Schedule - 05 - Code of conduct - Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

FIFTH SCHEDULE Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 [Regulations 18(22), 25(16), 68(h)] CODE OF CONDUCT 5 [PART A For the Asset Management Company and Trustees] 1. Mutual funds schemes should not be organised, operated, managed or the portfolio of securities selected, in the interest of sponsors, directors of asset management companies, members of Board of trustees or directors of trustee company, associated persons 1 [as] in the interest of special class of unitholders other than in the interest of all classes of unitholders of the scheme. 2. Trustees and asset management companies must ensure the dissemination to all unitholders of adequate, accurate, explicit and timely information fairly presented in a simple language about the investment policies, investment objectives, financial position and general affairs of the scheme. 3. Trustees and asset management companies should avoid excessive concentration of business with broking firms, 7 [ associates ] and also excessive holding of units in a scheme among a few investors. 4. Trustees and asset management companies must avoid conflicts of interest in managing the affairs of the schemes and keep the interest of all unitholders paramount in all matters. 8 [ (5) Trustees and asset management companies shall ensure that the assets and liabilities of each scheme are segregated and ring-fenced from other schemes of the mutual fund; and bank accounts and securities accounts of each scheme are segregated and ringfenced. ] 6. Trustees and asset management companies shall carry out the business and invest in accordance with the investment objectives stated in the offer documents and take investment decision solely in the interest of unitholders. 7. Trustees and asset management companies must not use any unethical means to sell, market or induce any investor to buy their schemes. 3 [8. Trustees and the asset management company shall maintain high standards of integrity and fairness in all their dealings and in the conduct of their business. 9. Trustees and the asset management company shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment. 10. The asset management company shall not make any exaggerated statement, whether oral or written, either about their qualifications or capability to render investment management services or their achievements.] 4 [11. (a) The sponsor of the mutual fund, the trustees or the asset management company or any of their employees shall not render, directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice. (b) In case an employee of the sponsor, the trustees or the asset management company is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.] 6 [PART B [Regulations 25(6A)(b), 25(6B)(b), 25(6C)(b) and 68(h)] For the Fund Managers and Dealers General: 1. Dealers and Fund Managers shall: (a) ensure that investments are made in the interest of the unit holders; (b) strive for highest ethical and professional standards to enhance the reputation of the markets; (c) act honestly in dealings with other market participants; (d) act fairly and deal with market participants in a consistent and transparent manner; (e) act with integrity, particularly in avoiding questionable practices and behaviour; (f) abide by the Act, Rules, Regulations, Guidelines and Circulars governing the securities market and keep themselves up-to-date with the latest developments; (g) not indulge in any unethical business activities or professional misconduct involving dishonesty, fraud or deceit or commit any act that could damage the reputation of the organisation or the mutual fund industry; (h) identify existing or potential conflicts of interest as per their institutions policies and address the same; (i) not carry out any transaction on behalf of a fund with any counter party who is an associate of the Sponsor/Asset Management Company/Fund Manager/Dealer/Chief Executive Officer unless such transaction is carried out on arm s length basis on terms and at a price consistent with best execution standards and at a commission rate no higher than customary institutional rates; For the purposes of this clause, the term associate shall have the following meaning: 9 [ i. In case of an Asset Management Company and a sponsor; associate as defined in clause (c) of sub-regulation (1) of regulation 2 of these regulations ] ii. 10 [ **** ] iii. In case of a Fund Manager/Dealer/Chief Executive Officer, it shall include their relatives or any entity upon whom the Fund Manager/Dealer/Chief Executive Officer could exercise control; (j) not offer or accept any inducement in connection with the affairs or business of managing the funds of unitholders which is likely to conflict with the duties owed to the unitholders; (k) disclose all interests in securities as required by all applicable statutory requirements; and (l) not receive any gift or entertainment which is not in adherence of the gift and entertainment policy of the Asset Management Company framed in this regard. Communication: Channels, disclosures and transparency: 2. Dealers and Fund Managers shall: (a) always communicate in