Regulation 25 - Asset management company and its obligations - Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

Asset management company and its obligations 25. (1) The asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of these regulations and the trust deed. (2) The asset management company shall exercise due diligence and care in all its investment decisions as would be exercised by other persons engaged in the same business. 1 [(2A) The asset management company shall obtain, wherever required under these regulations, prior in-principle approval from the recognized stock exchange(s) where units are proposed to be listed.] (3) The asset management company shall be responsible for the acts of commission or omission by its employees or the persons whose services have been procured by the asset management company. (4) The asset management company shall submit to the trustees quarterly reports of each year on its activities and the compliance with these regulations. (5) The trustees at the request of the asset management company may terminate the assignment of the asset management company at any time: Provided that such termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company. (6) Notwithstanding anything contained in any contract or agreement or termination, the asset management company or its directors or other officers shall not be absolved of liability to the mutual fund for their acts of commission or omission, while holding such position or office. 2 [(6A) 13 [ (a) ] The Chief Executive Officer ( 12 [ whatever be the designation ] ) of the asset management company shall ensure that the mutual fund complies with all the provisions of these regulations and the guidelines or circulars issued in relation thereto from time to time and that the investments made by the fund managers are in the interest of the unit holders and shall also be responsible for the overall risk management function of the mutual fund. 14 [ (b) Chief Executive Officer (whatever be the designation) shall also ensure that the Asset Management Company has adequate systems in place to ensure that the Code of Conduct for Fund Managers and Dealers specified in PART - B of the Fifth Schedule of these regulations are adhered to in letter and spirit. Any breach of the said Code of Conduct shall be brought to the attention of the Board of Directors of the Asset Management Company and Trustees. ] 23 [ **** ] (6B) 16 [ (a) ] The fund managers ( 15 [ whatever be the designation ] ) shall ensure that the funds of the schemes are invested to achieve the objectives of the scheme and in the interest of the unit holders.] 17 [ (b) The Fund Managers (whatever be the designation) shall abide by the Code of Conduct for Fund Managers and Dealers specified in PART - B of the Fifth Schedule of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and submit a quarterly self-certification to the Trustees that they have complied with the said code of conduct or list exceptions, if any. Explanation:- For the purposes of this sub-regulation, the phrase Fund Managers shall include Chief Investment Officer (whatever be the designation). ] 18 [ (6C) (a) The Dealers (whatever be the designation) shall ensure that orders are executed on the best available terms, taking into account the relevant market at the time for transactions of the kind and size concerned to achieve the objectives of the scheme and in the best interest of all the unit holders. (b) The Dealers (whatever be the designation) shall abide by the Code of Conduct for Fund Managers and Dealers specified in PART - B of the Fifth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and submit a quarterly self-certification to the Trustees that they have complied with the said code of conduct or list exceptions, if any. ] 24 [ (6D) The board of directors of the asset management company shall ensure that all the activities of the asset management company are in accordance with the provisions of these regulations. ] 3 [(7)(a) An asset management company shall not through any broker associated with the sponsor, purchase or sell securities, which is average of 5 per cent or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes : Provided that for the purpose of this sub-regulation, the aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund : Provided further that the aforesaid limit of 5 per cent shall apply for a block of any three months. (b) An asset management company shall not purchase or sell securities through any broker [other than a broker referred to in clause (a) of sub-regulation (7)] which is average of 5 per cent or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes, unless the asset management company has recorded in writing the justification for exceeding the limit of 5 per cent and reports of all such investments are sent to the trustees on a quarterly basis : Provided that the aforesaid limit shall apply for a block of three months.] (8) An asset management company shall not utilise the services of the sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction and distribution and sale of securities: Provided that an asset management company may utilise such services if disclosure to that effect is made to the unitholders and the brokerage or commission paid is also disclosed in the half-yearly annual accounts of the mutual fund: 4 [Provided further that the mutual funds shall disclose at the time of declaring half-yearly and yearly results : (i) any underwriting obligations undertaken by the schemes of the mutual funds with respect to issue of securities associate companies, (ii) devolvement, if any, (iii) subscription by the schemes in the issues lead managed by associate companies, (iv) subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies have acted as arranger or manager.] (9) The asset management company shall file with the trustees the details of transactions in securities by the key personnel of the asset management company in their own name or on behalf of the asset management company and shall also report to the Board, as and when required by the Board. (10) In case