall industry limit of US $ 1
billion.
12.19.1.3 The allocation methodology of the aforementioned limits shall be
as follows:
450 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, Refer SEBI letter No.
SEBI/HO/IMD/IMDII/DOF3/P/OW/2021/11530/1 dated June 4, 2021, Refer SEBI email
dated January 28, 2022.
451 SEBI Circular No.SEBI/HO/IMD/DF3/CIR/P/2020/225 dated November 05, 2020.
452 SEBI Circular No. SEBI/HO/IMD/IMD-II/DOF3/P/CIR/2021/571 dated June 03, 2021.
240 Master Circular for Mutual Funds as on March 31, 2023
a. In case of overseas investments specified at Paragraph
12.19.1.1 above, US $ 50 million would be reserved for
each mutual fund individually, with in the overall
industry limit of US $ 7 billion.
b. New Fund Offers (“NFOs”): Mutual Funds launching new
schemes intending to invest in Overseas securities /
Overseas ETFs shall ensure that the scheme documents
shall disclose the intended amount that they plan to
invest in Overseas securities / Overseas ETFs subject to
maximum limits specified at Paragraph 12.19.1, as the
case maybe. Such limits disclosed in scheme documents
will be valid for a period of six months from the date of
closure of NFO. Further investments should follow the
norms for ongoing schemes.
c. Ongoing Schemes: For all ongoing schemes that invest or
are allowed to invest in Overseas securities / Overseas
ETFs, an investment headroom of 20% of the average
AUM in Overseas securities / Overseas ETFs of the
previous three calendar months would be available to the
Mutual Fund for that month to invest in Overseas
securities / Overseas ETFs subject to maximum limits
specified at Paragraph 12.19.1 above, as the case maybe.
d. 453The above disclosure Paragraph 12.19.1.3.(b) and
12.19.1.3.(c) would be soft limits for the purpose of
reporting only by Mutual Funds on monthly basis in the
prescribed format454.
12.19.1.4 Further, Mutual Funds shall report the utilization of overseas
investment limits on monthly basis, within 10 days from end of
453 SEBI Circular No. SEBI/HO/IMD/IMD-II/DOF3/P/CIR/2021/571 dated June 03, 2021.
454 Please refer Format no. 2.I under the section on formats
241 Master Circular for Mutual Funds as on March 31, 2023
each month. The format for reporting is enclosed at formats
section455
12.19.2 Permissible Investments:
12.19.2.1 ADR(s) and/or GDR(s) issued by Indian or foreign companies.
12.19.2.2 Equity of overseas companies listed on recognized Stock
Exchanges overseas.
12.19.2.3 Initial and Follow on Public Offerings for listing at recognized
Stock Exchanges overseas.
12.19.2.4 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.
12.19.2.5 Money Market Instruments rated not below investment grade.
12.19.2.6 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.
12.19.2.7 Government securities where the countries are rated not below
investment grade.
12.19.2.8 Derivatives traded on recognized stock exchanges overseas only
for hedging and portfolio balancing with underlying as
securities.
12.19.2.9 Short term deposits with banks overseas where the issuer is
rated not below investment grade.
12.19.2.10 Units / securities issued by overseas Mutual Funds or unit
trusts registered with overseas regulators and investing in
455 Please refer Format no. 2.I under the section on formats
242 Master Circular for Mutual Funds as on March 31, 2023
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
12.19.3 Other Conditions: Apart from SEBI (Mutual Funds) Regulations,
1996 and guidelines issued from time to time, the Mutual Funds
shall adhere to the following specific guidelines while making
overseas investments:
12.19.3.1 Appointment of a Dedicated Fund Manager:
a. A dedicated fund manager shall be appointed for making the
above overseas investments stipulated under Paragraph
12.19.2.1 to 12.19.2.9.
12.19.3.2 Due Diligence:
a. The Board of the AMC and Trustees shall exercise due
diligence in making investment decisions and record the
same.456 They shall make a detailed analysis of risks and
returns of overseas investment and how these investments
would be in the interest of 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.
456 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.
243 Master Circular for Mutual Funds as on March 31, 2023
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.
12.19.3.3 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 12.19.3.1.a above.
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 format457 as a footnote.
457 For Half Yearly Results, please refer to format no. 3.A under the section on Formats
244 Master Circular for Mutual Funds as on March 31, 2023
12.19.3.4 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 12.19.3.1 above.
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
communication to unit holders shall also disclose the risk
factors associated with such investments.
12.19.3.5 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.
12.19.3.6 Review of Performance:
245 Master Circular for Mutual Funds as on March 31, 2023
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.
12.19.3.7 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.
12.19.3.8 Prudential Investment Norms:
a. Investment restrictions specified in Schedule Seven of the
Mutual Funds Regulations are applicable to overseas
investments stipulated under Paragraphs 12.19.2.1-
12.19.2.10 above.
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 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
246 Master Circular for Mutual Funds as on March 31, 2023
Trustees and shall also be disclosed in the Annual Report
of the scheme.
d. The application458 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.
12.20 Investments in Indian Depository Receipts (IDRs) 459
12.20.1 Mutual funds can invest in Indian Depository Receipts460 [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.
12.21 Investments in units of REITs / InvITs461
12.21.1 The investment restrictions mentioned at Clause 13 in the Seventh
Schedule of SEBI (Mutual Funds) Regulations, 1996 shall be
applicable to all fresh investments by all schemes, including an
existing scheme.
12.21.2 Any existing scheme intending to invest in units of REITs/InvITs
shall abide by the provisions of Regulation 18 (15A) of SEBI
(Mutual Funds) Regulations, 1996.
12.21.3 For investment in units of REITs / InvITs by an existing Mutual
Fund scheme, unit holders of the scheme shall be given a time
458 Please refer to format no. 4 under the section on formats for format of proposal for
investments in foreign securities and ETFs
459 SEBI Circular No. IMD/CIR. No.1/165935/2009 dated June 09, 2009
460 Regulation 43(1) of SEBI (Mutual Funds) Regulations, 1996
461 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/17 dated February 28, 2017
247 Master Circular for Mutual Funds as on March 31, 2023
period of at least 15 days for the purpose of exercising the exit
option.
12.22 Investment Restrictions462
12.22.1 All investment restrictions as contained in the Regulations463 shall
be applicable at the time of making investment.
12.23 Recording of Investment Decisions464
12.23.1 AMC(s) shall exercise due diligence and care in all investment
decisions as would be exercised by other persons engaged in the
same business.465 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.
12.23.2 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, securities classified as below
investment grade or default466, transactions where associates are
462 SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000, Refer SEBI letter No.
SEBI/HO/IMD-II/DoF8/OW/P/05031/2022- dated February 07, 2022
463 Seventh Schedule of SEBI (Mutual Funds) Regulations, 1996.
464 SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000, Refer SEBI letter No.
SEBI/HO/IMD II/DoF4/OW/P/3503/2021 dated February 09, 2021
465 Regulation 2 5(2) of the SEBI (Mutual Funds) Regulations, 1996.
466 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019.
248 Master Circular for Mutual Funds as on March 31, 2023
involved and instances where the performance of the scheme(s) is
poor.
12.23.3 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 Reports467. Trustees
shall also check compliance with these Guidelines through
independent auditors or internal and/or statutory auditors or
other systems developed by them.
12.24 Cumulative Gross Exposure Limits468:
12.24.1 The cumulative gross exposure through equity, debt, derivative
positions (including commodity and fixed income derivatives), repo
transactions and credit default swaps in corporate debt securities,
Real Estate Investment Trusts (REITs), Infrastructure Investment
Trusts (InvITs), other permitted securities/assets and such other
securities/assets as may be permitted by the Board from time to
time should not exceed 100% of the net assets of the scheme.
12.25 Norms for investment and disclosure by Mutual Funds in
derivatives469
12.25.1 Mutual Funds shall not write options or purchase instruments
with embedded written options except for the covered call
strategy470.
12.25.2 The total exposure related to option premium paid must not exceed
20% of the net assets of the scheme.
467 For Half Yearly Trustee Report please refer to format no. 2.C under the section on Formats
468 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
469 SEBI Circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010 and SEBI Circular No.
SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021, Refer SEBI letter No.
SEBI/HO/ IMD-II/DOF3/OW/P/2021/31487/1 dated November 3, 2021
470 Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/17 dated January 16, 2019
249 Master Circular for Mutual Funds as on March 31, 2023
12.25.3 Cash or cash equivalents with residual maturity of less than 91
days may be treated as not creating any exposure.
12.25.4 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 Paragraph
12.24.1 above.
c. Any derivative instrument used to hedge has the same
underlying security as the existing position being hedged.
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.
12.25.5 471Mutual Funds may enter into plain vanilla Interest Rate Swaps
(IRS) for hedging purposes. The value of the notional principal in
such cases must not exceed the value of respective existing assets
being hedged by the scheme.
12.25.6 In case of participation in IRS is through over the counter
transactions, the counter party has to be an entity recognized as a
market maker by RBI and exposure to a single counterparty
scheme in such transactions should not exceed 10% of the net
assets of the scheme. However, if mutual funds are transacting in
IRS through an electronic trading platform offered by the Clearing
471 SEBI/HO/IMD/IMD-I DOF2/P/CIR/2021/580 dated June 18, 2021
250 Master Circular for Mutual Funds as on March 31, 2023
Corporation of India Ltd (CCIL) and CCIL is the central
counterparty for such transactions guaranteeing settlement, the
single counterparty limit of 10% shall not be applicable.
12.25.7 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 Paragraph 12.24.1.
12.25.8 Writing of Covered Call Options by Mutual Fund Schemes472:
Mutual funds have been permitted to write call options under a
covered call strategy as prescribed below:
i. Mutual Fund schemes (except Index Funds and ETFs) may write
call options only under a covered call strategy for constituent
stocks of NIFTY 50 and BSE SENSEX subject to the following:
a. The total notional value (taking into account strike price as
well as premium value) of call options written by a scheme
shall not exceed 15% of the total market value of equity
shares held in that scheme.
b. The total number of shares underlying the call options
written shall not exceed 30% of the unencumbered shares
of a particular company held in the scheme. The
unencumbered shares in a scheme shall mean shares that
are not part of Securities Lending and Borrowing
Mechanism (SLBM), margin or any other kind of
encumbrances.
c. At all points of time the Mutual Fund scheme shall comply
with the provisions at Paragraphs 12.25.8.(i).(a) and
12.25.8.(i).(b) above. In case of any passive breach of the
472 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/17 dated January 16, 2019
251 Master Circular for Mutual Funds as on March 31, 2023
requirement at Paragraph 12.25.8.(i).(a), the respective
scheme shall have 7 trading days to rebalance the portfolio.
During the rebalancing period, no additional call options
can be written in the said scheme.
d. In case a Mutual Fund scheme needs to sell securities on
which a call option is written under a covered call strategy,
it must ensure compliance with Paragraphs 12.25.8.(i).(a)
and 12.25.8.(i).(b) above while selling the securities.
e. In no case, a scheme shall write a call option without
holding the underlying equity shares. A call option can be
written only on shares which are not hedged using other
derivative contracts.
f. The premium received shall be within the requirements
prescribed in terms of Paragraph 12.25.2 above i.e. the total
gross exposure related to option premium paid and received
must not exceed 20% of the net assets of the scheme.
g. The exposure on account of the call option written under
the covered call strategy shall not be considered as
exposure under Paragraph 12.24.1 above.
h. The call option written shall be marked to market daily and
the respective gains or losses factored into the daily NAV of
the respective scheme(s) until the position is closed or
expired.
ii. For schemes intending to use covered call strategy, the risks and
benefit of the same, must be disclosed in the Scheme
Information Document.
iii. Format for the purpose of uniform disclosure of investments in
derivative instruments by Mutual Funds in half yearly portfolio
252 Master Circular for Mutual Funds as on March 31, 2023
disclosure, annual report or in any other disclosures is
prescribed473. Further, the call options written shall be disclosed
in the format474 prescribed.
iv. For existing schemes (schemes as on January 16, 2019), writing
of call options shall be permitted subject to appropriate
disclosure and compliance with Regulation 18 (15A) of SEBI
(Mutual Funds) Regulations, 1996.
12.25.9 Hedging of Interest Rate Risk475
12.25.9.1 To reduce interest rate risk in a debt portfolio, mutual funds
may hedge the portfolio or part of the portfolio (including one or
more securities) on weighted average modified duration basis by
using Interest Rate Futures (IRFs). The maximum extent of short
position that may be taken in IRFs to hedge interest rate risk of
the portfolio or part of the portfolio, is as per the formula given
below:
(Portfolio Modified Duration * Market Value of the Portfolio)
(Futures Modified Duration * Futures Price / PAR)
12.25.9.2 In case the IRF used for hedging the interest rate risk has
different underlying security(s) than the existing position being
hedged, it would result in imperfect hedging.
12.25.9.3 Imperfect hedging using IRFs may be considered to be exempted
from the gross exposure, up to maximum of 20% of the net
assets of the scheme, subject to the following:
i. Exposure to IRFs is created only for hedging the interest rate
risk based on the weighted average modified duration of the
bond portfolio or part of the portfolio.
473 Please refer format no. 3.C under the section on formats
474 Please refer format no. 7.F under the section on formats
475 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/109 dated September 27, 2017
253 Master Circular for Mutual Funds as on March 31, 2023
ii. Mutual Funds are permitted to resort to imperfect hedging,
without it being considered under the gross exposure limits,
if and only if, the correlation between the portfolio or part of
the portfolio (excluding the hedged portions, if any) and the
IRF is at least 0.9 at the time of initiation of hedge. In case of
any subsequent deviation from the correlation criteria, the
same may be rebalanced within 5 working days and if not
rebalanced within the timeline, the derivative positions
created for hedging shall be considered under the gross
exposure computed in terms of Paragraph 12.24.1 above. The
correlation should be calculated for a period of last 90 days.
Explanation: If the fund manager intends to do imperfect
hedging up to 15% of the portfolio using IRFs on weighted
average modified duration basis, either of the following
conditions need to be complied with:
(a) The correlation for past 90 days between the portfolio
and the IRF is at least 0.9 or
(b) The correlation for past 90 days between the part of the
portfolio (excluding the hedged portions, if any) i.e. at
least 15% of the net asset of the scheme (including one
or more securities) and the IRF is at least 0.9.
iii. At no point of time, the net modified duration of part of the
portfolio being hedged should be negative.
iv. The portion of imperfect hedging in excess of 20% of the net
assets of the scheme should be considered as creating
exposure and shall be included in the computation of gross
exposure in terms of Paragraph 12.24.1 above.
12.25.9.4 The basic characteristics of the scheme should not be affected
by hedging the portfolio or part of the portfolio (including one or
254 Master Circular for Mutual Funds as on March 31, 2023
more securities) based on the weighted average modified
duration.
Explanation: In case of long term bond fund, after hedging the
portfolio based on the modified duration of the portfolio, the net
modified duration should not be less than the minimum
modified duration of the portfolio as required to consider the
fund as a long term bond fund.
12.25.9.5 The interest rate hedging of the portfolio should be in the
interest of the investors.
12.25.9.6 Mutual Fund schemes may imperfectly hedge their portfolio or
part of their portfolio using IRFs, subject to the following
conditions:
i. Prior to commencement of imperfect hedging, existing
schemes (schemes as on September 27, 2017) shall comply
with the provisions of Regulation 18 (15A) of SEBI (Mutual
Funds) Regulations, 1996 and all unit holders shall be given
a time-period of at least 30 days to exercise the option to exit
at prevailing NAV without charging of exit load.
The risks associated with imperfect hedging shall be disclosed
and explained by suitable numerical examples in the offer
documents and also needs to be communicated to the
investors through public notice or any other form of
correspondence.
ii. In case of new schemes (schemes launched on or after
September 27, 2017), the risks associated with imperfect
hedging shall be disclosed and explained by suitable
numerical examples in the offer documents.
12.25.10 Disclosure of Derivative Positions
255 Master Circular for Mutual Funds as on March 31, 2023
In addition to the existing provisions, the mutual funds shall also
make the following disclosures
12.25.10.1 Separately disclose the hedging positions through IRF (both
perfectly and imperfectly) in respective debt portfolios as per
the prescribed format476.
12.25.10.2 Investment in interest rate derivatives (both IRS/IRF) shall also
be disclosed in the monthly portfolio disclosure in terms of
Paragraph 5.1 of this Master Circular.
12.25.10.3 Disclosure of the details of interest rate derivatives (both
IRS/IRF) used for hedging along with debt and money market
securities transacted on its website and also forwarded to AMFI
as per Paragraph 9.13 of this Master Circular.
12.25.11 Definition of Exposure in case of Derivative Positions
12.25.11.1 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.
12.25.11.2 The provisions shall be applicable for all new schemes
launched post August 18, 2010. For all existing schemes (as
on August 18, 2010), compliance with the guidelines shall be
effective from October 01, 2010.
476 Please refer format no. 3.C & 7.F under the section on formats.
256 Master Circular for Mutual Funds as on March 31, 2023
12.26 Participation of mutual funds in Exchange Traded Commodity
Derivatives (ETCDs) 477:
12.26.1 Mutual funds are permitted to participate in ETCDs in India, except
in commodity derivatives on ‘Sensitive Commodities’478.
12.26.2 ETCDs having gold as the underlying, shall also be considered as
‘gold related instrument’ for Gold Exchange Traded Funds (Gold
ETFs).
12.26.3 479No Mutual fund schemes shall invest in physical goods except in
‘gold’ through Gold ETFs. Further, as mutual fund schemes
participating in ETCDs may hold the underlying goods in case of
physical settlement of contracts, in that case mutual funds shall
dispose of such goods from the books of the scheme, at the earliest,
not exceeding the timeline prescribed below:
a) For Gold and Silver: - 180 days from the date of holding of
physical goods,
b) For other goods (except for Gold and Silver):
1) By the immediate next expiry day of the same contract series
of the said commodity.
2) However, if Final Expiry Date (FED) of the goods falls before
the immediate next expiry day of the same contract series of
the said commodity, then within 30 days from the date of
holding of physical goods.
12.26.4 No mutual fund scheme shall have net short positions in ETCDs on
any particular good, considering its positions in physical goods as
well as ETCDs, at any point of time.
477 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/65 dated May 21, 2019
478 SEBI circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017
479 SEBI circular no. SEBI/HO/IMD/DF2/CIR/P/2020/96 dated June 05, 2020, Refer SEBI
letter No. SEBI/HO/IMD/DF3/OW/P/2019/31579/1 dated November 28, 2019
257 Master Circular for Mutual Funds as on March 31, 2023
12.26.5 Mutual funds are permitted to participate in ETCDs through the
following schemes:
a. Hybrid schemes480 including multi asset scheme and
b. Gold ETFs.
12.26.6 The following exposures shall not be considered in the cumulative
gross exposure for the purpose of Paragraph 12.24.1 above 481:
a. Short position in Exchange Traded Commodity Derivatives
(ETCDs) not exceeding the holding of the underlying goods
received in physical settlement of ETCD contracts
b. Short position in ETCDs not exceeding the long position in
ETCDs on the same goods.
c. Further, the mutual funds shall not write options, or purchase
instruments with embedded written options in goods or on
commodity futures.
12.26.7 In case of existing schemes (schemes existing as on May 21, 2019),
as mentioned in Paragraph 12.26.5 above, prior to commencement
of participation in ETCDs, the scheme shall comply with the
provisions of Regulation 18(15A) of SEBI (Mutual Funds)
Regulations, 1996, as this will lead to change in fundamental
attributes of the scheme and all unitholders shall be given a time
period of at least 30 days to exercise the option to exit at prevailing
NAV without charging of exit load, if any.
12.26.8 Prior to participation in ETCDs, the AMCs shall adhere to the
following:
a. Appoint a dedicated fund manager with requisite skill and
experience in commodities market (including commodity
derivatives market).
480 SEBI Circular No.SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017
481 SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2021/10 dated January 15, 2021
258 Master Circular for Mutual Funds as on March 31, 2023
b. Appoint a custodian registered with the Board for custody of the
underlying goods, arising due to physical settlement of
contracts.
c. Have written down investment policy for participation in ETCDs
approved by the Board of the Asset Management Company and
the Board of Trustees.
d. Have written down valuation policies approved by the Board of
the AMC and the Board of Trustees for valuation of commodity
derivatives and the underlying goods, arising due to physical
settlement of contracts. The approved valuation policies should
be subject to the principles of fair valuation of the assets of
mutual funds schemes.
12.26.9 Mutual fund schemes may participate in the ETCDs as ‘clients’ and
shall be subject to all the rules, regulations and instructions,
position limit norms, etc. as may be applicable to clients, issued by
SEBI and Exchanges from time to time. The position limits at
mutual fund level be as applicable to ‘Trading Members’.
12.26.10 Schemes investing in ETCDs shall be benchmarked against an
appropriate benchmark.
12.26.11 AMCs shall not on board Foreign Portfolio Investors (FPIs) in
schemes investing in ETCDs until FPIs are permitted to participate
in ETCDs.
12.26.12 Investment Limits in ETCDs: Participation of mutual funds in
ETCDs shall be subject to the following investment limits:
a. Mutual fund schemes shall participate in ETCDs of a
particular goods (single), not exceeding 10% of net asset
value of the scheme. However, the limit of 10% is not
applicable for investments through Gold ETFs in ETCDs
having gold as underlying.
259 Master Circular for Mutual Funds as on March 31, 2023
b. In case of multi assets allocation schemes, the exposure to
ETCDs shall not be more than 30% of the net asset value of
the scheme.
c. In case of other hybrid schemes excluding multi assets
allocation scheme, the participation in ETCDs shall not
exceed 10% of net asset value of the scheme.
12.26.13 In case of mutual fund schemes investing in ETCDs, the AMC shall
adhere to the following:
a. The NAVs of those schemes shall be updated on each
business day by the AMCs on their website and on the
website of AMFI by 09:00 a.m. of the following calendar day.
b. The format of monthly and half yearly portfolio may be
modified to reflect the investment in ETCDs.
c. The total exposure to ETCDs shall be disclosed as a line item
in the Monthly Cumulative Report (MCR) submitted by
mutual funds.
12.27 Interval Schemes/Plans482
12.27.1 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’.
12.27.2 For all interval schemes/plans:
12.27.2.1 The units shall be mandatorily listed.
12.27.2.2 No redemption/repurchase of units shall be allowed except
during the specified transaction period (the period during which
482 SEBI Circular No. CIR/IMD/DF /19/2010 dated November 26, 2010
260 Master Circular for Mutual Funds as on March 31, 2023
both subscription and redemption may be made to and from the
scheme). The specified transaction period shall be of minimum
2 working days.
12.27.2.3 Minimum duration of an interval period in an interval
scheme/plan shall be 15 days.
12.27.2.4 Investments shall be permitted only in such securities which
mature on or before the opening of the immediately following
specified transaction period.
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.
12.28 CDS – mutual funds as users (protection buyers)483
12.28.1 Mutual funds have been permitted to participate in CDS market,
as per the guidelines issued by RBI from time to time, subject to
the following conditions:
12.28.1.1 Mutual funds shall participate in CDS transactions only as
users (protection buyer). Thus, mutual funds are permitted to
buy credit protection only to hedge their credit risk on corporate
bonds they hold. They shall not be allowed to sell protection and
hence not permitted to enter into short positions in the CDS
contracts. However, they shall be permitted to exit their bought
CDS positions, subject to Paragraph 12.28.1.4 below.