unambiguous, transparent, accurate and professional manner to promote effective communication that supports a transparent Market; (b) conduct all communication during market hours through recorded modes and channels only; 11 [ Provided that face-to-face communication including out-of-office interactions may not be recorded. ] (c) be encouraged to highlight and bring to the notice any instance of suspected malpractice or market misconduct to the appropriate risk, compliance and regulatory chains of command; (d) provide appropriate inputs to the valuation agencies or the valuation committee of the Asset Management Company. Any material deviation in valuation, as defined by the Asset Management Company, shall also be highlighted to the valuation agencies and valuation committee of the Asset Management Company. (e) on their discretion share views on market colour, general state of market or trends without disclosing confidential information; (f) not disclose any material non-public information that could affect the value of an investment to external parties and shall not act or cause others to act on such information; and (g) not intentionally disseminate false or misleading information with respect to the price or market for a security. Execution Standards: 3.1. Fund Managers shall: (a) have an appropriate and adequate basis for investment decision and shall be responsible for investment in the funds managed by them; (b) record in writing, the decision of buying or selling securities together with the detailed justifications for such decisions; and (c) not indulge any act or practice which results in artificial window dressing of the NAV. 3.2. Dealers and Fund Managers shall: (a) adopt fair and prompt deal execution practices; (b) fully document all correspondence and understanding during a deal with counterparties in the books of the fund if they have committed to the transactions on behalf of the mutual fund; (c) not favour one scheme over another for the purpose of security allocation, transfer of benefits (profit/loss) or any valuation gain/ loss including by way of inter scheme transfers or otherwise; (d) not indulge in circular trading (by whatever name called) in any manner; (e) not enter or participate in transactions with the intent of disrupting the market, distorting the prices, or artificially inflating trading volumes; (f) not indulge in simultaneously buying and selling the same securities at off market prices in order to create false or misleading signals regarding the supply of, demand for, or market price of securities; (g) not manipulate the prices of infrequently traded securities including at monthly/ quarterly /annual closing dates; (h) not enter into arrangements for sale or purchase of a security including a Government security where there is no change in beneficial interests or market risk or where the transfer of beneficial interest or market risk is only between parties who are acting in concert or collusion; (i) not carry out or participate in a 'routing deal' i.e. purchasing a security at the instance of a third party who does not have funds to purchase the security, with an understanding to sell the same to the said third party at a later date at a predetermined price which may or may not be market related; (j) not put misleading bids and offers outside the market range as defined by their institution without an intention to trade; (k) not make frivolous quotations with an intent to mislead the market participants; and (l) not sell securities to a third party at the month/quarter end with an understanding to purchase the same at a later date for any purpose including to meet periodic liquidity or to avoid month end disclosure. ] ************** NOTES:- 1 Substituted for or by the SEBI (Mutual Funds) (Amendment) Regulations, 1998 w.e.f. 12-1-1998. 2 Substituted for cash ibid.. 3 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 1999 w.e.f. 8-12-1999. 4 Inserted by the SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2001,w.e.f. 29-5-2001. 5. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 6. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 7. 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 affiliates 8. 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, 5. Trustees and asset management companies must ensure schemewise segregation of 2 [bank accounts] and securities accounts. 9. Substituted vide Notification No. SEBI/LAD-NRO/GN/2022/92 dated 03-08-2022 shall come into force on the thirtieth day from the date of their publication in the Official Gazette before it was read as, i. In case of an Asset Management Company, an associate as defined in Regulation 2(C) of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 10. Omitted vide Notification No. SEBI/LAD-NRO/GN/2022/92 dated 03-08-2022 shall come into force on the thirtieth day from the date of their publication in the Official Gazette before it was read as, ii. In case of a Sponsor, associates as listed in their Financials 11. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/197 dated 01-08-2024 shall come into force upon the completion of twelve months from the date of publication of these regulations in the Official Gazette