the asset management company enters into any securities transactions with any of its associates a report to that effect shall 5 [***] be sent to the trustees 6 [at its next meeting]. (11) In case any company has invested more than 5 per cent of the net asset value of a scheme, the investment made by that scheme or by any other scheme of the same mutual fund in that company or its subsidiaries shall be brought to the notice of the trustees by the asset management company and be disclosed in the half-yearly and annual accounts of the respective schemes with justification for such investment 7 [provided the latter investment has been made within one year of the date of the former investment calculated on either side]. (12) The asset management company shall file with the trustees and the Board- (a) detailed bio-data of all its directors along with their interest in other companies within fifteen days of their appointment; (b) any change in the interests of directors every six months; and 8 [(c) a quarterly report to the trustees giving details and adequate justification about the purchase and sale of the securities of the group companies of the sponsor or the asset management company, as the case may be, by the mutual fund during the said quarter.] 9 [(13) Each director of the asset management company shall file the details of his transactions of dealing in securities with the trustees on a quarterly basis in accordance with guidelines issued by the Board.] (14) The asset management company shall not appoint any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws. (15) The asset management company shall appoint registrars and share transfer agents who are registered with the Board: Provided if the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme and for rates higher than the competitive market rates, prior approval of the trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts. (16) The asset management company shall abide by the Code of Conduct as specified in 19 [ PART-A of ] the Fifth Schedule. 22 [ (16A) The asset management company shall invest such amounts in such schemes of the mutual fund, based on the risks associated with the schemes, as may be specified by the Board from time to time. ] 10 [(17) The asset management company shall not invest in any of its scheme, unless full disclosure of its intention to invest has been made in the offer documents, in case of schemes launched after the notification of Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2011: Provided that an asset management company shall not be entitled to charge any fee on its investment in that scheme. (18) The asset management company shall not carry out its operations including trading desk, unit holder servicing and investment operations outside the territory of India 20 [ . ] 21 [ **** ] ] 11 [(19) The asset management company shall compute and carry out valuation of investments made by its scheme(s) in accordance with the investment valuation norms specified in Eighth Schedule, and shall publish the same. (20) The asset management company and the sponsor of the mutual fund shall be liable to compensate the affected investors and/or the scheme for any unfair treatment to any investor as a result of inappropriate valuation. (21) The asset management company shall report and disclose all the transactions in debt and money market securities, including inter scheme transfers, as may be specified by the Board.] 25 [ (22) The board of directors of the asset management company shall exercise due diligence as follows: (a) The board of directors of the asset management company shall ensure before the launch of any scheme that the asset management company has- (i) systems in place for its back office, dealing room and accounting; (ii) appointed all key personnel including fund manager(s) for the scheme(s) and submitted their bio-data which shall contain the educational qualifications and past experience in the securities market with the Trustees, within fifteen days of their appointment; (iii) appointed auditors to audit its accounts; (iv) appointed a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the Board or the Central Government and for redressal of investors grievances; (v) appointed a registrar to an issue and share transfer agent registered under the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 and laid down parameters for their supervision; (vi) prepared a compliance manual and designed internal control mechanisms including internal audit systems; (vii) specified norms for empanelment of brokers and marketing agents; (viii) obtained, wherever required under these regulations, prior in principle approval from the recognized stock exchange(s) where units are proposed to be listed. (b) The board of directors of the asset management company shall ensure that - (i) the asset management company has been diligent in empanelling the brokers, in monitoring securities transactions with brokers and avoiding undue concentration of business with specific brokers; (ii) the asset management company has not given any undue or unfair advantage to any associate or dealt with any of the associate of the asset management company in any manner detrimental to interest of the unit holders; (iii) the transactions entered into by the asset management company are in accordance with these regulations and the respective schemes; (iv) the transactions of the mutual fund are in accordance with the provisions of the trust deed; (v) the networth of the asset management company are reviewed on a quarterly basis to ensure compliance with the threshold provided in clause (f) of sub-regulation (1) of regulation 21 on a continuous basis; (vi) all service contracts including custody arrangements of the assets and transfer agency of the securities are executed in the interest of the unit holders; (vii) there is no conflict of interest between the manner of deployment of the networth of the asset management company and the interest of the unit holders; (viii) the investor complaints received are periodically reviewed and redressed; (ix) all service