12.28.1.2 Mutual funds can participate as users in CDS for the eligible
securities as reference obligations, constituting from within the
483 SEBI Circular No. CIR/IMD/DF/23/2012 dated November 15, 2012 and SEBI Circular
No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021.
261 Master Circular for Mutual Funds as on March 31, 2023
portfolio of only Fixed Maturity Plans (FMP) schemes having
tenor exceeding one year.
12.28.1.3 Mutual funds shall buy CDS only from a market maker approved
by the RBI and enter into Master Agreement with the
counterparty as stipulated under RBI Guidelines. Exposure to a
single counterparty in CDS transactions shall not exceed 10% of
the net assets of the scheme.
12.28.1.4 The cumulative gross exposure through equity, debt, derivative
positions (including commodity and fixed income derivatives),
repo transactions and credit default swaps in corporate debt
securities, Real Estate Investment Trusts (REITs), Infrastructure
Investment Trusts (InvITs), other permitted securities/assets
and such other securities/assets as may be permitted by the
Board from time to time should not exceed 100% of the net
assets of the scheme.
12.28.1.5 The total exposure related to premium paid for all derivative
positions, including CDS, shall not exceed 20% of the net assets
of the scheme.
12.28.1.6 Before undertaking CDS transactions, mutual funds shall put
in place a written policy on participation in CDS approved by the
Board of the Asset Management Company and the Trustees as
per the guidelines specified by RBI and Securities and Exchange
Board of India (SEBI). The policy shall be reviewed by mutual
funds, at least once a year.
12.28.1.7 To enable the investors in the mutual funds schemes to take an
informed decision, the concerned Scheme Information
Document (SID) shall disclose the intention to participate in
CDS transaction in corporate debt securities in accordance with
directions issued by RBI and SEBI from time to time, and related
information as appropriate in this regard.
262 Master Circular for Mutual Funds as on March 31, 2023
12.28.1.8 Mutual funds shall also disclose the details of CDS transactions
of the scheme in corporate debt securities in the monthly
portfolio statements as well as in the half yearly trustee report,
as per the format484. Further, mutual funds shall disclose the
scheme wise details of CDS transactions in the notes to the
accounts of annual report of the mutual fund as per the
format485 .
12.28.2 Mutual funds participating in CDS transactions, as users, shall be
required to comply with the guidelines issued by RBI, vide
notification no. IDMD.PCD. No.5053/14.03.04/2010-11 dated
May 23, 2011 and subsequent guidelines issued by RBI and SEBI
from time to time.
12.29 Trade execution and Allocation486:
12.29.1 AMCs shall put in place a written down policy which inter-alia,
detail the specific activities, role and responsibilities of various
teams engaged in fund management, dealing, compliance, risk
management, back-office etc. with regard to order placement,
execution of order, trade allocation amongst various schemes and
other related matters.
12.29.2 The aforesaid policy shall ensure that all the schemes and its
investors are treated in a fair and equitable manner. Further, the
policy shall be approved by the Board of AMC and the Trustees and
they shall ensure compliance with following:
12.29.3 For orders pertaining to equity and equity related instruments:
a. AMCs shall use an automated Order Management System
(hereinafter referred to as ‘OMS’), wherein the orders for equity
484 Please refer to format no. 2.C, 3.C & 7.G.A under the section on Formats
485 Please refer to format no. 7.G.B under the section on Formats
486 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2020/175 dated September 17, 2020
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263 Master Circular for Mutual Funds as on March 31, 2023
and equity related instruments of each scheme shall be placed
by the fund manager(s) of the respective schemes. 487However,
a fund manager may authorise an employee of the AMC for
order placement on his behalf, subject to adherence to the
following:
I. The order instructions to such employee by the fund
manager shall be through electronic mode i.e. either
through e-mail or other electronic utility, wherein scheme
wise audit trail of such orders starting from the instruction
of the fund manager is maintained along with time
stamping of each stage of the process.
II. The employee placing the order shall be bound by the same
requirements of maintaining confidentiality and the code of
conduct as applicable to the fund manager in this regard
i.e. in respect of order placement.
b. Further, the orders in case of arbitrage transactions, stock
lending and borrowing transactions, passive schemes (such as
Index Funds and ETFs) and schemes investing primarily based
on pre-defined rules and models, where the discretion of the
fund manager is not required for placement of order, is not
mandated to be placed through OMS, subject to the following:
I. The AMC shall document and demonstrate that no
judgement and discretion of the fund manager is required
for placement of such orders;
II. The AMCs shall ensure that orders in breach of applicable
regulatory limits and allocation limits as specified in
Scheme Information Documents (SIDs), should not be
placed and executed;
487 SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2020/253 dated December 31, 2020
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264 Master Circular for Mutual Funds as on March 31, 2023
III. The fund manager shall provide the scheme wise details as
required for order placement such as value of
transaction(s), nature of transaction(s), etc. to the dealer;
IV. The scheme wise audit trail of placement of orders
(including the information provided by the fund manager),
order execution and trade allocation shall be maintained
along with time stamping of each stage of the process.
c. At all points of time, the responsibility associated with order
placement shall continue to vest with the fund manager.
d. In case a fund manager is managing multiple schemes, the
fund manager shall necessarily place scheme wise order.
e. All regulatory limits and allocation limits as specified in SID
shall be in-built in the OMS to ensure that orders in breach of
such limits are not accepted by the OMS. AMCs may further
place soft limits for internal control and risk management
based on its internal policy. Further, any change in limits
specified in OMS shall be subject to the approval of Compliance
and Risk Officer.
f. All orders of fund manager(s) shall be received by dedicated
dealer(s) responsible for order placement and execution.
However488, in case order(s) for arbitrage transactions, stock
lending and borrowing transactions, passive schemes (such as
Index Funds and ETFs) and schemes investing primarily based
on pre-defined rules and models the requirement of a dedicated
dealer shall not be mandatory.
g. The internal policy of AMC may also provide certain scenarios
within the regulatory limits, wherein, prior approval of
488 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2020/253 dated December 31, 2020
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265 Master Circular for Mutual Funds as on March 31, 2023
Compliance or Risk Officer would be required through OMS
before the order is received by the dealer
12.29.4 Requirements with respect to investment in all instruments489
a. AMC shall ensure that the dealing desk is suitably staffed and
comply with the following:
I. All conversations of the dealer shall be only through the
dedicated recorded telephone lines
II. No mobile phones or any other communication devices
other than the recorded telephone lines shall be allowed
inside the dealing room
III. Restricted access to internet facilities on computers and
other devices inside the dealing room. It shall be used for
activities related to trade execution only
IV. No sharing of information by dealer through any mode,
except for trade execution under the approved internal
policy
b. Orders by dealer can be placed either for each scheme
individually or pooled on the basis of orders from multiple
schemes. The trade allocation policy of the AMCs shall inter-
alia detail (i) specific situations (not generic) wherein the orders
by dealers shall be placed for each scheme individually or
pooled from multiple schemes, (ii) the timeline to be considered
for pooling of orders in case of multiple schemes.
c. In case of pooled orders, post allocation of trades shall be on
pro-rata basis as per the size of the order placed. The said
allocation shall be based on weighted average price. The policy
shall clearly include scenarios / situations (e.g. redemption
pressure) in which deviation from the allotment of units on pro-
rata basis would be permissible, if at all. Further, the
489 Refer SEBI email dated July 16, 2010
266 Master Circular for Mutual Funds as on March 31, 2023
deviations shall be on account of exigency only and require
prior written approval of Chief Investment Officer, Risk Officer
and the Compliance Officer with detailed rationale for such
deviation.
d. In case of scenarios, wherein, the mutual funds are required to
place certain margins /collaterals in order to execute certain
transactions, the policy shall include details on how such
margins / collaterals shall be segregated / placed from
amongst various schemes, without affecting the interest of
investors of any scheme.
12.29.5 Monitoring of Compliance:
a. AMC shall have a system based monitoring mechanism to
ensure compliance with the requirements under Paragraphs
12.29.3 and 12.29.4 above.
b. 490Audit trail of activities as detailed in Paragraph 12.29.3
above related to order placement, trade execution and
allocation shall be available in the system. Further, there
should be time stamping with respect to order placed by fund
manager (or the order placed by the employee of the AMC
authorized by the fund manager), order placed by dealer, order
execution and trade allocation in the OMS. The audit trail and
time stamping of all other orders (including orders through
RFQ platform) not placed through OMS shall also be
adequately maintained.
c. Any non-compliance and all material information in this regard
shall be reported to trustees on quarterly basis. Trustees shall
inform the same to SEBI in their half yearly trustee report.
490 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2020/253 dated December 31, 2020
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267 Master Circular for Mutual Funds as on March 31, 2023
12.30 491Inter Scheme Transfer of Securities (“IST”):
12.30.1 Transfers of securities from one scheme to another scheme in the
same mutual fund is allowed only if such transfers are done at the
prevailing market price for quoted instruments on spot basis and
the securities so transferred are in conformity with the investment
objective of the scheme to which such transfer has been made.
12.30.2 In order to ensure that such Inter Schemes Transfers (ISTs) of
securities are in conformity with the above objective, the following
additional safeguards have been prescribed:
12.30.2.1 In case of Close Ended Schemes, IST purchases would be
allowed within “three” business days of allotment pursuant to
New Fund Offer (NFO) and thereafter, no ISTs shall be permitted
to/from Close Ended Schemes.
12.30.2.2 In case of Open Ended Schemes, ISTs may be allowed in the
following scenarios:
a. For meeting liquidity requirement in a scheme in case of
unanticipated redemption pressure:
AMCs shall have an appropriate Liquidity Risk Management
(LRM) Model at scheme level, approved by trustees, to ensure
that reasonable liquidity requirements are adequately
provided for. Recourse to ISTs for managing liquidity will
only be taken after the following avenues for raising liquidity
have been attempted and exhausted:
I. Use of scheme cash & cash equivalent
II. Use of market borrowing
III. Selling of scheme securities in the market
491 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2020/202 dated October 08, 2020
268 Master Circular for Mutual Funds as on March 31, 2023
IV. After attempting all the above, if there is still a scheme
level liquidity deficit, then out of the remaining
securities, outward ISTs of the optimal mix of low
duration paper with highest quality shall be effected.
The use of market borrowing before ISTs will be optional
and Fund Manager may at his discretion take decision
on borrowing in the best interest of unitholders. The
option of market borrowing or selling of security as
mentioned at Paragraphs 12.30.2.2.a.II & 12.30.2.2.a.III
above may be used in any combination and not
necessarily in the above order. In case option of market
borrowing and/or selling of security is not used, the
reason for the same shall be recorded with evidence.
b. For Duration/Issuer/Group rebalancing:
I. ISTs shall be allowed only to rebalance the breach of
regulatory limit.
II. ISTs can be done where any one of duration, issuer,
sector and group balancing is required in both the
transferor and transferee schemes. Different reasons
cannot be cited for transferor and transferee schemes
except in case of transferee schemes is being a Credit
Risk scheme.
III. In order to guard against possible mis-use of ISTs in
Credit Risk scheme, trustees shall ensure to have a
mechanism in place to negatively impact the
performance incentives of Fund Managers, Chief
Investment Officers (CIOs), etc. involved in process of
ISTs in Credit Risk scheme, in case the security becomes
default grade after the ISTs within a period of one year.
Such negative impact on performance shall mirror the
269 Master Circular for Mutual Funds as on March 31, 2023
existing mechanism for performance incentives of the
AMC.
12.30.2.3 No ISTs of a security shall be allowed, if there is negative news
or rumors in the mainstream media or an alert is generated
about the security, based on internal credit risk assessment in
terms of Paragraph 4.3 of this Master Circular during the
previous four months.
12.30.2.4 AMC shall ensure that Compliance Officer, Chief Investment
Officer and Fund Managers of transferor and transferee schemes
have satisfied themselves that ISTs undertaken are in
compliance with the regulatory requirements. Prescribed
“Template”492 and documentary evidence in this regard shall be
maintained by the AMC for all ISTs.
12.30.2.5 If security gets downgraded following ISTs, within a period of
four months, Fund Manager of buying scheme has to provide
detailed justification /rationale to the trustees for buying such
security.
492 Please refer to format no. 11 under the section on formats
270 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 13: ADVERTISEMENTS493
13.1 Advertisement shall be in terms of Sixth Schedule494.
13.2 In addition to the provisions of the Sixth Schedule, mutual funds shall
comply with the following:495
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 Further, for pay out of dividends at maturity of closed-ended
scheme(s)/ at completion of the interval period of interval scheme(s),
AMC shall advertise that “the entire distributable surplus at the time
of maturity or at the completion of the interval period shall be
distributed
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 Disclosing performance related information in Mutual Fund
advertisements496
13.3.1 In performance advertisements of Mutual Fund schemes:
493SEBI Circular No. Cir/IMD/DF/13/2011 dated August 22, 2011 and SEBI Circular No.
Cir/IMD/DF/6/2012 dated February 28, 2012 and SEBI Circular No. SEBI/IMD/CIR
No.1/64057/06 dated April 04, 2006, Refer SEBI email dated May 03, 2017, Refer SEBI letter
No. IMD/DF2/RS/2017/10751 dated May 12, 2017, Refer SEBI letter No.
IMD/SEC4/OW/P/2023/9448/1 dated March 03, 2023
494 Sixth Schedule of SEBI (Mutual Funds) Regulations, 1996
495 SEBI Circular No. Cir/IMD/DF/6/2012 dated February 28, 2012 and Circular No.
SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021, Refer SEBI email dated June
02, 2010
496 SEBI Circular No. Cir/IMD/DF/23/2017 dated March 15, 2017
271 Master Circular for Mutual Funds as on March 31, 2023
13.3.1.1 Performance of the Mutual Fund scheme shall be advertised in
terms of CAGR for the past 1 year, 3 years, 5 years and since
inception.
13.3.1.2 In order to provide ease of understanding to retail investors,
point-to-point returns on a standard investment of Rs. 10,000/-
shall also be provided in addition to CAGR of the scheme.
13.3.1.3 Performance advertisements of Mutual Fund schemes should
provide information based on period computed from the last day
of month-end preceding the date of advertisement.
13.3.1.4 It should be specifically mentioned whether performance so
disclosed, is of regular or direct plan of the Mutual Fund scheme
along-with a footnote mentioning that different plans have a
different expense structure.
13.3.1.5 If a Mutual Fund scheme has not been managed by the same fund
manager for the full period of the information being published in
the advertisement, the same should be disclosed in a footnote
13.3.2 Where the scheme has been in existence for less than six months
past performance shall not be provided. Further, if the scheme has
been in existence for more than six months but less than one year,
then simple annualized growth rate of the scheme for the past 6
months from the last day of month-end preceding the date of
advertisement shall be provided497.
13.3.3 498In case of Overnight funds, Liquid funds and Money Market funds,
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
497 SEBI Circular No. Cir/IMD/DF/13/2011 dated August 22, 2011 and SEBI Circular No.
SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
498 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
272 Master Circular for Mutual Funds as on March 31, 2023
days provided it does not reflect an unrealistic or misleading picture
of the performance or future performance of the scheme.
13.3.4 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:
Sr.No. Category of Schemes Additional
Benchmark
1 All Equity Scheme Sensex/ Nifty
2 All Debt Schemes having 1-year T-Bill
duration / maturity upto 1
year and Arbitrage Funds
3 All Debt Schemes which are 10 year dated GOI
not covered in Point 2 Security
4 Conservative Hybrid Fund 10 year dated GOI
Security
5 Balanced Hybrid Fund / Sensex / Nifty
Aggressive Hybrid Fund /
Dynamic Asset Allocation or
Balanced Advantage / Multi
Asset Allocation
6 Equity Savings 10 year dated GOI
Security
7 Retirement Fund / Children's Sensex/Nifty
Fund
8 Index Funds / ETFs & FoFs Appropriate
(Overseas/ Domestic) benchmark based on
the underlying asset
allocation as per
above
These disclosures shall form a part of the Statement of
Additional Information and all advertisements of Mutual Funds.
273 Master Circular for Mutual Funds as on March 31, 2023
13.3.5 Any disclosure regarding quarterly/ half yearly/ yearly performance
shall pertain to respective calendar quarterly/ half yearly/ yearly
only.
13.3.6 499When 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/s of that
particular scheme. Such performance data of the other schemes
managed by the fund manager shall be provided as follows:
13.3.6.1 Performance of other schemes managed by the fund manager,
along-with their respective scheme’s benchmark, shall be
provided in terms of CAGR for a period of 1 year, 3 years and 5
years. The period referred here shall be computed in the same
manner as that of the scheme being advertised.
13.3.6.2 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 advertisements. 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.
13.3.6.3 If a Mutual Fund scheme has not been managed by the same fund
manager for the full period of information being published in the
advertisement, the same should be disclosed in a footnote.
13.3.6.4 Further, for advertisement published in internet-enabled media,
Mutual Funds shall be permitted to provide an exact website link
499 SEBI Circular No. Cir/IMD/DF/23/2017 dated March 15, 2017
274 Master Circular for Mutual Funds as on March 31, 2023
to such summarized information of performance of other schemes
managed by the concerned fund manager.
13.3.6.5 An indicative format500 of disclosure of performance of other
schemes managed by the concerned fund manager is provided.
13.4 Disclosure of Performance of Schemes post-merger501 :
13.4.1 Disclosure of performance of schemes post-merger shall be as given
below
13.4.1.1 When two schemes, for example, Scheme A (Transferor Scheme)
& Scheme B (Transferee Scheme), having similar features, get
merged and the merged scheme i.e., surviving scheme also has
the same features, the weighted average performance of both the
schemes needs to be disclosed.
13.4.1.2 When Scheme A (Transferor Scheme) gets merged into Scheme B
(Transferee Scheme) and the features of Scheme B are retained,
the performance of the scheme whose features are retained needs
to be disclosed.
13.4.1.3 When Scheme A (Transferor Scheme) gets merged into Scheme B
(Transferee Scheme) and the features of Scheme A (Transferor
scheme) are retained, the performance of the scheme whose
features are retained needs to be disclosed.
13.4.1.4 When Scheme A (Transferor Scheme) gets merged with Scheme B
(Transferee Scheme) and a new scheme, Scheme C emerges after
such consolidation or merger of schemes, the past performance
need not be provided.
13.4.2 In addition to disclosing the performance of the scheme as mentioned
above, past performance of such scheme(s) whose features are not
500 Please refer to format no. 7.A under the section on Formats
501 SEBI Circular No- SEBI/HO/IMD/DF3/CIR/P/2018/69 dated April 12, 2018
275 Master Circular for Mutual Funds as on March 31, 2023
retained post-merger may also be made available on request with
adequate disclaimer.
13.5 Filing of Advertisements502
13.5.1 Regulation 30 of SEBI (Mutual Funds) Regulations, 1996 (MF
Regulations) on Advertisement material, requires Mutual Funds to
submit to SEBI, the advertisements issued by them, within 7 days
from the date of issue.
13.5.2 In continuation to the various Go Green initiatives in Mutual Funds,
the Mutual Funds are advised to submit links to access the
advertisements to be filed under the MF Regulations by sending the
same through e-mail to SEBI at mf_advertisement@sebi.gov.in.
However, advertisement materials like pamphlets may be submitted
as attachment along with e-mail, if the size of the attachment does
not exceed 250 KB.
13.5.3 Mutual Funds shall however, maintain copy of advertisements for
future references.
13.5.4 While sending the e-mail, the compliance officer of respective Mutual
Fund shall expressly confirm that the advertisement is in compliance
with the Advertisement code specified in the sixth schedule of the MF
Regulations.
13.6 Indicative portfolios and yields in mutual funds schemes503
13.6.1 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
502 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/34 dated March 08, 2019, Refer
SEBI email dated March 29, 2010
503 SEBI Circular No. IMD/CIR No. 14/151044/09 dated January 19, 2009
276 Master Circular for Mutual Funds as on March 31, 2023
products. The compliance of the same shall be monitored by the AMC
and Trustees and reported in their respective reports to SEBI.
13.6.2 Indicative portfolio or yield in close ended debt oriented mutual
fund schemes504
Mutual Funds (MFs)/AMCs may make following additional
disclosures in the SID/SAI and KIM without indicating the portfolio
or yield, directly or indirectly:
13.6.2.1 MFs/AMCs shall disclose their credit evaluation policy for the
investments in debt securities.
13.6.2.2 MFs/AMCs shall also disclose the list of sectors they would not
be investing.
13.6.2.3 MFs shall disclose the type of instruments which the schemes
propose to invest viz. CPs, CDs, Treasury bills etc.
13.6.2.4 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:
13.6.2.5 After the closure of NFO, the AMCs will report in the next meeting
of AMCs and Trustees the publicized percentage allocation and
504 SEBI Circular No. CIR/IMD/DF/12/2011 dated August 01, 2011
277 Master Circular for Mutual Funds as on March 31, 2023
the final portfolio. Variations between indicative portfolio
allocation and final portfolio will not be permissible.
278 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 14: INVESTOR RIGHTS & OBLIGATIONS
PART I – INVESTOR RIGHTS
14.1 Transfer of Redemption or Repurchase Proceeds505
14.1.1 The transfer of redemption or repurchase proceeds to the unitholders
shall be made within three working days from the date of redemption
or repurchase.
14.1.2 Paragraph 12.19.2 of this Master Circular prescribes a list of
permissible investments for the purpose of overseas investments. For
schemes investing at least 80% of total assets in such permissible
overseas investments, the transfer of redemption or repurchase
proceeds to the unitholders shall be made within five working days
form the date of redemption or repurchase.
14.1.3 AMFI, in consultation with SEBI, has published a list of exceptional
circumstances for schemes unable to transfer redemption or
repurchase proceeds to investors within time as stipulated at
Paragraph 14.1.1 and 14.1.2 above, along with applicable time frame
for transfer of redemption or repurchase proceeds to the unitholders
in such exceptional circumstances. The said list is available on AMFI
website.
14.2 Payment of interest for delay in dispatch of redemption and/or
repurchase proceeds and/or dividend506
14.2.1 In the event of failure to dispatch:
505 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/161 dated November 25,
2022
506 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/161 dated November 25,
2022 & SEBI Circular No. SEBI/MFD/CIR/2/266/2000 dated May 19, 2000.
,
279 Master Circular for Mutual Funds as on March 31, 2023
a. Redemption or repurchase proceeds within three507 working
days from the date of receipt of such requests and/ or
b. Dividend within the stipulated seven working days508 period509,
Interest for the period of delay in transfer of redemption or
repurchase or dividend shall be payable to unitholders at the
rate of 15% per annum along with the proceeds of redemption
or repurchase or dividend, as the case may be. Such Interest
shall be borne by AMCs. The details of such payments shall be
sent to SEBI as part of Compliance Test Reports in the
prescribed format. Investors shall also be informed about the
rate and amount of interest paid to them.
14.3 Unclaimed Redemption and Dividend Amount510
14.3.1 511The unclaimed redemption and dividend amounts, that are
currently allowed to be deployed only in call money market or money
market instruments, shall also be allowed to be invested in a separate
plan of Overnight scheme / Liquid scheme/ Money Market Mutual
Fund scheme floated by Mutual Funds specifically for deployment of
the unclaimed amounts.
Provided that such schemes where the unclaimed redemption and
dividend amounts are deployed shall be only those Overnight
scheme/ Liquid scheme / Money Market Mutual Fund schemes
which are placed in A-1 cell (Relatively Low Interest Rate Risk and
Relatively Low Credit Risk) of Potential Risk Class matrix.
507 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/161 dated November 25,
2022
508 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/161 dated November 25,
2022
509 Regulation 53(a), SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated
December 15,2009
, 5 10SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000 &
SEBI/HO/IMD/DF2/CIR/P/2016/37 dated February 25, 2016
511SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/608 dated July 30, 2021
280 Master Circular for Mutual Funds as on March 31, 2023
14.3.2 AMCs shall not be permitted to charge any exit load in this plan and
TER (Total Expense Ratio) of such plan shall be capped as per the
TER of direct plan of such scheme or at 50 bps, whichever is lower.
14.3.3 Further, for the Unclaimed redemption and dividend amounts
deployed by Mutual Funds in Call Money Market or Money Market
instruments, the investment management and advisory fee charged
by the AMC for managing unclaimed amounts shall not exceed 50
basis points.
14.3.4 Investors who claim the unclaimed amounts during a period of three
years from the due date shall be paid initial unclaimed amount along-
with the income earned on its deployment. Investors, who claim these
amounts after 3 years, shall be paid initial unclaimed amount along-
with the income earned on its deployment till the end of the third
year. After the third year, the income earned on such unclaimed
amounts shall be used for the purpose of investor education.
14.3.5 The AMC shall make a continuous effort to remind the investors
through letters to take their unclaimed amounts.
14.3.6 Further, to ensure Mutual Funds play a pro-active role in tracing the
rightful owner of the unclaimed amounts:
a. Mutual Funds shall be required to provide on their website, the
list of names and addresses of investors in whose folios there are
unclaimed amounts.
b. AMFI shall also provide on its website, the consolidated list of
investors across Mutual Fund industry, in whose folios there are
unclaimed amounts. The information provided herein shall
contain name of investor, address of investor and name of
Mutual Fund/s with whom unclaimed amount lies.
c. Information at Paragraph (a) & (b) above may be obtained by
investor only upon providing his appropriate credentials (like
281 Master Circular for Mutual Funds as on March 31, 2023
PAN, date of birth, etc.) along-with adequate security control
measures being put in place by Mutual Fund / AMFI.
d. The website of Mutual Funds and AMFI shall also provide
information on the process of claiming the unclaimed amount
and the necessary forms / documents required for the same.
e. Further, the information on unclaimed amount along-with its
prevailing value (based on income earned on deployment of such
unclaimed amount), shall be separately disclosed to investors
through the periodic statement of accounts / Consolidated
Account Statement sent to the investors.
14.3.7 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.512
14.4 Dispatch of Statement of Accounts513
14.4.1 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.
14.4.2 Option to hold units in demat form514
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
512 Please refer to Schedule XI of SEBI (Mutual Funds) Regulations, 1996
513SEBI 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
514 SEBI circular no. CIR/IMD/DF/9/2011, dated May 19, 2011
282 Master Circular for Mutual Funds as on March 31, 2023
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.
d. Dematerialization of existing units held by investors
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.
e. 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 SEBI515.
14.4.3 Consolidated Account Statement516
14.3.3.1 As per Regulation517, AMCs shall ensure that the consolidated
account statement for each calendar month, is issued 518on or
before fifteenth day of the succeeding month.
515 For details on dispatch of statement of accounts. refer to Chapter 15- Investor Rights and
Obligations
516 SEBI Circular No. Cir/IMD/DF/16/2011 dated September 08, 2011
517 Regulation 36(4) of SEBI (Mutual Funds) Regulations, 1996
518 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
283 Master Circular for Mutual Funds as on March 31, 2023
14.3.3.2 519The AMC shall ensure that the CAS for the half year is issued
on or before twenty first day of the succeeding month.
14.3.3.3 As per Regulation520, the asset management company shall
ensure that a consolidated account statement every half yearly
(September/ March) is issued, detailing holding at the end of the
six month, across all schemes of all mutual funds, to all such
investors in whose folios no transaction has taken place during
that period.
14.3.3.4 Further, in order to increase transparency of information to
investors, it has been decided that521
a. Each CAS issued to the investors shall also provide the total
purchase value / cost of investment in each scheme.
b. Further, CAS issued for the half-year (ended September/
March) shall also provide.
i. The amount of actual commission paid by AMCs/Mutual
Funds (MFs) to distributors (in absolute terms) during
the half-year period against the concerned investor’s
total investments in each MF scheme. The term
‘commission’ here refers to all direct monetary payments
and other payments made in the form of gifts / rewards,
trips, event sponsorships etc. by AMCs/MFs to
distributors. Further, a mention may be made in such
CAS indicating that the commission disclosed is gross
commission and does not exclude costs incurred by
519 SEBI Circular No SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
520 Regulation 36(4) of SEBI (Mutual Funds) Regulations, 1996
521 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016 and
SEBI/HO/IMD/DF2/CIR/P/2016/89 dated September 20, 2016
284 Master Circular for Mutual Funds as on March 31, 2023
distributors such as service tax (wherever applicable, as
per existing rates), operating expenses, etc.
ii. The scheme’s average Total Expense Ratio522 (in
percentage terms) along with the break up between
Investment and Advisory fees, Commission paid to the
distributor and Other expenses for the period for each
scheme’s applicable plan (regular or direct or both) where
the concerned investor has actually invested in.”
iii. Trustees and AMCs shall ensure compliance of the
provisions mentioned above at Paragraph 14.3.3.4.(b).(ii)
above and trustees shall confirm the same to SEBI in the
half yearly trustee report.
c. Such half-yearly CAS shall be issued to all MF investors,
excluding those investors who do not have any holdings in
MF schemes and where no commission against their
investment has been paid to distributors, during the
concerned half-year period.
d. Further, an indicative format523 providing guidance on
the key components which shall be reflected in half-yearly
CAS may be referred.
14.4.4 Transferability of Mutual Fund units524
a. Regulations525 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
522 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018
523 Please refer to Format no. 3.F under the section on Formats
524 SEBI Circular No - CIR/IMD/DF/10/2010 dated August 18, 2010, Refer SEBI email dated
February 02, 2011
525 Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996
285 Master Circular for Mutual Funds as on March 31, 2023
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.
However, restrictions on transfer of units of ELSS schemes during
the lock-in period shall continue to be applicable as per the ELSS
Guidelines.
14.5 AMC’s Annual Reports for unitholders526
14.5.1 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.
14.6 Treatment and disposal of illiquid securities or securities
classified as default at the time of maturity / closure of
schemes527 528
14.6.1 In case of close-ended schemes, some of the investments made by
Mutual Funds may become default at the time of maturity of
schemes. Further, at the time of winding up of a scheme, some of the
investments made by Mutual Funds may become default or illiquid.
In due course of time i.e. after the maturity or winding up of the
schemes, such investments may be realised by the Mutual Funds. It
is advised to distribute such amount, if it is substantial, to the
concerned investors. In case the amount is not substantial, it may be
used for the purpose of investor education. The decision as to the
determination of substantial amount shall be taken by the Trustees
of Mutual Funds after considering the relevant factors including
526 SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000
527 SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019
528 SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002.
,
286 Master Circular for Mutual Funds as on March 31, 2023
number of investors, amount recovered, cost of transferring funds to
investors; among others.
14.7 Change of Mutual Fund Distributor529
14.7.1 In case 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.530
14.8 Additional mode of payment through Applications Supported by
Blocked Amount (hereinafter referred to as “ASBA”) in Mutual
Funds531
14.8.1 ASBA facility which investors have been using 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.
14.8.2 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.
14.8.3 Mutual Funds shall ensure that adequate arrangements are made by
Registrar and Transfer Agents for the implementation of ASBA.
Mutual Funds/AMCs shall make all relevant disclosures in this
regard in the SAI.
529 Refer SEBI email dated August 12, 2010
530 SEBI Circular No -SEBI/IMD/CIR No./ 13/187052 /2009 December 11, 2009
531 SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010
287 Master Circular for Mutual Funds as on March 31, 2023
14.8.4 SEBI circulars532 related to ASBA shall be followed to the extent
applicable.
14.8.5 The Mutual Funds/AMCs have to compulsorily provide ASBA facility
to the investors for all NFOs launched.
14.9 Instant Access Facility (IAF) 533
14.9.1 IAF facilitates credit of redemption proceeds in the bank account of
the investor on the same day of redemption request. In order to
further enhance the reach of Mutual Funds (MFs) towards the retail
investors, it has been decided to issue guidelines for extending IAF.
MFs/AMCs may offer IAF subject to the following conditions:
a. Eligibility -IAF shall be allowed through online mechanism and
only for resident individual investors.
b. Applicability
i. NAV: While observing the extant cut-off timings with respect to
repurchase (i.e. Redemption), under IAF the following NAVs
shall be applied:
 where the IAF application is received up to 3.00pm–the lower
of (i) NAV of previous calendar day and (ii) NAV of calendar
day on which application is received;
 where the IAF application is received after 3.00 pm –the
lower of (i) NAV of calendar day on which such application is
received, and (ii) NAV of the next calendar day.
532 SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008,
SEBI/CFD/DIL/2008/25/09dated 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, Cir / IMD / DF / 6 / 2010 dated July 28, 2010
533 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/39 dated May 08, 2017
288 Master Circular for Mutual Funds as on March 31, 2023
ii. Scheme534–MFs/ AMCs can offer Instant Access Facility (IAF)
only in Overnight and Liquid Schemes of the MF.
iii. Monetary Limit-The monetary limit under IAF shall be INR
50,000/-or 90% of latest value of investment in the scheme,
whichever is lower. This limit shall be applicable per day per
scheme per investor.
c. Liquidity
i. Liquidity for IAF has to be provided out of the available funds
with the scheme and MFs/ AMCs should put in place a
mechanism so that adequate balance is available in the bank
account of the scheme to meet liquidity/ redemption
requirements under IAF. Such mechanism may be based on
historical trends of instant access. For example, AMCs offering
IAF may set aside in cash at least 3 times of –the higher of, last
one month’s or three month’s daily average of redemptions
under instant access on a rolling day basis. AMCs should also
lay down robust processes for continuous monitoring and for
funding the redemptions under the IAF.
ii. MFs/ AMCs cannot borrow to meet the redemption
requirements under IAF.
d. Disclosures
i. AMCs shall make appropriate disclosures in the scheme related
documents about IAF and ensure that no mis-selling is done on
the pretext of instant availability of funds to the investors.
534 SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/608 dated July 30, 2021
289 Master Circular for Mutual Funds as on March 31, 2023
ii. Appropriate disclosures shall be made to the investors
mentioning the scenarios under which IAF may be suspended
and that IAF request would be processed as a normal
redemption request in such circumstances.
e. Approvals and Controls
i. MFs/ AMCs shall offer IAF only after obtaining approvals from
the AMC Board and the Trustees and keep in place
adequate safeguards in the system to implement this facility.
ii. IAF shall also be considered while carrying out stress testing of
the schemes.
14.10 Use of e-wallet for investment in MFs 535
14.10.1 With an objective to promote digitalization, MFs/AMCs can accept
investment by an investor through e-wallets (Prepaid Payment
Instruments (PPIs)) subject to the following:
a. MFs/ AMCs shall ensure that extant regulations such as
cut-off timings, time stamping, etc., are complied with for
investment in MFs using e-wallets.
b. MFs/ AMCs shall enter into an agreement / arrangement
with issuers of PPIs for facilitating payment from e-wallets
to MF schemes.
c. Redemption proceeds should be made only to the bank
account of the investor/ unit holder.
d. MFs/ AMCs shall ensure that total subscription through e-
wallets for an investor is restricted to INR 50,000/-per MF
535 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/39 dated May 08, 2017
290 Master Circular for Mutual Funds as on March 31, 2023
per financial year. Further, the limit of INR 50,000/-would
be an umbrella limit for investments by an investor through
both e-wallet and/or cash, per Mutual Fund per financial
year.
e. In context of e-wallets, it should be ensured that all e-
wallets are fully compliant with KYC norms as prescribed
by Reserve Bank of India.536
f. MFs/ AMCs shall ensure that e-wallet issuers shall not
offer any incentives such as cashback, vouchers, etc.,
directly or indirectly for investing in MF schemes.
g. MFs/ AMCs shall ensure that only amounts loaded into e-
wallet through cash or debit card or net banking, can be
used for subscription to MF schemes.
h. MFs/ AMCs shall ensure that amount loaded into e-wallet
through credit card, cash back, promotional scheme etc.
should not be allowed for subscription to MF schemes.
i. MFs/ AMCs shall also comply with the requirement of no
third party payment norm for investment made using e-
wallets.
536 Paragraph 14.10.1.(e) is applicable with effect from May 01, 2023, SEBI Circular No.
SEBI/HO/IMD/IMD-PoD-2/P/CIR/2023/40 dated March 23, 2023,
291 Master Circular for Mutual Funds as on March 31, 2023
PART II – INVESTOR’S OBLIGATIONS
14.11 Mandatory mentioning of PAN Number537
14.11.1 For the requirement of mentioning PAN Number by investors of
mutual fund schemes, the applicable SEBI guidelines may be
referred.538
14.12 Mandatory mentioning of Bank Account by Investors539
14.12.1 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.
537 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, SEBI Circular No. MRD/DoP/Cir-20/2008 dated June 30,
2008, Refer SEBI Letter No. MRD/Policy/PAN/AT/97151/2007 dated June 25, 2007, Refer
SEBI letter No. SEBI/HO/IMD/DF2/OW/P/2016/6768/1 dated March 08, 2016, Refer SEBI
letter No. IMD/DF2/MSD/OW/P/2016/ 20426/1 dated July 20, 2016, Refer SEBI letter No.
SEBI/HO/OW/IMD /PoD/P/2022/48112 /1 dated September 12, 2022
, 5 ,, 38 SEBI Circular No. MRD/DoP/MF/Cir`-08/2008 dated April 3, 2008, SEBI Circular No.
SEBI/IMD/CIR No. 6/ 4213/04 dated March 1, 2004, Refer SEBI letter No. OW/ 16541
/2012 dated July 24, 2012
< 5 , 39 SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998
292 Master Circular for Mutual Funds as on March 31, 2023
PART III– INVESTOR EDUCATION
14.13 SEBI Investors Education Programme – Investments in Mutual
Funds540
14.13.1 SEBI has prepared a brochure in question-answer format explaining
the fundamental issues pertaining to mutual funds. The same is
available on SEBI website https://www.sebi.gov.in under the
"FAQs" section. The details for accessing the same are enclosed at
Annexure 4.
14.13.2 AMCs are advised to circulate copies of the brochure among their
distributors and agents (including brokers, banks, post offices) and
the investors.
14.13.3 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
websites
14.13.4 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.
14.13.5 SEBI may be kept informed about the steps taken by the AMCs in
this regard from time to time.
14.14 Financial Inclusion541:
14.14.1 In context of Mutual Funds, financial inclusion implies that the
concept of Mutual Fund products is understood by all and are
accessible to anyone who wishes to make an investment in them.
Also, investors should be capable of figuring out which Mutual Fund
540 SEBI Cir No. MFD/CIR NO -13/370/02 dated January 16,2002
541 SEBI Cir No. CIR/IMD/DF/05/2014 dated March 24, 2014
293 Master Circular for Mutual Funds as on March 31, 2023
scheme is appropriate for their financial objectives. Towards this, it
has been decided that:
a. Mutual Funds shall mandatorily also make available
printed literature on mutual funds in regional languages for
investor awareness and education.
b. Mutual Funds to introduce Investor awareness campaign
in regional languages both in print and electronic media
294 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 15: CERTIFICATION AND REGISTRATION OF
INTERMEDIARIES542, 543
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 examination544.
15.2 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. 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.
15.3 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.
15.4 Further, such intermediaries and employees shall also adhere to the
Guidelines specified by the Board and AMFI.545
542 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.
< 5 43 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. 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.
<
5
<
44 Refer SEBI letter No.– OW / 14970 / 2012 dated July 5, 2012
545 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, Refer SEBI email dated September 22,
2020 & October 14, 2020
295 Master Circular for Mutual Funds as on March 31, 2023
15.5 Distributors of Mutual Fund products546
15.5.1 The AMCs shall regulate the distributors by putting in place a due
diligence process as follows:
15.5.1.1 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.547
15.5.1.2 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 Rs.100 Crore across industry in the non-
institutional category but including high net worth individuals
(HNIs)
c. Commission received of over Rs.1 Crore p.a. across industry
d. Commission received of over Rs.50 Lakh from a single Mutual
Fund
15.5.1.3 At the time of empaneling 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.
546 SEBI Circular No. CIR/IMD/DF/13/2011 dated August 22, 2011, Refer SEBI email dated
February 17, 2011.
547 SEBI Circular No. Cir/IMD/DF/7/2012 dated February 28, 2012, Refer SEBI letter no.
IMD/RB/35057/2011 dated November 16, 2011
296 Master Circular for Mutual Funds as on March 31, 2023
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.
d. Organizational controls to ensure that the following processes
are delinked from sales and relationship management
processes and personnel:
i. Customer risk / investment objective evaluation.
ii. MF scheme evaluation and defining its appropriateness
to various customer risk categories.
15.5.1.4 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
297 Master Circular for Mutual Funds as on March 31, 2023
is ‘execution only notwithstanding the advice of in-
appropriateness from that distributor be obtained prior to
the execution of the transaction.
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/ 548associates, the distributor shall make
disclosure to the customer regarding the conflict of interest
arising from the distributor selling of such products.
15.5.1.5 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.
548 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
298 Master Circular for Mutual Funds as on March 31, 2023
g. Findings of ongoing review from sample survey of investors.
15.5.1.6 Mutual Funds/AMCs may implement additional measures as
deemed appropriate to help achieve greater investor protection.
15.6 Code of Conduct549:
15.6.1 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 noncompliance 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.
15.6.2 AMFI has prescribed a Code of Conduct for Mutual Fund
intermediaries which is available on AMFI Website550. All
intermediaries shall follow the Code of Conduct strictly and not
indulge in any practice contravening it directly or indirectly551.
15.6.3 Noncompliance 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.
549 Refer SEBI letter No. SEBI/HO/IMD/IMD-I DOF5/P/OW/2022/2463/1 dated March 21,
2022 & SEBI letter No. SEBI/HO/IMD/IMD-I DOF5/P/OW/2022/14567/1 dated April 04,
2022
550 Also refer SEBI Circulars - MFD/CIR/ 06/210/2002 dated June 26, 2002;
MFD/CIR/20/23230/02 dated November 28, 2002 and SEBI/IMD/08/174648/2009 dated
August 27, 2009.
551 Refer SEBI letter No. SEBI/HO/OW/IMD/SEC-DIV-3/P/2022/44787/1 dated August 24,
2022
299 Master Circular for Mutual Funds as on March 31, 2023
15.7 Empanelment of Intermediaries by Mutual Funds552
15.7.1 Empanelment of intermediaries by Mutual Funds, payment of
commissions, brokerage and/or sub-brokerage etc. shall be in
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 empaneled intermediary.
15.8 Certification Programme for sale and/ or distribution of mutual
fund products553
15.8.1 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)554. The text of notification in this regard is
enclosed herewith as Annexure 5.
15.8.2 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
552 Refer SEBI letter No. IMD/SM/10 dated June 02, 2010
553 SEBI Circular No. Cir/IMD/DF/5/2010 dated June 24, 2010
554 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
to section on Annexures)
300 Master Circular for Mutual Funds as on March 31, 2023
Continuing Professional Education (CPE) by obtaining such
classroom credits as may be specified by NISM from time to time.
15.8.3 The Certification Regulations require the persons referred to in
Paragraph 15.8.1 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.
15.8.4 An associated person holding a valid AMFI/NISM certification whose
validity expires any time 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.
15.8.5 The requirement of obtaining registration from AMFI after obtaining
certification, as per Chapter 15 of this Master Circular, would
continue.
15.9 New cadre of distributors555
15.9.1 A new cadre of distributors, such as postal agents, retired
government and semi-government officials (class III and above or
equivalent) with a service of at least 10 years, retired teachers with
a service of at least 10 years, retired bank officers with a service
of at least 10 years, and other similar persons (such as Bank
correspondents) as may be notified by AMFI/AMC from time to time,
shall be allowed to sell units of simple and performing mutual
fund schemes.
15.9.2 Simple and performing mutual fund schemes shall comprise of
diversified equity schemes, fixed maturity plans (FMPs), index
schemes, Retirement benefit schemes having tax benefits and Liquid
schemes/ Money Market Mutual Fund schemes556 and should have
555 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012, Refer SEBI Letter
No. IMD/OW/24/2013dated January 02, 2013
556 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/37 February 25, 2016.
301 Master Circular for Mutual Funds as on March 31, 2023
returns equal to or better than their scheme benchmark returns
during each of the last three years.
15.9.3 These new cadre of distributors would require a simplified form of
NISM certification and AMFI Registration.
15.10 Developing alternative distribution channels557
15.10.1 In order to increase penetration of Mutual Fund products and to
energize the distribution network while protecting the interest of
investors, SEBI had permitted additional expense ratio of 30 bps for
garnering funds from B-30 cities. This development would lead to
setting up of distribution infrastructure by AMCs. However, in order
to achieve participation from all parts of the country in Mutual Funds
there is greater need for developing additional distribution channels.
Therefore, it has been decided that:
a. Distribution through PSU banks: PSU banks which have wide
bank branches network and have distribution reach in the nook
and corner of the country, could play a key role in Mutual Funds
distribution. In order to leverage the PSU banks infrastructure,
Mutual Funds/ AMCs need to develop a system for active
support to PSU banks to distribute Mutual Fund products
through them. Such active support would also encourage PSU
banks to distribute products of all Mutual Funds.
b. 558Online distribution: Online distribution not only increases
customer convenience, but also significantly improves
distributor economics. The online phenomenon is increasing
rapidly and it is observed that more and more people especially
younger generation prefers online transactions. Therefore, it has
been decided that all Mutual Funds should enhance the online
investment facility and tap the internet savvy users to invest in
Mutual Funds by providing an online investment facility on their
557 SEBI Circular No. CIR/IMD/DF/05/2014 dated March 24, 2014
558 Refer SEBI emails dated June 04, 2010 and July 28, 2010
302 Master Circular for Mutual Funds as on March 31, 2023
websites. Mutual Funds also need to tap the burgeoning mobile-
only internet users for direct distribution of Mutual Fund
products.
15.11 Unique Identity Number
15.11.1 AMFI shall create a unique identity number of the employee/
relationship manager/ sales person of the distributor interacting
with the investor for the sale of mutual fund products, in addition
to the AMFI Registration Number (ARN) of the distributor.
15.11.2 The application form for mutual fund schemes shall have
provision for disclosing the unique identity number of such sales
personnel along with the ARN of distributor.
303 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 16: TRANSACTION IN MUTUAL FUNDS UNITS
16.1 Maintenance of documents559
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”560, maintenance of all documentation pertaining to the
unitholders/ investors is the responsibility of the AMC.