providers are holding appropriate registrations with the Board or with the concerned regulatory authority; (x) any special developments in the mutual fund are immediately reported to the trustees; (xi) there has been exercise of due diligence on the reports submitted by the asset management company to the trustees; (xii) there has been exercise of due diligence on such matters as may be specified by the Board from time to time. (23) The compliance officer appointed under sub-clause (iv) of clause (a) of sub-regulation (22) shall independently and immediately report to the Board any non-compliance observed by him. (24) The asset management company shall constitute a Unit Holder Protection Committee in the form and manner and with a mandate as may be specified by the Board. (25) The asset management company shall be responsible for calculation of any income due to be paid to the mutual fund and also any income received in the mutual fund, for the unit holders of any scheme of the mutual fund, in accordance with these regulations and the trust deed. (26) The asset management company shall ensure that no change in the fundamental attributes of any scheme or the trust, fees and expenses payable or any other change which would modify the scheme and affect the interest of unit holders, shall be carried out unless, (i) a written communication about the proposed change is sent to each unit holder and an advertisement is issued 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; and (ii) the unit holders are given an option to exit at the prevailing Net Asset Value without any exit load. ] 26 [ (27) The asset management company shall put in place an institutional mechanism, as may be specified by the Board, for the identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities. (28) The Chief Executive Officer or Managing Director or such other person of equivalent or analogous rank and Chief Compliance Officer of the asset management company shall be responsible and accountable for implementation of such an institutional mechanism for deterrence of potential market abuse, including front-running and fraudulent transactions in securities. (29) The asset management company shall establish, implement and maintain a documented whistle blower policy that shall (a) provide for a confidential channel for employees, directors, trustees, and other stakeholders to raise concerns about suspected fraudulent, unfair or unethical practices, violations of regulatory or legal requirements or governance vulnerability, and (b) establish procedures to ensure adequate protection of the whistle blowers. ] 27 [ (30) An asset management company shall ensure compliance with the Investor Charter specified by the Board from time to time. ] ************* NOTES:- 1 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2009, w.e.f. 8-4-2009. 2 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2003, w.e.f. 29-5-2003. 3 Substituted by the SEBI (Mutual Funds) (Amendment) Regulations, 1998, w.e.f. 12-1-1998. Prior to its substitution, sub-regulation 7 read as under; (7) No asset management company shall deal in securities through any broker associated with the sponsor or a firm which is an associate of a sponsor beyond 5% of the daily gross business of the mutual fund. 4 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 1999, w.e.f. 8-12-1999. 5 Word immediately omitted by the SEBI (Mutual Funds) (Amendment) Regulations, 1998, w.e.f. 12-1-1998. 6 Inserted ibid.. 7 Inserted ibid.. 8 Inserted ibid.. 9 Substituted by the SEBI (Mutual Funds) (Second Amendment) Regulations, 2001, w.e.f. 23-7-2001. Prior to its substitution, sub-regulation (13) read as under; (13) A statement of holding in securities of the directors of the asset management company shall be filed with the trustees with the dates of acquisition of such securities at the end of each financial year. 10 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2011, w.e.f. 30-8-2011. 11 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2012, w.e.f. 21-2-2012. 12. Substituted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 before it was read as whatever his designation may be 13. Numbered vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 14. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 15. Substituted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 before it was read as whatever the designation may be 16. Numbered vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 17. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 18. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 19. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 20. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 before it was read as : 21. Omitted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 before it was read as Provided that the asset management company having any of its operations outside India shall wind up and bring them within the territory of India within a period of one year form the date of notification of Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2011: Provided further that the Board may grant a further period of one year if it is satisfied that there was sufficient cause for not winding up of the operation outside India within that period. 22. Inserted vide Notification No. SEBI/LAD-NRO/GN/2021/36 dated 05-08-2021 23. Omitted vide Notification No. SEBI/LAD-NRO/GN/2023/134 dated 26-06-2023 w.e.f. 01-01-2024 before it was read as, Explanation.-For the purpose of this sub-regulation, the words these regulations shall mean and include the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended from time to time. 24. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/134 dated 26-06-2023 w.e.f. 01-01-2024 25. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/134 dated 26-06-2023 w.e.f. 01-01-2024 26. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/197 dated 01-08-2024 shall come into force upon the completion of three months from the date of publication of these regulations in the Official Gazette 27. Inserted vide F. No. SEBI/LAD-NRO/GN/2025/228 dated 10-02-2025