16.1.2 Accordingly, 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.
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
559 SEBI Circular No - SEBI/IMD/CIR No.12 /186868 /2009 dated December 11, 2009, Refer
SEBI letter No. IMD/AT/2868/10 dated April 27, 2010 and SEBI email dated August 20,
2010, Refer SEBI letter No. SEBI/HO/lMD2/DoF4/OW/P/19402/2019 dated July 30, 2019,
Refer SEBI letter No. SEBI/HO/OW/IMD-II/DOF3/P/27993/2022 dated July 08, 2022 and
SEBI letter No. SEBI/HO/OW/IMD-II/DOF3/P/27989 dated July 08, 2022
560 SEBI Circular No ISD/AML/CIR-1/2008 dated December 19, 2008
304 Master Circular for Mutual Funds as on March 31, 2023
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 that561:
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.
16.2 Facilitating transactions in Mutual Fund schemes through the
Stock Exchange infrastructure562
16.2.1 Stock Exchange terminals can be used for facilitating transactions
in mutual fund schemes. The Stock Exchange mechanism would
561 SEBI Circular No Cir /IMD/DF/9 / 2010 dated August 12, 2010, Refer SEBI email dated
January 10, 2020
562 SEBI Circular No - SEBI /IMD / CIR No.11/183204/ 2009 dated November 13,2009, Refer
SEBI letter No. SEBI/HO/IMD/DF5/OW/P/2020/11567/1 dated July 10, 2020, Refer SEBI
letter no. SEBI/HO/IMD/IMD-I DOF5/P/OW/2022/8536/1 dated February 25, 2022
305 Master Circular for Mutual Funds as on March 31, 2023
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 acceptance563.
16.2.3 The respective stock exchange would provide detailed operating
guidelines to facilitate the above.
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 examination564.All such stock brokers would
then be considered as empaneled distributors with mutual
fund/AMC.
b. These stock brokers shall also comply with Code of
Conduct565 for intermediaries of Mutual Funds, and
applicable SEBI guidelines566, 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 funds567.
563 SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006, Refer SEBI
email dated February 07, 2011
564 Please refer Chapter 16 on Certification and Registration of Mutual Funds intermediaries
565 For Code of Conduct, please refer to AMFI website
566 Please refer Chapter 16 on Certification and Registration of Mutual Funds intermediaries
567 Please refer Chapter 16 on Certification and Registration of Mutual Funds intermediaries
,,
306 Master Circular for Mutual Funds as on March 31, 2023
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 the Board568.
16.2.4.3 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.
16.2.4.4 Know your client (KYC)
a. Where investor desires to hold units in dematerialised form,
the KYC performed by DP in terms of SEBI requirements569
would be considered compliance with applicable requirements
specified in this regard570 by Mutual Funds/AMCs.
b. The Mutual Funds/AMC shall take necessary steps to do KYC
requirements of all investors as per the prescribed
guidelines571.
16.2.4.5 Stock exchanges and mutual funds/AMCs, based on the
experience gained may improve the mechanism in the interest of
investors.
568 Please refer to Chapter 8 – Net Asset Value for details on cut off timing provisions
569 SEBI Circular No - MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004 and
SEBI/IMD/CIR No.11/183204/2009 dated November 13, 2009
570 SEBI Circular No - ISD/AML/CIR-1/2008 dated December 19, 2008
571 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
307 Master Circular for Mutual Funds as on March 31, 2023
16.2.4.6 In addition to the existing facilities of purchasing and redeeming
directly with the Mutual Funds and Stock Brokers, the following
be noted572:
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.
16.2.4.7 The following be noted with respect to investors having demat
account and purchasing and redeeming mutual funds units
through stock brokers and clearing members for transactions up
to June 30, 2022. (For transactions from July 1, 2022 refer
Paragraph 16.3 below):
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.
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
572 SEBI Circular No CIR/IMD/DF/17/2010 dated November 9, 2010
308 Master Circular for Mutual Funds as on March 31, 2023
member pool account shall discharge MF/AMC of its
obligation to allot units to individual investor.
16.2.4.8 The following may be noted in this regard:
a. Clearing members and Depository participants will be eligible
to be considered as official points of acceptance573 and
conditions stipulated574 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 specified575 regarding empanelment and code of
conduct for intermediaries of Mutual Funds.
16.2.4.9 The respective stock exchanges and Depositories would provide
detailed operating guidelines to facilitate the above and ensure
that timelines prescribed576 shall be adhered to with regard to
allotment of units and receipt of redemption proceeds at the
investor’s level.
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.
573 SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006
574 SEBI Circular dated November 13, 2009 for stock brokers
575SEBI Circulars MFD/CIR/20/23230/02 dated November 28, 2002 and
SEBI/IMD/08/174648/2009 dated August 27, 2009
576 SEBI (Mutual Funds) Regulations, 1996
309 Master Circular for Mutual Funds as on March 31, 2023
16.2.6 577SEBI Registered Investment Advisors (RIAs) has been allowed
to use infrastructure of the recognised stock exchanges to
purchase and redeem mutual fund units directly from Mutual
Fund/Assets Management Companies on behalf of their clients,
including direct plans.
16.2.7 578A mutual fund Distributor registered with Association of Mutual
Funds in India (AMFI) and who has been permitted by the concerned
recognised stock exchange, (MF distributor) shall be eligible to use
recognised stock exchanges' infrastructure to purchases and
redeem mutual fund units directly from Mutual Fund/Assets
Management Companies.
16.2.8 The recognised stock exchange shall grant permission on a request
made by a AMFI registered mutual fund distributor on the basis of
criteria including fee, code of conduct, etc. as laid down by it.
16.2.9 The MF distributors shall not handle payout and pay in of funds as
well as units on behalf of investor. The recognised stock exchange
shall put necessary system in place to ensure that pay in will be
directly received by recognised clearing corporation and payout will
be directly made to investor account. In the same manner, units
shall be credited and debited directly from the demat account of
investors, where held in demat mode.
16.2.10 In order to broad base the reach of this platform, it is decided to
permit non demat transactions also in the Mutual fund through
stock exchange platform579.
577 SEBI Circular No. SEBI/HO/MRD/DSA/CIR/P/2016/113 dated October 19, 2016
578 SEBI Circular No. CIR/MRD/DSA/32/2013 dated October 04, 2013
579 SEBI Circular No. CIR/MRD/DSA/33/2014 dated December 09, 2014
310 Master Circular for Mutual Funds as on March 31, 2023
16.2.11 The respective recognised stock exchanges, recognised clearing
corporations and depositories shall provide detailed operating
guidelines for MF distributor to facilitate the above.
16.2.12 580Investors have been allowed to directly access infrastructure of
the recognised stock exchanges to purchase and redeem mutual
fund units directly from Mutual Fund/ Asset Management
Companies.
16.3 Discontinuation of usage of pool accounts for transactions in
units of Mutual Funds on the Stock Exchange Platforms581
The following has been decided with respect to transactions on stock
exchange platform for units of Mutual Funds:
16.3.1 Pooling of funds and/ or units by stock brokers / clearing members
in any form or manner shall be discontinued for mutual fund
transactions.
16.3.2 Similar to mechanisms for transactions in mutual fund units by
MFDs and IAs, stock exchanges shall put necessary mechanisms in
place for stock brokers / clearing members also, to ensure that
funds pay-in is directly received by the clearing corporation from the
investor account and funds pay-out is directly made to the investor
account. Pay-in / pay-out of funds shall not be handled by the stock
brokers / clearing members. In the same manner, for both demat
and non-demat mode transactions, the units shall be credited and
debited directly to/ from the investors’ demat account/ folio account
without routing it through the pool account of the stock brokers /
clearing members. However, for redemption of units held in
dematerialised mode, the practice of issuance of Delivery
Instruction Slip (‘DIS’) (physical or electronic) to the Depository
580 SEBI Circular No. SEBI/HO/MRD1/DSAP/CIR/P/2020/29 dated February 26, 2020
581 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635 dated October 4, 2021,
Refer SEBI letter No. SEBI/HO/IMD/IMD-I DOF5/P/OW/2022/10847/1 dated March 15,
2022
311 Master Circular for Mutual Funds as on March 31, 2023
Participant to debit the units for delivery to clearing corporation may
continue.
16.3.3 It is further clarified that stock brokers / clearing members
facilitating mutual fund transactions shall:
16.3.3.1 not accept mandates for SIPs or Lumpsum transactions in their
name;
16.3.3.2 accept cheque payments from investors issued in favor of the
respective SEBI recognized Clearing Corporations or mutual fund
scheme(s) only;
16.3.3.3 not accept or handle funds or units of investors in their
proprietary accounts or pool accounts in any form or manner;
and
16.3.3.4 not accept payment through one-time mandate or issuance of
mandates/ instruments in their name for mutual fund
transactions. However, one-time mandates in favour of SEBI
recognized Clearing Corporations may be accepted. 582 In this
regard, it is clarified that:
a. Existing mandates being used for Mutual Fund transactions
can continue to remain in the name of the stock brokers /
clearing members, subject to Stock Exchanges/ Clearing
Corporations ensuring that Payment Aggregators (“PA”) puts
in place mechanisms wherein beneficiary of the mandate can
only be an Approved Account (which shall only be the bank
account of the Clearing Corporation) such that:
i. PA shall directly credit the monies collected from the bank
account of the investor only into an Approved Account;
and
582 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/29 dated March 15, 2022
312 Master Circular for Mutual Funds as on March 31, 2023
ii. PA shall not act on instructions of the stock brokers /
clearing members to alter or modify the list of Approved
Accounts and in no case the monies shall be credited to
the bank account of the stock brokers / clearing members.
b. With respect to processing mutual fund transactions under
the above mentioned mandates, Stock Exchanges/ Clearing
Corporations shall:
i. ensure that PA has put in place adequate checks and
balances, inter alia, to ensure such Approved Account is
that of a Clearing Corporation;
ii. enter into an agreement with the concerned PA to ensure
that only those mutual fund transactions are processed
through them which are in compliance with these
guidelines.
iii. have adequate checks and balances to monitor and govern
the receipt of payments through the PA, including by way
of third party audits (at least on an annual basis), to verify
the compliance with these provisions which shall form
part of the agreement with the PA.
16.3.4 Stock Exchanges/ Clearing Corporations shall provide investor
grievance redressal / arbitration mechanism to clients against stock
brokers/ clearing members (as is applicable for other segment of
Stock Exchange transactions), in case of breach of these conditions
or misuse of funds by the PA appointed by the stock brokers/
clearing members or by the stock brokers/clearing members with
respect to mandates accepted in respect of Mutual Fund
transactions.
313 Master Circular for Mutual Funds as on March 31, 2023
16.3.5 583On or after July 01, 2022, new mandates shall be accepted only
in favor of SEBI recognized Clearing Corporations and those
mandates shall exclusively be for subscriptions to units of Mutual
Fund schemes and not for any other purpose.
16.3.6 The onus of compliance with PMLA provisions and not permitting
transactions with third party bank account continues to lie with the
AMCs. AMCs may avail the services of SEBI recognized Clearing
Corporations to validate the investors’ source bank account
information. In such cases, Clearing Corporation shall make the
necessary source account details available to AMCs.
16.3.7 Further, to facilitate investor servicing and parity in information
dissemination, Stock Exchanges, Depositories, AMCs, RTAs, and
other entities involved in mutual fund transactions, shall ensure the
following:
16.3.7.1 Relevant information shall be made available to all the
stakeholders involved in the transactions, including the investor,
banks, payment aggregators, stock brokers, clearing members,
clearing corporations, RTAs and AMCs in line with the Operating
Guidelines issued by the Stock Exchanges in this regard.
16.3.7.2 The information sharing as above, shall be system generated and
adequately secured. Cost towards system development /
improvement in this regard, if any, shall not be passed on to the
investors.
16.3.8 Stock Exchanges and AMFI shall jointly, in consultation with SEBI,
issue Operating Guidelines to stock brokers/ clearing members and
AMCs respectively, to facilitate the mutual fund transactions on
stock exchange platforms. The Operating Guidelines shall include,
inter-alia, roles and responsibilities of various stakeholders,
583 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/41 dated March 31, 2022
314 Master Circular for Mutual Funds as on March 31, 2023
timelines with respect to activities specified in Paragraph 16.3 of
this Master Circular, sharing of system generated information
among various stakeholders at relevant stage of the transaction in
a secured environment, sharing of relevant information with
concerned entities to perform functional, tax and regulatory
obligations, etc. All the concerned intermediaries shall comply with
the aforesaid Operating Guidelines553.
16.3.9 It is reiterated that in terms of Regulation 4 (g) of SEBI (Investment
Advisers) Regulations, 2013, stock brokers are required to comply
with general obligations and responsibilities specified in Chapter III
of SEBI (Investment Advisers) Regulations, 2013, which, inter-alia,
provide that client level segregation of advisory and distribution
activities needs to be ensured at the entity and group level.
16.3.10 For the purpose of provisions in this Chapter, the term:
“mandate” includes instrument, authorisation or order in any form,
including electronic means, to effect a payment by a person for the
purpose of mutual fund investment; and
“Payment Aggregators” includes Payment Aggregators authorized /
permitted by RBI and scheduled commercial banks acting in the
capacity of Payment Aggregators.
16.3.11 Timelines given by AMFI in consultation with various stakeholders
to implement discontinuation of pooling of funds and/or units in
mutual funds and Two Factor Authentication:
a) Stock Exchange (‘SE’) Platforms:
Parameters Timeline
1. Discontinuation of Pooling of Funds and 1st July 2022
Units
2. Other processes including Third Party 1st July 2022
Verification (TPV), Two Factor
Authentication (2FA), and verification of
315 Master Circular for Mutual Funds as on March 31, 2023
key investor details as applicable to the SE
platforms
3. Standardizing the recipients and 1st July 2022
contents of information at various stages of
transaction processing
16.4 Discontinuation of usage of pool accounts by entities including
online platforms other than stock exchanges for transactions in
the units of Mutual Funds 584
The following has been decided with respect to transactions in the units
of Mutual Funds undertaken through service providers/platforms other
than stock exchanges:
16.4.1 AMCs shall ensure that the transactions (financial/ non-financial)
can be executed only if there is a service agreement between the
AMC and the service provider / platform.
16.4.2 AMCs shall ensure that intermediate pooling of funds and/or units
in any manner by MFDs, IAs, MFU, channel partners or any other
service providers/ platforms, by whatsoever name called, are
discontinued for MF transactions. However, this requirement shall
not apply to the SEBI registered Portfolio Managers subject to
compliance with SEBI (Portfolio Managers) Regulations, 2020 and
circulars issued thereunder.
584 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/634 dated October 4, 2021,
Refer SEBI letter No. SEBI/HO/IMD/IMD-I DOF5/P/OW/2022/10847/1 dated March 15,
2022.
316 Master Circular for Mutual Funds as on March 31, 2023
16.4.3 AMCs shall put necessary systems in place to ensure the
following:For subscription, funds should be credited directly from
the investors’ account into the MF scheme account without any
intermediate pooling. For ease of transactions, funds can be routed
through payment aggregators authorized by RBI or SEBI recognized
clearing corporations, as the case may be.
b) For redemption, funds should be directly credited to the investor’s
registered bank account from the MF scheme account without
any intermediate pooling.
c) For subscription, units should be directly credited into the
investor’s account by the mutual fund for both demat and non-
demat modes without any intermediate pooling.
d) For redemption, units should be directly transferred from
investor’s account to the mutual fund without any intermediate
pooling, in both demat and non-demat modes.
e) MFDs / IAs, MFU, channel partners and other entities (including
online platforms) facilitating MF transactions shall not accept
payment through one-time mandate or issuance of mandates/
instruments in their name for mutual fund transactions. 585 In
this regard, it is clarified that:
i. Existing mandates being used for Mutual Fund transactions
can continue to remain in the name of such OTM holders,
subject to AMCs ensuring that the PA puts in place
mechanisms wherein beneficiary of the mandate can only be
an Approved Account (which shall only be the bank account
of a mutual fund pool account or mutual fund scheme
account) such that:
585 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/29 dated March 15, 2022
317 Master Circular for Mutual Funds as on March 31, 2023
I. PA shall directly credit the monies collected from the bank
account of the investor only into an Approved Account,
with the credit being made as per the mandate/
instruction given to the OTM holder by the client; and
II. PA shall not act on instructions of the OTM holder to alter
or modify the list of Approved Accounts and in no case the
monies shall be credited to the bank account of the OTM
Holder.
ii. With respect to processing mutual fund transactions under
the above mentioned mandates, AMCs shall:
I. ensure that PA has put in place adequate checks and
balances, inter alia, such that Approved Account is that of
a mutual fund scheme or mutual fund registered with
SEBI;
II. enter into an agreement with the concerned PA to ensure
that only those mutual fund transactions are processed
through them which are in compliance with these
provisions.
III. have adequate checks and balances to monitor and govern
the receipt of payments through the PA, including by way
of third party audits (at least on an annual basis), to verify
the compliance with these provisions which shall form
part of the agreement with the PA.
iii. AMCs shall be liable to the unit holders for breach of these
conditions or misuse of funds by PA or OTM holder with
respect to mandates covering Mutual Fund transactions.
iv. On or after April 01, 2022, new Mandates may be accepted in
the name of the OTM holders, subject to compliance with
conditions mentioned in Paragraph 16.4.3.e) above and those
318 Master Circular for Mutual Funds as on March 31, 2023
mandates shall exclusively be for subscriptions to units of
Mutual Fund schemes and not for any other purpose.
f) Cheque payments from investor shall be made in favor of the
respective MF Schemes only.
g) For better investor experience and faster transfer of funds, AMCs
shall provide different methods of payment through RBI
recognized modes of payment.
h) AMFI, in consultation with SEBI, shall issue guidelines for AMCs
with regard to mitigating risks of co-mingling of funds at the level
of Payment Aggregators/Payment Gateways involved in mutual
fund transactions. It shall be mandatory for all AMCs to follow
such guidelines.
i) AMCs shall ensure that for the purpose of investor servicing:
i. Detailed information at each stage of the relevant
transaction, including rejection, shall be made available at
the same time to all the stakeholders of the same category
involved in the transactions, as applicable, including
investors, Registrar and Transfer Agents (‘RTAs’), MFDs, IAs,
etc. Only payment related information required to ensure
reconciliation and traceability shall be made available to the
Payment Aggregators.
ii. Information sharing shall be system generated and
adequately secured.
iii. 586The information sharing with respect to direct plans of
mutual fund schemes shall be in line with the clarifications
issued by SEBI to AMFI vide letter dated September 6, 2021
(can be accessed from AMFI website at
586 Refer SEBI letter No. SEBI/IMD1/DoF-1/SK/2021/25517/1 dated September 06, 2021
319 Master Circular for Mutual Funds as on March 31, 2023
https://www.amfiindia.com/Themes/Theme1/downloads/
circulars/SEBIClarificationw.r.t.transactionsunderDirectPl
an.PDF)
iv. Cost towards system development / improvement in this
regard, if any, shall not be passed on to the investors.
16.4.4 For the purpose of these provisions, the term:
a) “mandate” includes instrument, authorisation or order in any
form, including electronic means, to effect a payment by a
person for the purpose of mutual fund investment; and
b) “Payment Aggregators” includes Payment Aggregators
authorized / permitted by RBI and scheduled commercial banks
acting in the capacity of Payment Aggregators.
16.4.5 Timelines given by AMFI in consultation with various stakeholders
to implement discontinuation of pooling of funds and/or units in
mutual funds and Two Factor Authentication:
Non SE Platforms:
Parameters / Task Timeline
1. All intermediate pooling will stop from --
1st April 2022
2. Signing of Agreements with Payment 1st May 2022
Aggregators (PAs) and Banks
3. Verification / validation of email and 1st May 2022
mobile for new folios / new email IDs and
mobile numbers. Validation of the entire
existing database of email IDs and / or
mobile numbers will be taken up
progressively w.e.f. 1st May 2022
4. Enhanced TPV with independent 1st June 2022
traceability of source bank account
information
5. 2FA for online redemptions 1st June 2022
6. Standardizing the recipients and 1st July 2022
contents of information at various stages of
transaction processing
320 Master Circular for Mutual Funds as on March 31, 2023
16.5 Other measures to prevent third-party payments and to safeguard
the interest of unitholders
16.5.1 For mitigation of the risk of third party payments:
16.5.1.1 The onus of compliance with PMLA provisions and not permitting
usage of third party bank account payments continues to lie with
the AMCs.
16.5.1.2 In order to ensure that the folio and source bank account belong
to the same person, AMCs shall make sure that payment for MF
transactions are accepted through only such modes where
independent traceability of end investor can be ensured and
source account details are available as audit trail without relying
on any other intermediary’s records. However, the investment in
MF by way of cash/ through e-wallets (Prepaid Payment
Instruments) shall be in compliance with Paragraph 16.7 (for
cash) and Paragraph 14.10 (for e-wallets) of this Master Circular,
respectively.
16.5.1.3 AMCs shall ensure that payment is credited directly to the
registered and verified bank account of the investor mapped with
the concerned folio, after due verification. The process carried out
by AMCs to verify bank account details i.e. investor name, bank
account number, bank name, etc. shall be available as audit trail.
16.5.1.4 587In case of subscription588 and redemption of units, Two-Factor
Authentication (for online transactions) and signature method
(for offline transactions) shall be used for authentication. One of
the Factors for such Two-Factor Authentication for non demat
transactions shall be a One-Time Password sent to the unit holder
at his/her email/ phone number registered with the AMC/RTA.
587 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/29 dated March 15, 2022
588 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF1/P/CIR/2022/132 dated September 30,
2022
321 Master Circular for Mutual Funds as on March 31, 2023
In case of demat transaction, process of Two-Factor
authentication as laid down by the Depositories shall be
followed589. It is also clarified that in case of mandates/systematic
transactions the requirement of Two-Factor Authentication shall
be applicable only at the time of registration of
mandate/systematic transactions590.
16.5.1.5 AMFI’s best practice guidelines issued for AMCs with regard to
Two-Factor authentication for redemption transactions of Mutual
Funds shall be revised suitably to include subscription
transactions of Mutual Funds. It shall be mandatory for all AMCs
to follow such guidelines.
16.5.2 AMC would be liable to compensate for losses, if any, occurred to a
unit holder, where unauthorised transaction(s) occur(s) in unit
holder’s folio due to fraud/ negligence/ deficiency on the part of the
AMC, employee of AMC or persons/ entities whose services have
been availed by the AMC including the platform providers, MFDs,
RTAs, MFU, and channel partners, irrespective of whether or not
the fraud is reported by the unit holder. For this purpose, it is
clarified that any unauthorised transaction(s) performed by the
Investment Advisors while providing services to the unit holder(s)
would not be considered as a liability of the AMC.
16.5.3 To strengthen control with respect to verification of key details of
investors like Bank account details, email id, mobile number and
address etc., AMFI shall, in consultation with SEBI, issue
guidelines. It shall be mandatory for all AMCs to follow such
guidelines558.
589 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/41 dated March 31, 2022
590 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF1/P/CIR/2022/132 dated September 30,
2022
322 Master Circular for Mutual Funds as on March 31, 2023
16.6 RTA inter-operable Platform for enhancing investors’ experience
in Mutual Fund transactions / service requests591
16.6.1 In order to make it more convenient to the existing and future
investors to transact and avail services while invested in Mutual
Funds and pursuant to discussions with various stakeholders
including AMFI, Depositories and the RTAs, the following has been
decided:
16.6.1.1 RTAs shall implement standardized practices, system
interoperability amongst themselves to jointly develop a common
industry wide platform that will deliver an integrated,
harmonized, elevated experience to the investors across the
industry. AMCs and Depositories shall facilitate the RTAs for
development of the proposed platform
16.6.1.2 The aforesaid platform shall, inter alia in phases, enable a user-
friendly interface for investors for execution of mutual fund
transactions viz. purchase, redemption, switch etc., initiation and
tracking of service requests viz. change of email id / contact
number / bank account details etc., initiation and tracking of
queries and complaints, access investment related reports viz.
mutual fund holdings (both in demat and standard Statement of
Account), transactions reports (including historic transactions),
capital gains/loss report, details of unclaimed
dividend/redemption etc. Through this platform, investors will be
able to access these services for all Mutual Funds in an integrated
manner. In this regard, AMCs, RTAs and Depositories shall take
necessary measures to provide data via APIs on a real time basis
to the proposed platform. Additionally, RTAs and Depositories
shall also share their respective data feeds between themselves
for generation of investment related reports.
591 SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/604 dated July 26, 2021.
323 Master Circular for Mutual Funds as on March 31, 2023
16.6.1.3 The platform may also over time, provide services to the
distributors, registered investment advisors, AMCs, Stock
Exchange platforms and digital platforms for transacting in
mutual funds to further augment ease of investing and servicing
of investors through the above stakeholders in consultation with
SEBI.
16.6.1.4 AMCs, RTAs and Depositories shall review and agree to
harmonize the processes across the industry to provide a single-
window, integrated, simplified investment and service experience
for the investors.
16.6.1.5 AMCs, RTAs, and Depositories shall adopt the data definitions
and standards as provided / recommended by SEBI for data
exchange amongst various participants.
16.6.1.6 The Platform should be scalable with robust cyber security
protocols and supported through an API-based architecture. In
this regard, the platform shall adopt the Cyber Security and
Cyber Resilience framework specified by SEBI from time to time
to “MIIs” (Market Infrastructure Institutions such as Stock
Exchanges, Depositories and Clearing Corporations) and
“Qualified RTAs” (QRTAs). Further, on request basis, APIs could
be exposed to other industry stakeholders such as distributors,
registered investment advisors, Stock Exchange platforms and
digital platforms etc. with due approval of the concerned Mutual
Fund on mutually agreed terms592.
16.6.1.7 The RTAs are jointly and severally responsible for compliance
with all the applicable regulations including system audit and
cyber security audit. Further, RTAs shall ensure that the platform
complies with the guidelines for Business Continuity Plan (BCP)
592 Refer SEBI email dated April 28, 2015
324 Master Circular for Mutual Funds as on March 31, 2023
and Disaster Recovery (DR) specified by SEBI from time to time
to “MIIs”.
16.6.1.8 All the stakeholders are advised to collaborate and work together
towards the development and implementation of the proposed
investor-friendly platform.
16.6.1.9 AMCs and Depositories shall facilitate and RTAs shall make the
aforesaid platform operational in a phased manner (starting with
non-financial transactions) and shall be fully operational by
December 31, 2021.
16.6.1.10 AMCs, RTAs, Depositories, AMFI and key stakeholders are
advised to create awareness about this initiative amongst the
investors.
16.6.1.11 Any RTA providing its services to Mutual Fund(s), shall follow
the above guidelines or amendments thereto as may be
intimated by SEBI from time to time.
16.7 Cash Investments in mutual funds593
16.7.1 In order to help enhance the reach of mutual fund products
amongst small investors, who may not be tax payers and may
not have PAN/bank accounts, such as farmers, small
traders/businessmen/workers, cash transactions in mutual funds to
the extent of 50,000/-594 per investor, per mutual fund, per financial
year shall be allowed subject to (i) compliance with Prevention of
Money Laundering Act, 2002 and Rules framed there under; the
SEBI Circular(s) on Anti Money Laundering (AML) and other
applicable AML rules, regulations and guidelines and (ii) sufficient
systems and procedures in place.
593 SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012.
594 SEBI Circular No. CIR/IMD/DF/10/2014 dated May 22, 2014
325 Master Circular for Mutual Funds as on March 31, 2023
16.7.2 Repayment in the form of redemptions, dividend, etc. with respect to
aforementioned investments shall be paid only through banking
channel.
16.8 Usage of pool accounts by Mutual Funds595
16.8.1 Mutual Funds may use pool accounts, only for such transactions
which are executed at mutual fund level owing to certain
operational and regulatory requirements, subject to the following
conditions:
16.8.1.1 AMCs shall have internal policies approved by the Board of
AMC and Trustees to ensure that adequate operational
processes and internal controls are in place to segregate and
ring-fence the assets and liabilities of each scheme along with
segregation and ring-fencing of securities & bank accounts.
16.8.1.2 In such cases, at the end of day, the assets and liabilities of
each scheme shall be segregated and ring-fenced from other
schemes of the mutual fund; and bank accounts and securities
accounts of each scheme shall be segregated and ring-fenced.
The pool accounts for both securities and funds should have
nil balance at end of the day.
Provided that if the funds lying in the pool bank account of the
mutual fund are not identified, due to the reasons beyond the
control of the AMC, the same shall be transferred to the
respective scheme account not later than one business day
from the day such transactions are identified.
16.8.1.3 At no point of time, the securities or funds of one schemes shall
be used for other scheme(s) and there shall be any conflict of
interest amongst investors of various schemes.
595 SEBI/HO/IMD/DF2/CIR/P/2021/683 dated December 10, 2021.
326 Master Circular for Mutual Funds as on March 31, 2023
16.8.1.4 The responsibility to ensure segregation and ring-fencing of the
assets and liabilities of each scheme along with segregation and
ring-fencing of bank accounts & securities accounts shall lie
with the Board of AMC and Trustees. Trustees in their Half
Yearly Trustee Report (HYTR) to SEBI shall confirm that the
assets and liabilities of each scheme along with their bank
accounts & securities accounts are segregated and ring-fenced
on daily basis, except the unidentified transactions of funds as
mentioned in Paragraph 16.8.1.2 above, during the half-year
period.
16.8.1.5 The whole mechanism shall be audited on half yearly basis by
the auditor appointed by the trustees.
16.8.2 Further, with regard to the margin or collateral requirement for
execution of certain transactions, which are carried out only at
Mutual Fund level by various schemes, the following has been
stipulated:
16.8.2.1 In terms of Clause (5) of the Fifth Schedule of MF Regulations,
the AMC shall ensure that margins or collaterals for such
transactions are placed from the assets of the respective
schemes only, without co-mingling with the assets of other
schemes.
327 Master Circular for Mutual Funds as on March 31, 2023
CHAPTER 17: MISCELLANEOUS
17.1 Online Registration Mechanism for Mutual Funds596
17.1.1 It has been decided to operationalize SEBI Intermediary Portal
(https://siportal.sebi.gov.in) for the entities to submit the mutual
funds registration applications online. For registration of mutual
funds, the SEBI Intermediary Portal shall include online application
for registration, processing of application, grant of in-principle
approval, grant of final registration etc. Link for SEBI Intermediary
Portal is also available on SEBI website - www.sebi.gov.in.
17.1.2 SEBI Intermediary Portal for application of registration of Mutual
Funds has been made operational from June 01, 2017. Thereafter,
all applications for registration of Mutual Fund is required to be made
through SEBI Intermediary Portal only.
17.1.3 In case of any queries and clarifications with regard to the SEBI
Intermediary Portal, intermediaries may contact on 022-26449364 or
may write at portalhelp@sebi.gov.in.
17.2 Clarification597 to Regulation 24598
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.
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.
596 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2017/52 dated June 01, 2017
597 SEBI Circular No. Cir/IMD/DF/7/2012 dated February 28, 2012
598 SEBI (Mutual Funds) Regulations, 1996
328 Master Circular for Mutual Funds as on March 31, 2023
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.
17.3 Management and advisory services by AMCs to Foreign Portfolio
Investors599
17.3.1 AMCs may provide management and advisory services in terms of
Regulation 24(b) of MF Regulations to FPIs falling under the following
categories of FPIs as specified in FPI Regulations:
17.3.1.1 Government and Government related investors such as central
banks, sovereign wealth funds, international or multilateral
organizations or agencies including entities controlled or at least
75% directly or indirectly owned by such Government and
Government related investor(s);
17.3.1.2 Appropriately regulated entities such as pension funds,
insurance or reinsurance entities, banks and mutual funds;
599 SEBI Circular No. SEBI/HO/IMD/IMD-POD1/P/CIR/2023/005 dated January 06, 2023
& SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/155 dated December 16, 2019
329 Master Circular for Mutual Funds as on March 31, 2023
17.3.1.3 Appropriately regulated FPIs wherein (a) or (b) above hold more
than 50% of shares/ units.
17.3.2 As per above paragraph, AMCs may also provide management and
advisory services to FPIs operating from International Financial
Centres (IFSC) and regulated by International Financial Services
Centres Authority (IFSCA) and falling under the aforesaid categories.
17.3.3 In consultation with IFSCA and based on the requests received from
AMCs, it has been decided that, AMCs may also provide management
and advisory services to FPIs operating from IFSC and regulated by
IFSCA, not falling under the categories of FPIs specified under
Paragraph 17.3.1 above, subject to the following:
17.3.3.1 Such FPIs shall be allowed to invest in Mutual Fund schemes
other than the schemes in the category of “thematic” as defined
in Part IV of Chapter 2 on “Categorization and Rationalization of
Mutual Fund Schemes” of this Master Circular.
17.3.3.2 For investment in equity and equity derivative securities listed
on recognized stock exchanges in India, such FPI shall not take
contra-position for a period of six months from the date of
purchase or sale of such securities.
17.3.4 The proviso to clause (vi) of regulation 24(b) of MF Regulations shall
be applicable for the categories of FPIs as mentioned under
Paragraph 17.3.1 above.
17.4 Product Labeling in Mutual Funds600
17.4.1 All the mutual funds shall ‘Label’ their schemes on the parameters
as mentioned under:
600 SEBI Circular No. CIR/IMD/DF/5/2013 dated March 18, 2013
330 Master Circular for Mutual Funds as on March 31, 2023
a) Nature of scheme such as to create wealth or provide regular
income in an indicative time horizon (short/ medium/ long
term).
b) A brief about the investment objective (in a single line sentence)
followed by kind of product in which investor is investing
(Equity/Debt).
c) The depiction of risk shall be through pictorial meter named
"Riskometer" and this meter would appropriately depict the
level of risk in any specific scheme.
d) Risk-o-meter shall have following six levels of risk for mutual
fund schemes:601
i. Low risk
ii. Low to Moderate risk
iii. Moderate risk
iv. Moderately High risk
v. High - risk and
vi. Very High risk.
e) Riskometer: Risk level of a scheme shall be depicted by “Risk-
o-meter”, as shown below:
601 SEBI Circular No. CIR/IMD/DF/4/2015 dated April 30, 2015 and Circular No.
SEBI/HO/IMD/DF3/CIR/P/2020/197 Dated October 05, 2020
331 Master Circular for Mutual Funds as on March 31, 2023
For example, the risk depicted in the above risk-o-meter is
Moderately High
f) The detailed guidelines for evaluation of risk levels of a scheme
along with few examples are provided at Annexure 9602.
Pursuant to a calculation of risk value of the scheme portfolio
based on the methodology specified in Annexure 9, risk level
of a scheme as mentioned at Table 11 of Annexure 9 shall be
depicted by risk-o-meter shown above at Paragraph 17.4.1.(e).
g) Based on the scheme characteristics, Mutual Funds shall
assign risk level for schemes at the time of launch of
scheme/New Fund Offer.
h) Any change in risk-o-meter shall be communicated by way of
Notice cum Addendum and by way of an e-mail or SMS to
unitholders of that particular scheme.
i) Risk-o-meter shall be evaluated on a monthly basis and Mutual
Funds/AMCs shall disclose the Risk-o-meter along with
portfolio disclosure for all their schemes on their respective
website and on AMFI website within 10 days from the close of
each month.
j) Mutual Funds shall disclose the risk level of schemes as on
March 31 of every year, along with number of times the risk
level has changed over the year, on their website and AMFI
website.
k) Mutual Funds shall publish the following table of scheme wise
changes in Risk-o-meter in scheme wise Annual Reports and
Abridged summary:
Scheme Risk-o-meter Risk-o-meter Number of
name level at start level at end changes in
602 SEBI Circular no. SEBI/HO/IMD/DF3/CIR/P/ 2020/197 dated October 05, 2020, Refer
SEBI letter no. SEBI/HO/IMD-II/DOF3/OW/P/2021/1566/1 dated January 19, 2021
332 Master Circular for Mutual Funds as on March 31, 2023
of the of the Risk-o-meter
financial financial during the
year year financial
year
l) A disclaimer that investors should consult their financial
advisers if they are not clear about the suitability of the
product.
17.4.2 Risk value of commodities for risk-o-meter:603
17.4.2.1 For evaluation of risk value of commodities in which mutual
funds are permitted to invest, in terms of Paragraph 17.4.1.(f) of
this Master Circular, investment in commodities by mutual fund
schemes shall be assigned a risk score corresponding to the
annualized volatility of the price of the said commodity. The
annualized volatility shall be computed quarterly based on past
15 years’ prices of benchmark index of the said commodity and
risk score for the commodity shall be in terms of the following
table:
Annualized volatility Risk value on risk-o-meter
(Risk)
<10% 3 (Moderate)
10-15% 4 (Moderately High)
15-20% 5 (High)
>20% 6 (Very high)
Illustration: If price of gold has annualized volatility of 18% based
on price of gold of past 15 years, then Gold and gold related
instruments will have risk value of 5 (High) on risk-o-meter.
17.4.3 Product label shall be disclosed in:
a. Front page of initial offering application forms, Key
Information Memorandum (KIM) and Scheme Information
Documents (SIDs).
603 SEBI Circular no. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2022/49 dated April 11, 2022
333 Master Circular for Mutual Funds as on March 31, 2023
b. Common application form – along with the information about
the scheme.
c. The product label with respect to Paragraph 17.4.3.(a) &
17.4.3.(b) shall be placed in proximity to the caption of the
scheme and shall be prominently visible.
d. Scheme advertisements-placed in manner so as to be
prominently visible to investors.
17.4.4 Change in risk-o-meter will not be considered as a Fundamental
Attribute Change of the scheme in terms of regulation 18(15A) of
SEBI (Mutual Fund) Regulations, 1996
17.5 Potential Risk Class Matrix604
17.5.1 All the debt mutual funds shall be classified in terms of a Potential
Risk Class matrix consisting of parameters based on maximum
interest rate risk (measured by Macaulay Duration (MD) of the
scheme) and maximum credit risk (measured by Credit Risk Value
(CRV) of the scheme).
17.5.2 While the AMCs will continue to retain the same category of their
schemes as per Part IV of Chapter 2 on ‘Categorization and
Rationalization of Mutual Fund schemes’ they have full flexibility to
place single/multiple schemes in any cell of the Potential Risk Class
matrix (PRC).
17.5.3 For the purpose of alignment of the existing schemes with these
provisions, each scheme shall be placed in one of the 9 cells specified
at Table No. 2 under Paragraph 17.5.10 below, while retaining their
existing scheme category as per Part IV of Chapter 2 of this Master
Circular on ‘Categorization and Rationalization of Mutual Fund
604 SEBI Circular No. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/573 dated June 07, 2021
334 Master Circular for Mutual Funds as on March 31, 2023
Schemes’. This would not be considered as a change in fundamental
attribute.
17.5.4 However, subsequently, once a PRC cell selection is done by the
scheme, any change in the positioning of the scheme into a cell
resulting in a risk (in terms of credit risk or duration risk) which is
higher than the maximum risk specified for the chosen PRC cell, shall
be considered as a fundamental attribute change of the scheme in
terms of regulation 18(15A) of SEBI (Mutual Fund) Regulations,
1996.
17.5.5 Further, the Mutual Funds shall inform the unitholders about the
abovementioned classification in one of the 9 cells and subsequent
changes, if any, through SMS and by providing a link on their website
referring to the said change.
17.5.6 For new debt schemes, the AMC shall choose the PRC cell at the time
of filing of Scheme Information document (SID) with SEBI.
17.5.7 Each scheme will continue to comply with the requirements specified
in Part IV of Chapter 2 of this Master Circular on ‘Categorization of
schemes’.
17.5.8 The thresholds for the values of the interest rate risk and the credit
risk dimensions would progress in a flexible manner for drawing out
the categorization matrix. The thresholds across the matrix would
determine the maximum interest rate risk and the maximum credit
risk which the scheme would be permitted to take but the scheme
would have the flexibility to move downwards on the risk scale. The
thresholds along with an illustration of the concept outlined above
are given below:
Thresholds
i. Maximum Weighted Average Interest Rate Risk of the scheme
(measured in terms of Macaulay Duration):
335 Master Circular for Mutual Funds as on March 31, 2023
1. Class I: MD<= 1 year;
2. Class II: MD<=3 years;
3. Class III: Any Macaulay duration
ii. Maximum Weighted Average Credit Risk of the scheme (measured
in terms of Credit Risk Value as specified at Table 1 below):
1. Class A: CRV >=12
2. Class B: CRV >=10
3. Class C: CRV <10605
a. The Credit Risk Value of the scheme shall be the weighted average
of the credit risk value of each instrument in the portfolio of the
scheme, the weights based on their proportion to the AUM.
Similarly, Macaulay Duration at the scheme level shall be the
weighted average of the Macaulay Duration of each instrument in
the portfolio with the weights being based on their proportion to
the AUM. The value of the debt instrument to be considered for
calculating AUM shall include the accrued interest i.e. dirty price
of the instrument.
17.5.9 The debt securities of schemes are to be assigned a value for credit
risk in the following manner:
TABLE 1
Instrument CREDIT RISK
VALUE (CRV)
G-Sec/ State development 13
loans/ Repo on Government
Securities/TREPS / Cash
AAA 12
AA+ 11
AA 10
605 Investments by mutual funds are permitted only in investment grade securities in terms
of regulation 44(1) read with Schedule VII of SEBI Mutual Fund Regulations, 1996
336 Master Circular for Mutual Funds as on March 31, 2023
TABLE 1
Instrument CREDIT RISK
VALUE (CRV)
AA- 9
A+ 8
A 7
A- 6
BBB+ 5
BBB 4
BBB- 3
Unrated 2
Below investment grade 1
a. For investment by mutual funds in instruments having short
term ratings, the credit risk value shall be based on the lowest
long term rating of an instrument of the same issuer as shown
above (in order to follow a conservative approach) across credit
rating agencies. However, if there is no long term rating of the
same issuer, then based on credit rating mapping of CRAs
between short term and long term ratings, the most conservative
long term rating shall be taken for a given short term rating.
17.5.10 For the purpose of nomenclature, the 3 x 3 matrix shall have the
following syntax for each matrix cell:
TABLE 2
Max Credit
Risk of
scheme→ Class A(CRV Class B (CRV Class C (CRV
Max Interest >=12) >=10) <10)
Rate Risk of
the scheme ↓
337 Master Circular for Mutual Funds as on March 31, 2023
Relatively Low
Relatively Low interest rate
Class I: (MD<=1 Interest Rate Relatively Low risk and
year) Risk and interest rate risk Relatively
Relatively Low and moderate High Credit
Credit Risk Credit Risk Risk
Moderate
Moderate interest rate
Class II: interest rate Moderate interest risk and
(MD<=3 years) risk and rate risk and Relatively
Relatively Low moderate Credit High Credit
Credit Risk Risk Risk
Relatively
Relatively High High interest
Class III: Any
interest rate Relatively High rate risk and
Macaulay
risk and interest rate risk Relatively
duration
Relatively Low and moderate High Credit
Credit Risk Credit Risk Risk
17.5.11 For example, if an open ended Short Duration Fund wants to invest
in securities such that its Weighted Average Macaulay Duration is
less than or equal to 3 years and its Weighted Average Credit Risk
Value is 10 or more, it would be classified as a scheme with
‘Moderate Interest Rate Risk and Moderate Credit Risk’. The position
of the scheme in the matrix shall be displayed by the AMCs as
under:
TABLE 3
Potential Risk Class
Credit Risk Moderate
→ (Class B)
338 Master Circular for Mutual Funds as on March 31, 2023
Interest Relatively Relatively
Rate Risk↓ Low High
(Class A) (Class C)
Relatively
Low (Class I)
Moderate
B-II
(Class II)
Relatively
High (Class
III)
17.5.12 The maximum interest rate risk which the aforesaid scheme can
take would be in terms of the Weighted Average Macaulay Duration
of the scheme and the same shall be ≤ 3 years. The maximum
Weighted Average Credit Risk which the aforesaid scheme can take
would have Credit Risk Value of 10 or more. Both the maximum
interest rate risk and maximum credit risk would be reflected in the
above matrix. By virtue of its placement in this position, the scheme
would have the flexibility to take interest rate risk and credit risk
below the maximum risk as stated above in Table 2.
17.5.13 The type of the scheme shall be modified to include the above cell
selection. For the above example, it shall be as under:
An open ended short term debt scheme investing in instruments
with Macaulay duration between 1 year and 3 years (please
refer to page no.__)#. A moderate interest rate risk and moderate
Credit Risk.
17.5.14 For a scheme placing itself in Class I (i.e. MD <=1 year), the
maximum residual maturity of each instrument held by the scheme
shall be three years. For a scheme placing itself in Class II (i.e. MD
<=3 years), the maximum residual maturity of each instrument held
by the scheme shall be seven years. A scheme placing itself in Class
339 Master Circular for Mutual Funds as on March 31, 2023
III can invest in instruments of any maturity. For securities issued
by central government and state governments, the cap pertaining to
maximum residual maturity of each instrument for Class I and
Class II shall not be applicable.
17.5.15 With regards to existing holding of perpetual bonds by debt schemes
as on June 07, 2021, (including debt instruments with special
features viz. subordination to equity which absorbs losses before
equity capital and /or convertible to equity upon trigger of a pre-
specified event for loss absorption, for instance Additional Tier I
bonds issued under Basel III framework), it has been decided that
AMCs shall:
a. Reckon such bonds as having residual maturity as outlined in
Paragraphs 4.4.4, 9.4 & 12.2 of this Master Circular.
b. Grand-father existing investments in such instruments with the
following provision:
i. Calculation of Macaulay Duration of the scheme to follow
the guidelines in terms of Paragraphs 4.4.4, 9.4 & 12.2 of
this Master Circular.
ii. If the scheme places itself in Class I or II, and the MD
exceeds the stipulated level, then it would be treated as a
passive breach and a suitable period may be permitted for
regularizing the passive breach. Until regularization, the
scheme cannot make any investments that would
effectively increase the MD of the portfolio. Calculation of
MD for this purpose shall be post exclusion of such
instruments having special features. To clarify, if a scheme
AUM is INR 100 crores, of which INR 10 crores is in such
instruments with special features, the base for calculation
of MD for the purpose of PRC will be INR 90 crores. The
340 Master Circular for Mutual Funds as on March 31, 2023
scheme will continue to maintain the threshold of the cell
in which it is positioned on INR 90 crores in line with Class
I &/or Class II categorization in line with these provisions.
17.5.16 AMCs shall update their SIDs to reflect the fact that placement of
the scheme in one of the cells of PRC matrix does not reflect the
scheme holdings pertaining to the aforementioned perpetual bonds
with respect to the MD and maturity thresholds specified above, till
the time such bonds are held by the scheme, for pre-existing holding
of aforementioned perpetual bonds by debt schemes as on June 07,
2021.
17.5.17 Fresh investments in perpetual bonds (including Additional Tier 1
bonds) can only be made in schemes that are in Class III.
17.5.18 For the debt instruments with call / put options, the deemed
maturity will be in terms of Paragraph 9.3 of this Master Circular.
For instruments with interest rate reset dates, the interest rate reset
date shall not be treated as deemed maturity.
17.5.19 The dynamic aspect of the risk of each scheme would be separately
reflected in the Risk-o-Meter of the scheme, which would be
published on a monthly basis.
17.5.20 Mutual Funds shall publish the aforesaid matrix in their scheme
wise Annual Reports and Abridged Summary.
17.5.21 The aforesaid matrix along with the mark for the cell in which the
scheme resides shall be disclosed on:
a. front page of initial offering application form, Scheme
Information Documents (SID) and Key Information
Memorandum (KIM).
b. common application form – along with the information about
the scheme.
341 Master Circular for Mutual Funds as on March 31, 2023
the PRC matrix with appropriate mark with respect to
Paragraphs 17.5.21.(a) & 17.5.21.(b) above shall be placed in
proximity to the caption of the scheme and shall be
prominently visible and in bold.
c. Scheme advertisements – placed in manner by the Mutual
Fund and its distributors so as to be prominently visible to
investors.
17.6 Investment in units of Mutual Funds in the name of minor through
guardian and ease of process for transmission of units606
17.6.1 Process for Investments made in the name of a Minor through a
Guardian
a. Payment for investment by means of Cheque, Demand Draft
or any other mode shall be accepted from the bank account
of the minor or from a joint account of the minor with the
guardian only. For existing folios, the AMCs shall insist upon
a Change of Pay-out Bank mandate before redemption is
processed.
b. Upon the minor attaining the status of major, the minor in
whose name the investment was made, shall be required to
provide all the KYC details, updated bank account details
including cancelled original cheque leaf of the new account.
No further transactions shall be allowed till the status of the
minor is changed to major.
c. AMCs shall build a system control at the account set up stage
of Systematic Investment Plan (SIP), Systematic Transfer Plan
(STP) and Systematic Withdrawal Plan (SWP) on the basis of
which, the standing instruction is suspended when the minor
attains majority, till the status is changed to major.
606 SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2019/166 dated December 24,2019
342 Master Circular for Mutual Funds as on March 31, 2023
17.6.2 Process for transmission of Units
a. In order to improve the processing turnaround time for
transmission requests, AMCs shall implement image based
processing wherever the claimant is a nominee or a joint holder
in the investor folio.
b. AMCs shall have a dedicated, Central Help Desk and a webpage
carrying relevant information and instructions in order to provide
assistance on the transmission process.
c. AMCs shall adopt a common Transmission Request Form
(common fields) and NOC form. All such forms and formats shall
be made available on the website of the AMCs, RTAs and AMFI.
d. AMCs shall implement a common set of document requirements
for transmission of units to claimant who are nominees or joint
holders in the investor account.
e. AMCs shall implement a uniform process for treatment of
unclaimed funds to be transferred to the claimant including the
unclaimed dividends.
f. AMCs shall not accept requests for redemption from a claimant
pending completion of the transmission of units in his / her favor.
g. The Stamp duty payable by the claimant with respect to the
indemnity bond and affidavit, shall be in accordance with the
stamp duty prescribed by law.
h. AMCs and AMFI shall promote the importance of nomination as
a part of its investor education and awareness programmes.
17.6.3 To ensure uniformity across the industry, AMFI is advised to
prescribe the forms and formats referred in Paragraph 17.6.2.(c),
common set of documents referred in Paragraph 17.6.2.(d) and
uniform process for treatment of unclaimed funds referred in
343 Master Circular for Mutual Funds as on March 31, 2023
Paragraph 17.6.2.(e), and shall mandatorily be followed by all Mutual
Funds/AMCs.
17.7 607Limited Purpose Clearing Corporation (“LPCC”) by AMCs:
17.7.1 SEBI Board in its meeting held on September 29, 2020 approved a
proposal to facilitate setting up a LPCC for clearing and settling repo
transactions in corporate debt securities and accordingly Securities
Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2018 (SECC Regulations), have been amended vide
gazette notification no. SEBI/LAD-NRO/GN/2020/32 dated October
08, 2020.
17.7.2 AMCs shall contribute INR 150 Cr. towards share capital of LPCC in
proportion to the Asset Under Management (AUM) of open ended debt
oriented mutual fund schemes (excluding overnight, gilt fund and gilt
fund with 10 year constant duration but including conservative
hybrid schemes) managed by them.
17.7.3 The contribution shall be based on Average AUM of debt oriented
schemes as detailed above for the Financial Year (FY) 2020-21608. In
this regard, AMFI shall calculate contribution per AMC based on the
Average AUM of aforementioned schemes for the FY 2020-21 and
inform all AMCs. Accordingly, it will be obligatory on the part of
AMC(s) to contribute towards the share capital of LPCC.
17.7.4 The setting up of LPCC and making the aforesaid contribution shall
be in compliance with the networth requirements, other conditions
and timelines, if any, as per SECC Regulations and circulars issued
thereunder from time to time.
17.7.5 AMCs shall ensure that the networth as prescribed under Regulation
21(f) of SEBI (Mutual Funds) Regulations, 1996 shall be maintained
607 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/17 dated February 2, 2021
608 SEBI Circular No. SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2021/0548 dated April 6, 2021
344 Master Circular for Mutual Funds as on March 31, 2023
over and above the contribution made towards setting up of the
LPCC.
17.8 609Procedure for change in control of AMC:
The procedure for change in control of the AMC is given below:
17.8.1 Requirement of Regulations:
According to Regulation 22(e) of MF Regulations, no change in the
control of the AMC, directly or indirectly, can be made unless the
following conditions are complied with:
I. Prior approval of the trustees and the Board is obtained;
II. A written communication about the proposed change is sent to
each unitholder (for those unitholders whose e-mail IDs are
registered with the mutual funds, the communication can be
sent through e-mail) and an advertisement is given in one
English daily newspaper having nationwide circulation and in
a newspaper published in the language of the region where the
Head Office of the mutual fund is situated; and
III. The unitholders are given an option to exit on the prevailing
Net Asset Value (NAV) without any exit load within a time
period not less than 30 calendar days from the date of
communication.
17.8.2 New Sponsor(s):
In case the applicant proposing to take the control of an AMC is not
an existing sponsor of a mutual fund registered with SEBI, it shall
apply to the Board for approval of taking over control of an existing
AMC under MF Regulations. The process for making such application
609 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021, Refer
SEBI letter No. SEBI/HO/OW/IMD/RAC2/P/2022/51980/1 dated October 12, 2022, Refer
SEBI letter No. SEBI/HO/OW/IMD/RAC2/P/2022/ 58081/1 dated November 16, 2022
345 Master Circular for Mutual Funds as on March 31, 2023
is same as application for registration under MF Regulations. The
entire procedure for registration as Mutual Fund is given on the SEBI
website under the heading "How to get registered as a mutual fund"
in the “Mutual Fund” section.
17.8.3 Undertakings by new Trustee(s)/Sponsor(s):
In case of new sponsor(s) or in case of taking over of the schemes by
an existing mutual fund, the undertakings on the following lines are
required to be given to the Board and to the unitholders:
I. Taking full responsibility of the management and the
administration of the schemes including the matters relating to the
reconciliation of accounts (as if the schemes had been floated by
the new trustees on the date of taking over).
II. Assumption of the trusteeship of the assets and liabilities of the
schemes including outstanding borrowings, unclaimed dividends
and unclaimed redemptions, if any.
III. Assuming all responsibilities and obligations relating to the
investor grievances, if any, in respect of the schemes taken over,
in accordance with and pursuant to MF Regulations and various
circulars issued thereunder.
17.8.4 Disclosures to Unitholders:
While seeking the approval of the Board for change in the control of
the AMC, the mutual fund handing over the control to another
person, should also file the draft letter / email to be sent to the
unitholders along with draft advertisement to be published in the
newspaper. The draft letter / email to the unitholders should, inter-
alia, include the following information:
I. The activities of the new sponsor and its financial track record
and performance as prescribed in the standard offer document;
346 Master Circular for Mutual Funds as on March 31, 2023
II. In case of taking over of the schemes by an existing mutual fund
registered with SEBI, the draft letter should also include the
condensed financial information of all the schemes in the format
prescribed in the standard offer document;
III. The amount of unclaimed redemption and dividend and also the
procedure for claiming such amount by the unitholders.
17.8.5 Revision of all Standard Offer Documents:
The information given in all the offer documents of existing schemes
shall be revised and updated pursuant to the change in control of the
AMC / mutual fund. Such addendum shall also be filed with the
Board, as required under MF Regulations and various circulars
issued thereunder.
17.8.6 Other Situations:
In case of any other situation like indirect change in control of the
AMC or indirect change in the promoters of the sponsor(s), which was
beyond the control of the sponsor(s), etc., the mutual fund should
provide the full details of the information to the Board for further
course of action.
17.8.7 Change in control of the asset management company involving
scheme of arrangement under Companies Act, 2013610
To streamline the process of providing approval to the proposed
change in control of an AMC involving scheme of arrangement which
needs sanction of National Company Law Tribunal (“NCLT”) in terms
of the provisions of the Companies Act, 2013, following has been
decided:
610 SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/10 dated January 31, 2022
347 Master Circular for Mutual Funds as on March 31, 2023
a) The application seeking approval for the proposed change in
control of the AMC under Regulation 22(e) of MF Regulations shall
be filed with SEBI prior to filing the application with the NCLT;
b) Upon being satisfied with compliance of the applicable regulatory
requirements, an in-principle approval will be granted by SEBI;
c) The validity of such in-principle approval shall be three months
from the date of issuance, within which the relevant application
shall be made to NCLT;
d) Within 15 days from the date of order of NCLT, applicant shall
submit the following documents to SEBI for final approval:
i. Application for the final approval;
ii. Copy of the NCLT Order approving the scheme;
iii. Copy of the approved scheme;
iv. Statement explaining modifications, if any, in the approved
scheme vis-à-vis the draft scheme and the reasons for the
same; and
v. Details of compliance with the conditions/ observations
mentioned in the in-principle approval provided by SEBI.
17.9 611Postal Ballot:
17.9.1 As per the existing provisions of MF Regulations and various
circulars issued thereunder, wherever consent or approval of
unitholders is required, an option should be given to unitholders. In
this regard, it is clarified that the same can also be done through
Postal Ballot mechanism;
611 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
348 Master Circular for Mutual Funds as on March 31, 2023
17.9.2 For this purpose, voting through Postal Ballot shall mean voting by
post or through any electronic mode
17.10 612Exit period for Unitholders:
17.10.1 In order to bring uniformity, wherever exit option is required to be
given to unitholders under MF Regulations and circulars issued
thereunder, unitholders shall be given a time period of atleast 30
calendar days for the purpose of exercising the exit option.
17.11 613Rajiv Gandhi Equity Savings Scheme (RGESS):
17.11.1 Since, Rajiv Gandhi Equity Savings Scheme (RGESS) has been
phased out from the assessment year 2018-19, the references of
RGESS have become redundant from all places in MF Regulations
and circulars issued thereunder and therefore all provisions related
to RGESS issued through various circulars stands deleted.
17.11.2 However, for existing RGESS, if any, the rules and regulations
pertaining to RGESS prior to deletion of the provisions shall be
applicable.
17.12 614Mode of Payments and Despatch:
17.12.1 AMCs may also use instruments or payment channels such as
RTGS, NEFT, IMPS, direct credit, etc. or any other mode allowed by
Reserve Bank of India from time to time, for payments including
refunds to unitholders in addition to the cheque, demand draft or
dividend warrants;
17.12.2 Further, AMCs may also use modes of dispatch such as speed post,
courier etc. for payments including refunds to unitholders in
addition to the registered post with acknowledgement due.
612 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
613 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
614 SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2021/024 dated March 04, 2021
349 Master Circular for Mutual Funds as on March 31, 2023
17.13 615Maintenance of Current Accounts in multiple banks by
Mutual Funds:
17.13.1 Mutual funds currently maintain current accounts in multiple
banks including in banks having presence beyond the top 30 cities
(“B-30 cities”), for receiving subscription amount and for payment
of redemption proceeds / dividend / brokerage/ commission etc.
This enables investors to transact with banks of their choice and
facilitates faster transfer of funds.
17.13.2 Mutual fund industry has informed that the Reserve Bank of India
(“RBI”) has instructed that banks shall not open current accounts
for customers who have availed credit facilities in the form of cash
credit / overdraft from the banking system. On a review, however,
RBI has provided an indicative list of accounts stipulated under
various statutes and instructions of other regulators that can be
opened without such restriction, including accounts for the purpose
of New Fund Offerings (“NFOs”)/ dividend payment/ share buyback,
etc.
17.13.3 Mutual fund industry has represented that subscription in units of
open ended mutual fund schemes is akin to continuous NFO and
redemption of units of mutual fund schemes is akin to buy back or
repurchase of shares. Considering the above, industry has
requested SEBI to issue instructions for mutual funds in respect of
maintenance of current accounts in multiple banks.
17.13.4 Based on the request of mutual fund industry, it is clarified that
mutual funds should maintain current accounts in an appropriate
number of banks for the purpose of receiving subscription amount
and for payment of redemption / dividend / brokerage / commission
etc. to facilitate financial inclusion, convenience of investors and
ease of doing business.
615 SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/610 dated August 04, 2021
350 Master Circular for Mutual Funds as on March 31, 2023
17.14 616Guidelines on Accounting with respect to Indian Accounting
Standards (IND AS):
SEBI vide notification dated January 25, 2022 amended SEBI (Mutual Funds)
Regulations, 1996 (MF Regulations), which, inter-alia, mandated that the
AMCs shall prepare the Financial Statements and Accounts of the Mutual
Fund Schemes in accordance with IND AS with effect from April 01, 2023.
Accordingly, the following requirements are specified:
17.14.1 Mutual Fund Schemes shall prepare the opening balance sheet as
on date of transition and the comparatives as per the requirements
of IND AS.
17.14.2 Perspective historical per unit statistics mentioned in Clause 6 of
Eleventh Schedule of MF Regulations requires disclosure of scheme
wise per unit statistics for the past 3 years. In this regard, Mutual
Fund schemes may not be mandatorily required to restate the
previous years published perspective historical per unit statistics as
per requirement of IND AS for the first two years from first time
adoption of IND AS. However, Mutual Fund schemes shall furnish
following additional information in perspective historical per unit
statistics:
a) Label the previous Generally Accepted Accounting Principles
(GAAP) information prominently as not being prepared in
accordance with IND AS; and
b) Disclose the nature of the adjustments that would be required to
make it comply with IND AS. Mutual Funds schemes need not
quantify those adjustments.
17.14.3 The Financial Statements of the Mutual Fund Schemes shall be
prepared in the Format617.
616 SEBI circular no SEBI/HO/IMD-II/DOF8/P/CIR/2022/12 dated February 04, 2022
617 For format, please refer format no. 3.E under the Section on Formats.
351 Master Circular for Mutual Funds as on March 31, 2023
17.15 618Clearing and Settlement of OTC trades in Commercial Paper
(CPs) & Certificates of Deposit (CDs):
17.15.1 All SEBI regulated entities shall settle their OTC trades in CDs and
CPs on the lines of the process for settlement of OTC trades in
corporate bonds, through National Securities Clearing Corporation
Limited (NSCCL) and Indian Clearing Corporation Limited (ICCL).
All transactions cleared and settled in this regard, will be subject to
such norms as may be specified by NSCCL and ICCL.
17.16 Nomination for Mutual Fund unit holders619
17.16.1 In order to bring uniformity in practices across all constituents in
securities market, the following is decided in case of nomination for
eligible Mutual Fund Unit Holders:
17.16.1.1 Investors subscribing to mutual fund units on or after
October 01, 2022620, shall have choice of:
a) Providing nomination in the format specified in fourth
schedule of SEBI (Mutual Funds) Regulations, 1996 (or)
b) Opting out of nomination through a signed declaration
form as provided in Annexure 11.
17.16.1.2 AMC shall provide an option to the unit holder(s) to submit
either the nomination form or the declaration form for opting
out of nomination in physical or online as per the choice of
the unit holder(s). In case of physical option, the forms shall
carry the wet signature of all the unit holder(s). In case of
online option, instead of wet signature(s) of all the unit
holder(s), AMCs shall validate the forms:
618 SEBI circular no Cir. /IMD/DF/8/2012 dated March 05, 2012, Refer SEBI email dated
December 30, 2009
619 SEBI circular no. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2022/82 dated June 15, 2022
620 SEBI circular no. SEBI/HO/IMD/IMD-I DOF1/P/CIR/2022/105 July 29, 2022
352 Master Circular for Mutual Funds as on March 31, 2023
a. Using e-Sign facility recognized under Information
Technology Act, 2000; or
b. Through two factor authentication (2FA) in which one
of the factor shall be a One-Time Password sent to the
unit holder at his/her email/phone number registered
with the AMC.
17.16.1.3 All AMCs shall ensure that adequate systems are in place for
providing the e- Sign facility and take all necessary steps to
maintain confidentiality and safety of client records.
17.16.1.4 All the AMCs are advised to set deadline as September 30,
2023621 for nomination / opting out of nomination for all the
existing individual unit holder(s) holding mutual fund units
either solely or jointly as mentioned at Paragraph 17.16.1.1
above, failing which the folios shall be frozen for debits
17.16.1.5 Further, AMCs and RTAs shall encourage the unit holder(s) to
fulfil the requirement for nomination/ opting out of
nomination by sending a communication on fortnightly basis
by way of emails and SMS to all such unit holder(s) who are
not in compliance with the requirement of nomination. The
communication shall provide guidance by which the unit
holder(s) can provide nomination or opt out of nomination.622
17.17 Definition of “Associate” & Disclosure requirement for Asset
Management Companies (AMCs)623
17.17.1 SEBI has amended the definition of “associate” as per clause (c) of
sub-regulation (1) of regulation 2 of SEBI (Mutual Funds)
Regulations, 1996 vide Gazette Notification No. SEBI/LAD-
621 SEBI Circular No. SEBI/HO/IMD/IMD-I POD1/P/CIR/2023/47 dated March 28, 2023
622 SEBI Circular No. SEBI/HO/IMD/IMD-I POD1/P/CIR/2023/47 dated March 28, 2023
623 SEBI Circular No. SEBI/HO/IMD/DOF2/P/CIR/2022/111 dated August 25, 2022
353 Master Circular for Mutual Funds as on March 31, 2023
NRO/GN/2022/92 dated August 03, 2022. The revised definition of
Associate is as under:
“associate” includes a person, -
i. who directly or indirectly, by himself, or in combination with
relatives exercises control over the asset management
company or the trustees or the sponsor, as the case may be,
or
ii. in respect of whom the asset management company or the
trustees or the sponsor, directly or indirectly, by itself, or in
combination with other persons exercises a control, or
iii. whose director except an independent director, officer or
employee is a director, officer or employee of the asset
management company:
Provided that the above definition of associate shall not be
applicable to such sponsors, which invest in various companies
on behalf of the beneficiaries of insurance policies or such other
schemes as may be specified by the Board from time to time.
17.17.2 Consequent to the above amendment, it has been decided that
AMCs shall ensure scheme wise disclosure of investments, as on the
last day of each quarter, in securities of such entities that are
excluded from the definition of associate.
17.17.3 Disclosure of Investment shall include ISIN wise value of investment
and value as percentage of AUM of scheme. Such disclosure shall
be made on the websites of respective AMCs and on the website of
AMFI, within one month from the close of each quarter.
17.18 Format for Networth computation
17.18.1 “Networth” is defined under Regulation 2(qa) of SEBI (Mutual
Funds) Regulations, 1996, as the aggregate of the paid up capital
354 Master Circular for Mutual Funds as on March 31, 2023
and free reserves after deducting therefrom, miscellaneous
expenditure to the extent not written off or adjusted or deferred
revenue expenditure, intangible assets and accumulated losses.
17.18.2 Hence, during the processing of application of registration of a
mutual fund, wherever there is a requirement of furnishing
Networth certificate with SEBI, the Networth Certificate should be
provided by the applicant in the following format:
Amount (in
Particulars INR crores)
Paid-up capital
Add: Share Premium
Add: Free reserves of the company ((excluding
reserves created out of revaluation)
Less: miscellaneous expenditure to the extent not
written-off or adjusted or deferred revenue
expenditure,
Less: accumulated losses, if any
Less: intangible assets, if any
Less: Minimum Capital Adequacy / Networth
requirement for any other activity undertaken under
other SEBI regulations
Total Net worth for the FY
Profit After Tax for the FY
*********
355 Master Circular for Mutual Funds as on March 31, 2023
APPENDIX: LIST OF RESCINDED CIRCULARS
Sr. Circular No. Date Subject
No.
1 SEBI/HO/IMD/IMD-I Review of time limit for disclosure of NAV of Mutual fund
March 29, 2023
POD2/P/CIR/2023/48 schemes investing overseas
2 SEBI/HO/IMD/IMD-I Nomination for Mutual Fund Unit Holders – Extension of
March 28, 2023
POD1/P/CIR/2023/47 timelines
3 SEBI/HO/IMD/IMD-PoD- E-wallet investments in Mutual Funds
March 23, 2023
2/P/CIR/2023/40
4 SEBI/HO/IMD/IMD- January 06, Management and advisory services by AMCs to Foreign
POD1/P/CIR/2023/005 2023 Portfolio Investors
5 SEBI/HO/IMD/IMD-1 Introduction of credit risk based single issuer limit for
November 29,
DOF2/P/CIR/2022/164 investment by mutual fund schemes in debt and money
2022
market instruments
6 SEBI/HO/IMD/IMD-I November 25, Timelines for transfer of dividend and redemption
DOF2/P/CIR/2022/161 2022 proceeds to unitholders
7 SEBI/HO/IMD/DOF2/P/CIR/2022/14 October 28, Addendum to SEBI Circular on Development of Passive
5 2022 Funds
8 SEBI/HO/IMD/IMD-I September 30, Two-Factor Authentication for transactions in units of
DOF1/P/CIR/2022/132 2022 Mutual Funds
9 SEBI/HO/IMD/DOF2/P/CIR/2022/11 Disclosure requirement for Asset Management
August 25, 2022
1 Companies (AMCs)
10 SEBI/HO/IMD/IMD-I Nomination for Mutual Fund Unit Holders – Extension of
July 29, 2022
DOF1/P/CIR/2022/105 timelines
11 SEBI/HO/IMD/DF2/CIR/P/2022/102 Addendum to SEBI Circular on Development of Passive
July 28, 2022
Funds
12 SEBI/HO/IMD/IMD-II Nomination for Mutual Fund Unit Holders
June 15, 2022
DOF3/P/CIR/2022/82
13 SEBI/HO/IMD/IMD- Modification in Cyber Security and Cyber Resilience
I/DOF2/P/CIR/2022/81 June 09, 2022 Framework of Mutual Funds/ Asset Management
Companies (AMCs)
14 SEBI/HO/IMD/DOF2/P/CIR/2022/69 May 23, 2022 Circular on Development of Passive Funds
15 SEBI/HO/IMD/IMD-II Risk value of commodities for Risk-o-meter
April 11, 2022
DOF3/P/CIR/2022/49
16 SEBI/HO/IMD/IMD-I March 31, 2022 Discontinuation of usage of pool accounts for transactions
DOF5/P/CIR/2022/41 in the units of Mutual Funds, Two Factor Authentication
(‘2FA’) for redemption and other related requirements:
Extension of timeline
17 SEBI/HO/IMD/IMD-II March 30, 2022 Timelines for Rebalancing of Portfolios of Mutual Fund
DOF3/P/CIR/2022/39 Schemes
356 Master Circular for Mutual Funds as on March 31, 2023
18 SEBI/HO/IMD/IMD-I March 15, 2022 Discontinuation of usage of pool accounts for transactions
DOF5/P/CIR/2022/29 in the units of Mutual Funds: Clarifications with respect to
Circulars dated October 4, 2021
19 SEBI/HO/IMD/IMD-II February 25, Swing pricing framework for mutual fund schemes –
DOF3/P/CIR/2022/24 2022 Extension of timeline
20 SEBI/HO/IMD/IMD-I February 09, Audit Committee of Asset Management Companies
DOF2/P/CIR/2022/17 2022 (AMCs)
21 SEBI/HO/IMD- February 04, Guidelines on Accounting with respect to Indian
II/DOF8/P/CIR/2022/12 2022 Accounting Standards (IND AS)
22 SEBI/HO/IMD/IMD-I January 31, Change in control of the asset management company
DOF5/P/CIR/2022/10 2022 involving scheme of arrangement under Companies Act,
2013
23 SEBI/HO/IMD/IMD-II December 22, Restoration of relaxed timelines w.r.t. validity of
DOF3/P/CIR/2021/698 2021 observation letter pertaining to Mutual Funds
24 SEBI/HO/IMD/DF2/CIR/P/2021/683 December 10, Circular on Mutual Funds
2021
25 SEBI/HO/IMD-II/IMD- December 10, Publishing Investor Charter and disclosure of Investor
II_DOF10/P/CIR/2021/00677 2021 Complaints by Mutual Funds on their website and AMFI
website
26 SEBI/HO/IMD/DF2/CIR/P/2021/668 November 24, Norms for Silver Exchange Traded Funds (Silver ETFs) and
2021 Gold Exchange Traded Funds (Gold ETFs)
27 SEBI/HO/IMD/IMD- October 28, Investment/ trading in securities by employees and Board
I/DOF5/P/CIR/2021/654 2021 members of AMC(s) and Trustees of Mutual Funds
28 SEBI/HO/IMD/IMD-II October 27, Guiding Principles for bringing uniformity in Benchmarks
DF3/P/CIR/2021/652 2021 of Mutual Fund Schemes
29 SEBI/HO/IMD/IMD-II October 06, Minimum percentage of trades carried out by Mutual
DOF3/P/CIR/2021/641 2021 Funds through RFQ platform
30 SEBI/HO/IMD/IMD-I October 04, Circular on Mutual Funds
DOF5/P/CIR/2021/634 2021
31 SEBI/HO/IMD/IMD-I October 04, Discontinuation of usage of pool accounts for transactions
DOF5/P/CIR/2021/635 2021 in units of Mutual Funds on Stock Exchange platforms
32 SEBI/HO/IMD/IMD-II September 29, Swing pricing framework for Mutual Fund schemes
DOF3/P/CIR/2021/631 2021
33 SEBI/HO/IMD/IMD-1 September 27, Risk Management Framework (RMF) for Mutual Funds
DOF2/P/CIR/2021/630 2021
34 SEBI/HO/IMD/IMD- September 20, Clarification with respect to Circular dated April 28, 2021
I/DOF5/P/CIR/2021/629 2021 on 'Alignment of Interest of Key Employees ('Designated
Employees') of Asset Management Companies (AMCs)
with the Unitholders of the Mutual Fund schemes
35 SEBI/HO/IMD/IMD- September 02, Alignment of interest of Key Employees of Asset
IDOF5/P/CIR/2021/624 2021 Management Companies (AMCs) with the unitholders of
the Mutual Fund schemes
357 Master Circular for Mutual Funds as on March 31, 2023
36 SEBI/HO/IMD/IMD-II August 31, 2021 Disclosure of Risk-o-Meter of scheme, benchmark and
DOF3/P/CIR/2021/621 portfolio details to the investors
37 SEBI/HO/IMD/IMD- August 04, 2021 Maintenance of current accounts in multiple banks by
I/DOF5/P/CIR/2021/610 Mutual Funds
38 SEBI/HO/IMD/IMD-II July 30, 2021 Deployment of unclaimed redemption and dividend
DOF3/P/CIR/2021/608 amounts and instant access facility in Overnight Funds
39 SEBI/HO/IMD/IMD- July 30, 2021 Intra-Day Net Assets Value (NAV) for Transactions in Units
I/DOF5/P/CIR/2021/0606 of Exchange Traded Funds directly with Asset
Management Companies
40 SEBI/HO/IMD/IMD-II July 26, 2021 RTA inter-operable Platform for enhancing investors'
DOF3/P/CIR/2021/604 experience in Mutual Fund transactions/ service requests
41 SEBI/HO/IMD/IMD-II July 23, 2021 Timelines related to processing of scheme related
DOF3/P/CIR/2021/603 applications filed by AMCs
42 SEBI/HO/IMD/DF4/P/CIR/2021/593 July 09, 2021 Valuation of securities with multiple put options present
ab-initio
43 SEBI/HO/IMD/IMD- June 25, 2021 Alignment of interest of Key Employees of Asset
I/DOF5/P/CIR/2021/582 Management Companies (AMCs) with the unitholders of
the Mutual Fund schemes
44 SEBI/HO/IMD/IMD-II June 25, 2021 Prudential norms for liquidity risk management for open
DOF3/P/CIR/2021/583 ended debt schemes
45 SEBI/HO/IMD/IMD-I June 18, 2021 Norms for investment and disclosure by mutual funds in
DOF2/P/CIR/2021/580 derivatives
46 SEBI/HO/IMD/IMD-II June 07, 2021 Potential Risk Class Matrix for debt schemes based on
DOF3/P/CIR/2021/573 Interest Rate Risk and Credit Risk
47 SEBI/HO/IMD/IMD- June 03, 2021 Enhancement of Overseas Investment limits for Mutual
II/DOF3/P/CIR/2021/571 Funds
48 SEBI/HO/IMD/IMD-II May 31, 2021 Disclosure of the following only w.r.t schemes which are
DOF3/P/CIR/2021/566 subscribed by the investor:
a. risk-o-meter of the scheme and the benchmark along
with the performance disclosure of the scheme vis-à-vis
benchmark and
b. Details of the portfolio
49 SEBI/HO/IMD/IMD-I April 30, 2021 Timelines for updation of Scheme Information Document
DOF2/P/CIR/2021/0560 (SID) and Key Information Memorandum (KIM)
50 SEBI/HO/IMD/IMD-II April 29, 2021 Disclosure of the following only w.r.t schemes which are
DOF3/P/CIR/2021/555 subscribed by the investor:
a. risk-o-meter of the scheme and the benchmark along
with the performance disclosure of the scheme vis-à-vis
benchmark and
b. Details of the portfolio
51 SEBI/HO/IMD/IMD- April 28, 2021 Alignment of interest of Key Employees of Asset
I/DOF5/P/CIR/2021/553 Management Companies (AMCs) with the unitholders of
the Mutual Fund schemes
358 Master Circular for Mutual Funds as on March 31, 2023
52 SEBI/HO/IMD/IMD-I April 12, 2021 Circular on Reporting Formats for Mutual Funds
DOF2/P/CIR/2021/550
53 SEBI/HO/IMD/IMD-1 April 06, 2021 Setting Up Limited Purpose Clearing Corporation (LPCC)
DOF2/P/CIR/2021/0548 by Asset Management Companies (AMCs) of Mutual
Funds
54 SEBI/HO/IMD/DF4/CIR/P/2021/034 March 22, 2021 Clarification on the valution of bonds issued under Basel
III framework
55 SEBI/HO/IMD/DF4/CIR/P/2021/032 March 10, 2021 Review of norms regarding investment in debt
instruments with special features, and the valuation of
perpetual bonds
56 SEBI/HO/IMD/DF4/CIR/P/2021/29 March 05, 2021 Guidelines for votes case by Mutual Funds
57 SEBI/HO/IMD/DF2/CIR/P/2021/024 March 04, 2021 Circular on Mutual Funds
58 SEBI/HO/IMD/DF2/CIR/P/2021/17 February 02, Setting Up Limited Purpose Clearing Corporation (LPCC)
2021 by Asset Management Companies (AMCs) of Mutual
Funds
59 SEBI/HO/IMD/DF3/CIR/P/2021/014 January 29, Revision of Monthly Cumulative Report (MCR)
2021
60 SEBI/HO/IMD/DF2/CIR/P/2021/10 January 15, Norms for investment and disclosure by Mutual Funds in
2021 Exchange traded commodity derivatives ("ETCDs")
61 SEBI/HO/IMD/DF2/CIR/P/2020/253 December 31, Circular on Mutual Funds
2020
62 SEBI/HO/IMD/DF3/CIR/P/2020/228 November 06, Introduction of "Flexi Cap Fund" as a new category under
2020 Equity schemes
63 SEBI/HO/IMD/DF3/CIR/P/2020/229 November 06, Norms regarding holding of liquid assets in open ended
2020 debt schemes & stress testing of open ended debt
schemes
64 SEBI/HO/IMD/DF3/CIR/P/2020/225 November 05, Enhancement of Overseas Investment limits for Mutual
2020 Funds
65 SEBI/HO/IMD/DF4/CIR/P/2020/202 October 08, Guidelines for Inter-scheme Transfers of securities
October 2020
66 SEBI/HO/IMD/DF3/CIR/P/2020/19 October 05, Product Labelling in Mutual Fund schemes - Risk-o-meter
7 2020
67 SEBI/HO/IMD/DF3/CIR/P/2020/194 October 05, Review of Dividend options(s)/ Plan(s) in case of Mutual
2020 Fund schemes
68 SEBI/HO/IMD/DF4/CIR/P/2020/192 October 01, Review of provisions regarding valuation of debt and
2020 money market instruments due to the COVID - 19
pandemic
69 SEBI/HO/IMD/DF4/CIR/P/2020/17 September 23, Resources for Trustees of Mutual Funds
8 2020
70 SEBI/HO/IMD/DF2/CIR/P/2020/175 September 17, Circular on Mutual Funds
2020
359 Master Circular for Mutual Funds as on March 31, 2023
71 SEBI/HO/IMD/DF3/CIR/P/2020/172 September 11, Asset Allocation of Multi Cap Funds
2020
72 SEBI/HO/IMD/DF4/CIR/P/2020/165 September 02, Review of provision regarding segregation of portfolio due
2020 to COVID-19 pandemic
73 SEBI/HO/IMD/DF4/CIR/P/2020/163 September 01, Review of debt and money market securities transactions
2020 disclosure
74 SEBI/HO/IMD/DF4/CIR/P/2020/0000 August 10, 2020 Resources for Trustees of Mutual Funds
000151
75 SEBI/HO/IMD/DF3/CIR/P/2020/130 July 22, 2020 Transaction in Corporate Bonds/Commercial Papers
through RFQ platform and enhancing transparency
pertaining to debt schemes
76 SEBI/HO/IMD/DF4/CIR/P/2020/100 June 12, 2020 Investment by sponsor or asset management company in
the scheme
77 SEBI/HO/IMD/DF2/CIR/P/2020/96 June 05, 2020 Participation of Mutual Funds in Commodity Derivatives
Market in India
78 SEBI/HO/IMD/DF3/CIR/P/2020/086 May 20, 2020 Listing of Mutual Fund schemes that are in the process of
winding up
79 SEBI/HO/IMD/DF3/CIR/P/2020/76 April 30, 2020 Relaxation in compliance with requirements pertaining to
Mutual Funds
80 SEBI/HO/IMD/DF2/CIR/P/2020/75 April 28, 2020 Existing grandfathered unlisted NCDs
81 SEBI/HO/IMD/DF3/CIR/P/2020/70 April 23, 2020 Review of provisions of the circular dated September 24,
2019 issued under SEBI (Mutual Funds) Regulations, 1996
due to the COVID - 19 pandemic and moratorium
permitted by RBI
82 SEBI/HO/IMD/DF3/CIR/P/2020/47 March 23, 2020 Relaxation in certain compliance with requirements
pertaining to Mutual Funds
83 SEBI/HO/IMD/DF3/CIR/P/2019/166 December 24, Investment in units of Mutual Funds in the name of minor
2019 through guardian and ease of process for transmission of
units
84 SEBI/HO/IMD/DF2/CIR/P/2019/155 December 16, Management and advisory services by AMCs to Foreign
2019 Portfolio Investors
85 SEBI/HO/IMD/DF3/CIR/P/2019/152 December 10, Review of investment norms for mutual funds for
2019 investment in Debt and Money Market Instruments
86 SEBI/HO/IMD/DF3/CIR/P/2019/147 November 29, Norms for Debt Exchange Traded Funds (ETFs)/Index
2019 Funds
87 SEBI/HO/IMD/DF2/CIR/P/2019/127 November 07, Creation of segregated portfolio in mutual fund schemes
2019
88 SEBI/HO/IMD/DF4/CIR/P/2019/126 November 06, Reporting of changes in terms of investment
2019
89 SEBI/HO/IMD/DF2/CIR/P/2019/104 October 01, Review of investment norms for mutual funds for
2019 investment in Debt and Money Market Instruments
360 Master Circular for Mutual Funds as on March 31, 2023
90 SEBI/HO/IMD/DF4/CIR/P/2019/102 September 24, Valuation of money market and debt securities
2019
91 SEBI/HO/IMD/DF2/CIR/P/2019/101 September 20, Risk Management Framework for Liquid & Overnight
2019 Funds and norms governing investment in short term
deposits
92 SEBI/HO/IMD/DF4/CIR/P/2019/093 August 16, 2019 Parking of Funds in Short Term Deposits of Scheduled
Commercial Banks by Mutual Funds - Pending deployment
93 SEBI/HO/IMD/DF2/CIR/P/2019/65 May 21, 2019 Participation of Mutual Funds in Commodity Derivatives
Market in India
94 SEBI/HO/IMD/DF5/CIR/P/2019/63 May 09, 2019 Reporting for Artificial Intelligence (AI) & Machine
Learning (ML) Applications and systems offered and used
by Mutual Funds
95 SEBI/HO/IMD/DF2/CIR/P/2019/058 April 11, 2019 Technology committee for Mutual Funds/ Asset
Management Companies (AMCs)
96 SEBI/HO/IMD/DF2/CIR/P/2019/57 April 11, 2019 System Audit Framework for Mutual Funds/ Asset
Management Companies (AMCs)
97 SEBI/HO/IMD/DF2/CIR/P/2019/42 March 25, 2019 Review of Commission, Expenses, Disclosure norms etc. -
Mutual Fund
98 SEBI/HO/IMD/DF4/CIR/P/2019/41 March 22, 2019 Valuation of money market & debt securities
99 SEBI/HO/IMD/DF2/CIR/P/2019/34 March 08, 2019 Filing of advertisements under SEBI (Mutual Funds)
Regulations, 1996
100 SEBI/HO/IMD/DF3/CIR/P/2019/020 January 22, Revised Monthly Cumulative Report (MCR)
2019
101 SEBI/HO/IMD/DF2/CIR/P/2019/17 January 16, Norms for investment and disclosure by mutual funds in
2019 derivatives
102 SEBI/HO/IMD/DF2/CIR/P/2019/12 January 10, Cyber Security and Cyber Resilience framework for
2019 Mutual Funds/ Asset Management Companies (AMCs)
103 SEBI/HO/IMD/DF3/CIR/P/2019/011 January 10, Portfolio Concentration Norms for Equity Exchange
2019 Traded Funds (ETFs) and Index Funds
104 SEBI/HO/IMD/DF2/CIR/P/2018/160 December 28, Creation of segregated portfolio in mutual fund schemes
2018
105 SEBI/HO/IMD/DF2/CIR/P/2018/137 October 22, Total Expenses Ratio (TER) and Performance Disclosure
2018 for Mutual Funds
106 SEBI/HO/IMD/DF2/CIR/P/2018/91 June 05, 2018 Total Expense Ratio for Mutual Funds
107 SEBI/HO/IMD/DF2/CIR/P/2018/92 June 05, 2018 Circular on Go Green Initiative in Mutual Funds
108 SEBI/HO/IMD/DF3/CIR/P/2018/69 April 12, 2018 Performance disclosure post consolidation/ Merger of
Schemes
109 SEBI/HO/IMD/DF2/CIR/P/2018/19 February 07, Enhancing fund governance for Mutual Funds
2018
110 SEBI/HO/IMD/DF2/CIR/P/2018/18 February 05, Total Expense Ratio - change and disclosure
2018
361 Master Circular for Mutual Funds as on March 31, 2023
111 SEBI/HO/IMD/DF3/CIR/P/2018/15 February 02, Charging of additional expenses of upto 0.20% in terms of
2018 Regulation 52 (6A) (c) of SEBI (Mutual Funds) Regulations,
1996
112 SEBI/HO/IMD/DF2/CIR/P/2018/16 February 02, Review of additional expenses of up to 0.30% towards
2018 inflows from beyond top 15 cities (B15)
113 SEBI/HO/IMD/DF3/CIR/P/2018/04 January 04, Benchmarking of Scheme’s performance to Total Return
2018 Index
114 SEBI/HO/IMD/DF3/CIR/P/2017/126 December 04, Categorization and rationalization of Mutual Fund
2017 schemes
115 SEBI/HO/IMD/DF2/CIR/P/2017/125 November 30, Enhancing fund governance for Mutual Funds
2017
116 SEBI/HO/IMD/DF3/CIR/P/2017/114 October 06, Categorization and rationalization of Mutual Fund
2017 schemes
117 SEBI/HO/IMD/DF2/CIR/P/2017/109 September 27, Review of norms for participation in derivatives by Mutual
2017 Funds
118 SEBI/HO/IMD/DF3/CIR/P/2017/52 June 01, 2017 Online Registration Mechanism for Mutual Funds
119 SEBI/HO/IMD/DF2/CIR/P/2017/39 May 08, 2017 Instant Access Facility & Use of e-wallet for investment in
Mutual Funds
120 SEBI/HO/IMD/DF2/CIR/P/2017/35 April 28, 2017 Circular on Mutual Funds
121 CIR/IMD/DF/23/2017 March 15, 2017 Review of Advertisement guidelines for Mutual Funds
122 SEBI/HO/IMD/DF2/CIR/P/2017/17 February 28, Circular on Mutual Funds
2017
123 SEBI/HO/IMD/DF2/CIR/P/2017/14 February 22, Prudential limits in sector exposure for Housing Finance
2017 Companies (HFCs)
124 SEBI/HO/IMD/DF2/CIR/P/2017/13 February 20, Participation in derivatives market by Mutual Funds
2017
125 SEBI/HO/IMD/DF2/CIR/P/2016/12 November 17, Investment/trading in securities by employees of AMC(s)
4 2016 and Trustees of Mutual Funds
126 SEBI/HO/IMD/DF2/CIR/P/2016/89 September 20, Consolidated Account Statement
2016
127 SEBI/HO/IMD/DF2/CIR/P/2016/68 August 10, 2016 Circular on Mutual Funds
128 SEBI/HO/IMD/DF2/CIR/P/2016/57 May 31, 2016 Restriction on redemption in Mutual Funds
129 SEBI/HO/IMD/DF2/CIR/P/2016/42 March 18, 2016 Circular on Mutual Funds
130 SEBI/HO/IMD/DF2/CIR/P/2016/37 February 25, Circular on Mutual Funds
2016
131 SEBI/HO/IMD/DF2/CIR/P/2016/35 February 15, Circular on Mutual Funds
2016
132 CIR/IMD/DF/11/2015 December 31, Investment by Gold ETFs in Gold Monetization scheme of
2015 Banks
133 CIR/IMD/DF/03/2015 April 30, 2015 Stress Testing of Liquid Fund and Money Market Mutual
Fund Schemes
362 Master Circular for Mutual Funds as on March 31, 2023
134 CIR/IMD/DF/4/2015 April 30, 2015 Product Labelling in Mutual Funds
135 Cir/ IMD/ DF/ 15 /2014 June 20, 2014 Minimum Asset under Management (AUM) of Debt
Oriented schemes
136 CIR/IMD/DF/10/2014 May 22, 2014 Circular on Mutual Funds
137 CIR/IMD/DF/07/2014 April 02, 2014 Disclosures pertaining to Assets Under Management
138 CIR/IMD/DF/05/2014 March 24, 2014 Enhancing disclosures, investor education & awareness
campaign, developing alternative distribution channels
for Mutual Fund products, etc.
139 CIR/IMD/DF/20/2013 November 29, Circular on Infrastructure Debt Fund (IDF)
2013
140 CIR/IMD/DF/16/2013 October 18, Gold Exchange Traded Fund scheme (Gold ETFs) and Gold
2013 Deposit Scheme (GDS) of Banks
141 CIR / IMD / DF / 7 / 2013 April 23, 2013 Circular on Infrastructure Debt Fund
142 CIR/IMD/DF/5/2013 March 18, 2013 Product Labelling in Mutual Funds
143 CIR/IMD/DF/04/2013 February 15, Gold Exchange Traded Fund scheme (Gold ETFs)
2013 Investment in Gold Deposit Scheme (GDS) of Banks
144 CIR/ IMD/ DF/02/2013 February 06, Time period of initial offering and allotment of units of
2013 Mutual Fund scheme eligible under Rajiv Gandhi Equity
Savings Scheme, 2012 (RGESS)
145 CIR/IMD/DF/24/2012 November 19, Circular on Mutual Funds
2012
146 CIR/IMD/DF/23/2012 November 15, Participation of mutual funds in Credit Default Swaps
2012 (CDS) Market as users ("Protection Buyers") and in repo,
in corporate debt securities
147 CIR/IMD/DF/21/2012 September 13, Steps to re-energize Mutual Fund Industry
2012
148 Cir/IMD/DF/6/2012 February 28, Circular on Mutual Funds
2012
149 Cir/IMD/DF/7/2012 February 28, Circular for Mutual Funds
2012
150 CIR / IMD / DF / 21 / 2011 December 13, Revised Format of Monthly Cumulative Report (MCR)
2011 incorporating investments in Infrastructure Debt fund
151 CIR / IMD / DF / 19 / 2011 November 11, Participation of mutual funds in repo in corporate debt
2011 securities
152 Cir/ IMD/ DF/ 16 / 2011 September 08, Amendment to SEBI (Mutual Funds) Regulations, 1996
2011
153 Cir/ IMD/ DF/13/ 2011 August 22, 2011 Circular for Mutual Funds
154 CIR/IMD/DF/12/2011 August 01, 2011 Indicative Portfolios and Yield in close ended debt
oriented mutual funds Schemes
155 CIR/IMD/DF/9/2011 May 19, 2011 Option to hold units in Demat Form
156 CIR/MFD/DF/4/2011 March 09, 2011 Usage of Load Balance
363 Master Circular for Mutual Funds as on March 31, 2023
157 Cir/ IMD/ DF/20/2010 December 06, Half Yearly Report by Trustees
2010
158 Cir / IMD / DF / 19 / 2010 November 26, Circular for Mutual Funds
2010
159 CIR/IMD/DF/17/2010 November 09, Facilitating transactions in Mutual Fund schemes through
2010 the Stock Exchange infrastructure
160 Cir / IMD / DF / 15/ 2010 October 22, Consolidation or merger of Schemes
2010
161 CIR/IMD/DF/10/2010 August 18, 2010 Transferability of Mutual Fund units
162 Cir/ IMD/ DF/ 11/ 2010 August 18, 2010 Review of norms for investment and disclosure by Mutual
Funds in derivatives
163 Cir / IMD / DF / 9 / 2010 August 12, 2010 Updation of investor related documents
164 Cir / IMD / DF / 8 / 2010 August 06, 2010 Amendments to SEBI (Mutual Funds) Regulations, 1996
165 Cir / IMD / DF / 6 / 2010 July 28, 2010 Additional Mode of payment through Application
Supported by Blocked Amount (hereinafter referred to as
'ASBA') in Mutual Funds
166 Cir / IMD / DF / 5 / 2010 June 24, 2010 Certificate Programme for sale and/or distributors of
mutual fund products
167 Cir / IMD / DF / 4 / 2010 June 21, 2010 Valuation of Debt and Money Market Instruments
168 Cir / IMD / DF/ 2 / 2010 May 13, 2010 Disclosure of investor complaints with respect to Mutual
Funds
169 SEBI/IMD/CIR No. 18/ 198647/2010 March 15, 2010 Circular for Mutual Funds
170 SEBI/IMD/CIR No. 17/ 193751/2010 February 04, Standard warning in Advertisements by Mutual Funds
2010
171 SEBI/IMD/CIR No.16/ 193388/2010 February 02, Valuation of Debt and Money Market Instruments
2010
172 SEBI/IMD/CIR No.15/191378 /2010 January 18, Advertisement by mutual funds
2010
173 SEBI/IMD/CIR No 14/187175/2009 December 15, Modification to existing SEBI circulars on Mutual Funds
2009
174 SEBI/IMD/CIR No.12 /186868 /2009 December 11, Transaction through some MF distributors and
2009 compliance with SEBI circular on AML
175 SEBI/IMD/CIR No./ 13/187052 /2009 December 11, AMFI Guidelines for change of mutual fund distributor
2009
176 SEBI /IMD / CIR No.11/183204/ 2009 November 13, Facilitating transactions in Mutual Fund schemes through
2009 the Stock Exchange infrastructure
177 SEBI/IMD/CIR No. 10/178129/09 September 29, Statement of Additional Information (SAI) and Scheme
2009 Information Document (SID) to be made available on SEBI
website
178 SEBI/IMD/CIR No. 8/176988/2009 September 16, System Audit of Mutual Funds
2009
364 Master Circular for Mutual Funds as on March 31, 2023
179 SEBI/IMD/CIR No. 8/174648/2009 August 27, 2009 Code of Conduct for Intermediaries of Mutual Funds
180 SEBI/IMD/CIR No.7/173650/2009 August 17, 2009 Exit load - Parity among all classes of unit holders
181 SEBI / IMD / CIR No. 6 /172445/ 2009 August 07, 2009 Exit load - Parity among all classes of unit holders
182 SEBI/IMD/CIR No. 5/169030/2009 July 08, 2009 Revision in filing fees - Amendments to SEBI (Mutual
Funds) Regulations, 1996
183 SEBI/IMD/CIR No. 4/ 168230/09 June 30, 2009 Mutual Funds - Empowering Investors through
transparency in payment of commission and load
structure
184 SEBI/IMD/CIR No.3/166386/2009 June 15, 2009 Guidelines for Investment by Mutual Funds in Money
Market Instruments
185 SEBI/IMD/CIR No. 2/166256/2009 June 12, 2009 Valuation of debt securities by Mutual Funds
186 SEBI/IMD/CIR No. 1/165935 / 2009 June 09, 2009 Guidelines for investment by Mutual Funds in Indian
Depository Receipts (IDRs) and copies of gazette
notifications dated April 08, 2009 and June 05, 2009
187 SEBI/IMD/CIR No. 15/157701/09 March 19, 2009 Portfolio Format for debt oriented close-ended and
interval schemes/plans
188 SEBI/IMD/CIR No. 13/150975/09 January 19, Portfolio of “Liquid Schemes” and nomenclature of
2009 “Liquid Plus” schemes
189 SEBI/IMD/CIR No. 14/151044/09 January 19, Indicative Portfolios and Yields in Mutual Funds Scheme
2009
190 SEBI/IMD/CIR No. 12/147132/08 December 11, Review of Provisions relating to Close Ended Schemes
2008
191 SEBI/IMD/CIR No. 11/142521/08 October 24, Applicability of Net Asset Value (NAV) for Income/Debt
2008 oriented Mutual Fund scheme(s)/plan(s) (Other than
liquid fund schemes)
192 SEBI/IMD/CIR No. 10 /141712/08 October 20, Standardizing format of Abridged Scheme wise Annual
2008 Report Format and Reduction in time period for dispatch
to the unitholders - Amendments to SEBI (Mutual Funds)
Regulations, 1996
193 SEBI/IMD/CIR No. 9/141601/08 October 18, Valuation of Debt securities by Mutual Funds
2008
194 SEBI/IMD/CIR No.8/132968/08 July 24, 2008 Abridged Scheme wise Annual Report and period
disclosures to Unit holders
195 SEBI/IMD/CIR No.7/129592/08 June 23, 2008 Parking of Funds in Short Term Deposits of Scheduled
Commercial Banks by Mutual Funds - Pending deployment
196 SEBI/IMD/CIR No.6/127947/08 June 06, 2008 Short Selling and Securities Lending and Borrowing & Net
Settlement of Government Securities Transactions -
Amendments to SEBI (Mutual Funds) Regulations, 1996
197 SEBI/IMD/CIR No. 5/126096/08 May 23, 2008 Simplification of Offer Document and Key Information
Memorandum of Mutual Funds schemes
198 SEBI/IMD/CIR No.4/124477/08 May 02, 2008 Notification on Real Estate Mutual Fund schemes and
initial issue expenses
365 Master Circular for Mutual Funds as on March 31, 2023
199 SEBI/IMD/CIR No. 3/124444/08 April 30, 2008 Revised Monthly Cumulative Report (MCR)
200 SEBI/IMD/CIR No.2/122577/08 April 08, 2008 Overseas Investments by Mutual Fund
201 SEBI/IMD/CIR No.1/122201/08 April 03, 2008 Revision in Filing Fees and Registration Fees - Amendment
to SEBI (Mutual Funds) Regulations, 1996
202 SEBI/IMD/CIR No. 14/120784/08 March 18, 2008 Load on Bonus Units and units allotted on Reinvestment
of Dividend
203 SEBI/IMD/CIR No. 13/118899/08 February 29, New Scheme Report
2008
204 SEBI/IMD/CIR No. 12/ 118340 /08 February 26, Standard warning in Advertisements by Mutual Funds
2008
205 SEBI/IMD/CIR No. 11/ 115723 /08 January 31, Removal of Initial Issue Expenses
2008
206 SEBI/IMD/CIR No. 10/ 112153 /07 December 31, Waiver of Entry Load for Direct applications
2007
207 SEBI/IMD/CIR No.9/108562/07 November 16, Circular for Mutual Funds
2007
208 SEBI/IMD/CIR No.8/107311/07 October 26, Parking of Funds in Short Term Deposits of Scheduled
2007 Commercial Banks by Mutual Funds - Pending deployment
209 SEBI/IMD/CIR No.7/104753/07 September 26, Overseas Investments by Mutual Fund
2007
210 SEBI/IMD/CIR No. 6/98057/07 July 05, 2007 Bi-monthly Compliance Test Reports (CTRs)
211 SEBI/IMD/CIR No.5 /96576/07 June 25, 2007 Extension of time for uploading of NAVs of Fund of Fund
schemes
212 SEBI/IMD/CIR No.4 /95754/07 June 11, 2007 Gazette notification dated May 28, 2007
213 SEBI/IMD/CIR No.3/93334/07 May 14, 2007 Investment in ADRs/GDRs/Foreign Securities and
overseas ETFs by Mutual Funds
214 SEBI/IMD/CIR No.2/91600/07 April 20, 2007 REVISED MONTHLY CUMULATIVE REPORT (MCR)
215 SEBI/IMD/CIR No.2/91033/07 April 17, 2007 REVISED MONTHLY CUMULATIVE REPORT (MCR)
216 SEBI/IMD/CIR No. 1/ 91171 /07 April 16, 2007 Parking of Funds in Short Term Deposits of Scheduled
Commercial Banks by Mutual Funds - Pending deployment
217 SEBI/IMD/CIR No. 15/87045/2007 February 22, Additional Reporting with Monthly Cumulative Report
2007 (MCR)
218 SEBI/IMD/CIR No.14 /84243/07 January 15, Circular for Mutual Funds
2007
219 SEBI/IMD/CIR No.13/83589/07 January 04, Investments in ADRs/GDRs/Foreign Securities and
2007 Overseas EFT by Mutual Funds
220 IMD/CIR/12/80083/2006 November 20, Dispatch of Account Statement
2006
221 SEBI/IMD/CIR No.11/78450/06 October 11, Uniform Cut Off Time for applicability of Net Asset Value
2006 (NAV) of Mutual Fund scheme(s)/Plan(s)
366 Master Circular for Mutual Funds as on March 31, 2023
222 SEBI/IMD/CIR No.10 / 77780/06 September 28, Uniform Cut Off Time for applicability of Net Asset Value
2006 (NAV) of Mutual Fund scheme(s)/Plan(s)
223 SEBI/IMD/CIR No.9/74364/06 August 14, 2006 Gazette notification dated August 03, 2006
224 SEBI/IMD/CIR No.8 / 73580/06 August 04, 2006 Filing of Annual Information Return to be filed by Mutual
Funds
225 SEBI/IMD/CIR No. 7 / 73202 /06 August 02, 2006 Investments in ADRs/GDRs/Foreign Securities and
Overseas EFTs by Mutual Funds
226 SEBI/IMD/CIR No. 6 / 72245 /06 July 20, 2006 Revised Monthly Cumulative (MCR) and Annual Statistical
Report (ASR)
227 SEBI/IMD/CIR No.5/70559/06 June 30, 2006 Undertaking from Trustee for New Scheme Offer
Document
228 SEBI/IMD/CIR No.4/69458/06 June 16, 2006 Gazette notification dated May 22, 2006
229 SEBI/IMD/CIR No. 2/65348/06 April 21, 2006 Introduction of Gold Exchange Traded Funds in India.
230 SEBI/IMD/CIR No. 3/65370/06 April 21, 2006 Dividend Distribution Procedure for Mutual Funds
231 SEBI/IMD/CIR No. 1/64057/06 April 04, 2006 Rationalization of Initial issue expenses and dividend
distribution procedure for Mutual Funds
232 SEBI/IMD/CIR No. 5/63714/06 March 29, 2006 Review of time limit for updating NAV on AMFI website
233 SEBI/IMD/CIR No. 5/63715/06 March 29, 2006 Applicability of Investment restrictions for securitized
debt
234 SEBI/IMD/CIR No.4/58422/06 January 24, Gold ETF
2006
235 SEBI/IMD/CIR No.3/50241/05 September 26, Investments in ADRs/GDRs/Foreign Securities by Mutual
2005 Funds
236 SEBI/ IMD/CIR No.2/46603/2005 August 10, 2005 Unique Client Code (UCC) for Mutual Fund schemes/plans
237 SEBI/ IMD/CIR No.1 /42529/2005 June 14, 2005 Minimum number of investors in the Scheme(s)/Plan(s) of
Mutual Funds
238 SEBI/ IMD/CIR No.11/36222/2005 March 16, 2005 Compliance Test Report (CTR)
239 SEBI/IMD/CIR No. 10/ 16521/04 July 28, 2004 Key Information Memorandum
240 SEBI/IMD/CIR No. 9/ 6016/04 March 25, 2004 Uniform Cut Off Time for applicability of Net Asset Value
(NAV) of Mutual Fund Scheme(s)/plan(s)
241 SEBI/IMD/CIR No. 7/ 5573/04 March 19, 2004 Investment in Foreign Securities by Mutual Funds
242 SEBI/IMD/CIR No. 8/ 5611/04 March 19, 2004 Uniform Cut Off Time for applicability of Net Asset Value
(NAV) of Mutual Fund Scheme(s)/plan(s)
243 SEBI/IMD/CIR No. 6/ 4213/04 March 01, 2004 Mentioning Bank Account Numbers & PAN by investors
244 SEBI/ IMD/CIR No. 5/265/ 2004 February 16, Gazette notification dated January 15, 2004
2004
245 SEBI/ IMD/CIR No. 4/2627/ 2004 February 06, Guidelines for Participation by Mutual Fund in Derivative
2004 Trading
246 SEBI/IMD/CIR No. 03/2564/04 February 05, REVISED MONTHLY CUMULATIVE REPORT (MCR)
2004
367 Master Circular for Mutual Funds as on March 31, 2023
247 SEBI/IMD/CIR No. 02/254/04 February 04, Certification of Agents/distributors and employees
2004
248 SEBI/IMD/CIR No. 01/1756/04 January 27, Unique Client Code for Schemes/Plans of Mutual Funds
2004
249 SEBI/IMD/CIR No. 10/22701/03 December 12, Minimum number of investors in the Schemes/Plans of
2003 Mutual Funds
250 SEBI/IMD/CIR No. 9/20306/03 November 12, Investment by Mutual Funds in Short Term Deposits of
2003 Scheduled Commercial Banks
251 SEBI/IMD/CIR No.8/18944/03 October 06, Investment Limits for Government Guaranteed Debt
2003 Securities
252 SEBI/MFD/CIR No.7/13391/03 July 11, 2003 Investment/trading in securities by employees of Asset
Management Companies and Mutual Fund Trustee
Companies
253 SEBI/MFD/CIR No.6/12357/03 June 26, 2003 Advertisement by Mutual Funds
254 SEBI/MFD/CIR No.5/12031/03 June 23, 2003 Consolidation of Schemes
255 MFD/CIR No.04/11488/2003 June 12, 2003 Role of Chief Executive Officers and Fund Managers &
Fund of Funds
256 SEBI/MFD/CIR No.3/158/03 June 10, 2003 Investment in Interest Rate Derivatives
257 SEBI/MFD/CIR No.2/6855/03 April 04, 2003 Guidelines for Investment in Foreign Securities by Mutual
Funds
258 SEBI/MFD/CIR No.1/6693/03 April 03, 2003 Certification and Registration of Intermediaries
259 MFD/CIR No.23/066/2003 March 07, 2003 Investment Valuation Norms for Mutual Funds
260 MFD/CIR No.22/2311/03 January 30, Conversion of Close ended Schemes to open-ended
2003 schemes
261 MFD/CIR/21/25467/2002 December 31, Guidelines for participation by Mutual Funds in Trading in
2002 Derivative Products
262 MFD/CIR/20/23230/2002 November 28, Registration of Intermediaries
2002
263 MFD/CIR/19/22474/2002 November 20, Reconciliation Procedure for investment in Government
2002 Securities
264 MFD/CIR/18/21826/2002 November 07, Investment in Foreign Securities
2002
265 MFD/CIR/16/21105/2002 October 28, Appointment of Independent Directors
2002
266 MFD/CIR/16/20844/2002 October 24, Gazette notification dated September 09, 2002
2002
267 MFD/CIR/15/19133/2002 September 30, Risk Management System
2002
268 MFD/CIR/14/18337/2002 September 19, Portfolio Disclosures
2002
368 Master Circular for Mutual Funds as on March 31, 2023
269 MFD/CIR/13/16799/2002 August 29, 2002 Independent Directors on Boards of AMCs and Trustee
Companies
270 MFD/CIR/12/16588/2002 August 28, 2002 Quarterly reports on movement in net assets & New
Scheme report
271 MFD/CIR/10/16159/2002 August 22, 2002 Rounding off of NAVs
272 MFD/CIR/10/15895/2002 August 20, 2002 Circular for Mutual Funds
273 MFD/CIR/09/247/2002 July 23, 2002 New Scheme Report
274 MFD/CIR/08/514/2002 July 22, 2002 Uniformity in calculation of Sale and Repurchase Price &
Rounding off NAVs
275 MFD/CIR/ 07/213/2002 July 02, 2002 Circular for Mutual Funds
276 MFD/CIR/ 06/210/2002 June 26, 2002 Code of Conduct for intermediaries of Mutual Fund
277 MFD/CIR/05/432/2002 June 20, 2002 Circular for Mutual Funds
278 MFD/CIR/04/430/2002 June 19, 2002 Circular for Mutual Funds
279 MFD/CIR/03/526/2002 May 09, 2002 Investment in Unlisted Equity shares
280 MFD/CIR/02/110/02 April 26, 2002 Revised Annual Statistical Report (ASR)
281 MFD/CIR/01/071/02 April 15, 2002 Benchmarks for Debt-Oriented and Balanced Funds
schemes
282 MFD/CIR/17/419/02 March 30, 2002 Guidelines for Investment in Foreign Securities by Mutual
Funds
283 MFD/CIR/16/400/02 March 26, 2002 Introduction of Benchmarks
284 MFD/CIR/15/041/2002 March 14, 2002 Publication of audited annual accounts by mutual funds
285 MFD/CIR/ No.14/442/2002 February 20, Circular for Mutual Funds
2002
286 MFD/CIR No.13/370/02 January 16, SEBI Investors Education Programme- Investments in
2002 Mutual Funds
287 MFD/CIR No.12/362/02 January 03, Rendering investment advice and reporting of compliance
2002 officer to SEBI
288 MFD/CIR/11/354/2001 December 20, Independent Directors on Boards of AMCs and Trustee
2001 Companies.
289 MFD/CIR No.10/310/01 September 25, Certification Programme and Disclosure Standards.
2001
290 MFD/CIR/9/230/2001 August 14, 2001 Circular for Mutual Funds
291 MFD/CIR/No.8/290/01 July 30, 2001 Clients Codes For Mutual Funds
292 MFD/CIR/07/206/2001 July 19, 2001 Discontinuing Monthly Statistical Reports (MSTATS)
293 MFD/CIR/06/275/2001 July 09, 2001 Circular for Mutual Funds
294 MFD/CIR No.5/153/2001 May 24, 2001 Circular for Mutual Funds
295 MFD/CIR No.4/216/2001 May 08, 2001 Investment/trading in securities by employees of Asset
Management Companies and Mutual Fund Trustee
Companies
369 Master Circular for Mutual Funds as on March 31, 2023
296 MFD/CIR/ No.3/211/2001 April 30, 2001 Circular for Mutual Funds
297 MFD/CIR No.2/205/01 April 27, 2001 Validity of Scheme Offer Documents.
298 MFD/CIR/1/200/2001 April 20, 2001 Format for Half-Yearly of Unaudited Financial Results
299 MFD/CIR/13/087/2001 March 28, 2001 Gazette Notification and publication of NAV of close
ended scheme
300 MFD/CIR/14/088/2001 March 28, 2001 Guidelines for Valuation of securities
301 MFD/CIR No. 12/175/01 February 15, Launch of Additional Plans under existing schemes
2001
302 MFD/CIR/10/039/2001 February 09, Circular for Mutual Funds
2001
303 MFD/CIR No.11/171/01 February 09, Disclosure of NAVs on AMFI website
2001
304 MFD/CIR/9/120/2000 November 24, Circular for Mutual Funds
2000
305 MFD/CIR/8(a)/104/2000 October 03, Guidelines for Mutual Funds
2000
306 MFD/CIR/8/92/2000 September 18, Guidelines for valuation of securities for Mutual Funds
2000
307 MF/CIR/07/404/2000 July 31, 2000 Monthly Cumulative Report (MCR)
308 MFD/CIR/6/73/2000 July 27, 2000 Recording of investment decisions by Mutual Funds
309 MFD/CIR/5/360/2000 July 04, 2000 Revised Format of Compliance Test Reports (CTRs)
310 MFD/CIR/4/51/2000 June 05, 2000 Guidelines for Advertisement by Mutual Funds
311 MFD/CIR/3/292/2000 May 30, 2000 Gazette Notification dated May 22,2000
312 SEBI/MFD /CIR/2/266/2000 May 19, 2000 Payment of interest for delay in dispatch of redemption or
repurchase proceeds.
313 MFD/CIR/1/189/2000 April 10, 2000 Gazette Notification dated March 14, 2020 and Money
Market Mutual Funds Schemes
314 MF/CIR/12/109/2000 February 22, Submission of soft copies of offer document
2000
315 MFD/CIR/011/061/2000 February 01, Guidelines for participation by Mutual Funds in Trading in
2000 Derivative
316 MFD/CIR NO.010/024/2000 January 17, Frequency of Portfolio Disclosure, Formation of Audit
2000 Committee & Formation of Valuation committee by AMC
317 MFD/CIR/09/014/2000 January 05, Applicability of Investment Restrictions, Responsibilities
2000 of Trustees etc.
318 MFD/CIR/08/23026/99 December 23, Clarification on Reporting of Transactions by Mutual
1999 Funds
319 MFD/CIR/07/384/99 December 17, Reporting of Transactions by Mutual Funds.
1999
370 Master Circular for Mutual Funds as on March 31, 2023
320 MFD/CIR NO.5/062/99 September 30, Investments in ADRs/GDRs by Mutual Funds
1999
321 MFD/CIR NO.4/052/99 September 01, Investments in ADRs/GDRs by Mutual Funds
1999
322 MFD/CIR/01/047/99 February 10, Guidelines for Participation in Stock Lending Scheme
1999
323 IIMARP/MF/CIR/07/826/98 April 15, 1998 SEBI Circular dated April 15, 1998
324 IIMARP/MF/CIR/06/793/98 March 31, 1998 Standard Offer Document and Key Information
Memorandum
325 IIMARP/MF/CIR/04/571/98 March 04, 1998 Corrigendum dated February 06, 1998 to Gazette
notification dated January 12, 1998
326 IIMARP/MF/CIR/01/294/98 February 04, Gazette Notification dated January 12, 1998 and
1998 Clarifications
327 IIMARP/MF/CIR/14/1570/97 August 18, 1997 Compliance Test Formats
328 IIMARP/MF/CIR/11/1171/97 June 20, 1997 Amendment in SEBI (Mutual Funds) Regulations, 1996
329 IIMARP/MF/CIR/10/1076/97 June 05, 1997 Submission of Compliance Test Formats
330 IIMARP/CIR/08/845/97 May 07, 1997 Submission of Statistical Information/Bio-data of Key-
Personnel
331 IIMARP/MF/CIR/07/844/97 May 05, 1997 Filing of Offer Documents/Disclosure of NAV And
Guaranteed Return Scheme
332 IIMARP/ MF/CIR/05/788/97 April 28, 1997 Formats of Statistical Information/Compliance
Reports/Bio-Data of key personnel of AMCs
333 IIMARP/MF/CIR/01/428/97 February 28, Limitations of Fees and expenses charged to schemes and
1997 filing Of offer document of schemes
334 SMD-II(N)/2113/94 April 12, 1994 No 1% listing deposit from Mutual Funds
335 IIMARP/10772/93 July 14, 1993 Reporting by Mutual Funds - New Scheme Reports
336 SEBI/HO/IMD/DF2/CIR/P/2020/156 August 24, 2020 Master Circular for Mutual Funds
371 Master Circular for Mutual Funds as on March 31, 2023