Schedule - 07 - Restrictions on Investments - Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

SEVENTH SCHEDULE Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 [Regulation 44(1)] RESTRICTIONS ON INVESTMENTS 1 [1. A mutual fund scheme shall not invest more than 10% of its NAV in debt instruments comprising money market instruments and non-money market instruments issued by a single issuer which are rated not below investment grade by a credit rating agency authorised to carry out such activity under the Act. Such 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: Provided that such limit shall not be applicable for investments in Government Securities, treasury bills and 23 [ triparty repo on Government securities or treasury bills ] : Provided further that investments within such limit can be made in mortgaged backed securitised debt which are rated not below investment grade by a credit rating agency registered with the Board: 24 [ Provided further that such limit shall not be applicable for investments in case of debt exchange traded funds or such other funds as may be specified by the Board from time to time. ] ] 21 [ 1A. A mutual fund scheme shall not invest in unlisted debt instruments including commercial papers, except Government Securities and other money market instruments: Provided that Mutual Fund Schemes may invest in unlisted non-convertible debentures up to a maximum of 10% of the debt portfolio of the scheme subject to such conditions as may be specified by the Board from time to time: Provided further that mutual fund schemes shall comply with the norms under this clause within the time and in the manner as may be specified by the Board: Provided further that the norms for investments by mutual fund schemes in unrated debt instruments shall be specified by the Board from time to time. ] 3 [1B. ***] 2. No mutual fund under all its schemes should own more than ten per cent of any company s paid up capital carrying voting rights. 4 [ Provided, investment in the asset management company or the trustee company of a mutual fund shall be governed by clause (a), of sub-regulation (1), of regulation 7B.] 3. Transfers of investments from one scheme to another scheme in the same mutual fund shall be allowed only if,- (a) such transfers are done at the prevailing market price for quoted instruments on spot basis. 5 [Explanation.- Spot basis shall have same meaning as specified by stock exchange for spot transactions;] (b) the securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. 4. A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate inter-scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund : 6 [Provided that this clause shall not apply to any fund of funds scheme.] 5. 7 [***] 8 [6. Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relevant securities and in all cases of sale, deliver the securities: Provided that a mutual fund may engage in short selling of securities in accordance with the framework relating to short selling and securities lending and borrowing specified by the Board: 9 [Provided further that a mutual fund may enter into derivatives transactions in a recognized stock exchange, subject to the framework specified by the Board.] 10 [Provided further that sale of government security already contracted for purchase shall be permitted in accordance with the guidelines issued by the Reserve Bank of India in this regard.] 7. Every mutual fund shall get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. 11 [8. Pending deployment of funds of a scheme in terms of investment objectives of the scheme, a mutual fund may invest them in short term deposits of schedule commercial banks, subject to such Guidelines as may be specified by the Board. 12 [9. No mutual fund [scheme] shall make any investment in,- (a) any unlisted security of an associate or group company of the sponsor; or (b) any security issued by way of private placement by an associate or group company of the sponsor; or (c) the listed securities of group companies of the sponsor which is in excess of 25% of the net assets 27 [ except for investments by equity oriented exchange traded funds and index funds and subject to such conditions as may be specified by the Board ] . 13 [***]] 26 [ Provided that for the private equity fund or a pooled investment vehicle or a pooled investment fund acting as sponsor of mutual funds, the associate or group company shall also include,- a. associate or group company of the manager of any pooled investment vehicle; or b. investee companies in which the shareholding of ten percent or more is held by the schemes or funds managed by manager of the pooled investment vehicle; or c. any investee company in which the pooled investment vehicle holds more than ten percent shareholding or where the directors of the pooled investment vehicle or corporate sponsor has representation on the board or right to nominate representatives on the board . ] 14 [9A. No scheme of a mutual fund shall make any investment in any fund of funds scheme.] 15 [10. No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company: Provided that, the limit of 10 per cent shall not be applicable for investments in 16 [case of] index fund 25 [ or exchange traded fund ] or sector or industry specific scheme. 22 [ 11. All investments by a mutual fund scheme in equity shares and equity related instruments shall only be made provided such securities are listed or to be listed. ] 18 [12. A fund of funds scheme shall be subject to the following investment restrictions: (a) A fund of funds scheme shall not invest in any other fund of funds scheme; (b) A fund of funds scheme shall not invest its assets other than in schemes of mutual funds, except to the extent of funds required for meeting the liquidity requirements for the purpose of repurchases or redemptions, as disclosed in the offer document of fund of funds scheme.] 19 [13. A mutual fund may invest in the units of REITs and InvITs subject to the following: (a) No mutual fund under all its schemes shall own more than 10% of units issued by a single issuer of REIT and InvIT; and (b) A mutual fund scheme shall not invest i. more than 10% of its NAV in the units of REIT and InvIT; and ii. more than 5% of its NAV in the units of REIT and InvIT issued by a single issuer. Provided that the limits mentioned in sub-clauses (i) and (ii) above shall not be applicable for investments in case of index fund or sector or industry specific scheme pertaining to REIT and InvIT.] 20 [ 14. A mutual fund scheme may invest in exchange traded commodity derivatives subject to such investment restrictions as may be specified by the Board from time to time. ] ************** NOTES:- 1 Substituted by the SEBI (Mutual Funds) (Amendment) Regulations, 2007, w.e.f.28-05-2007. Prior to substitution, clause 8 read as under; 8. Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks. 2 Substituted for clause 1 by the SEBI (Mutual Funds) (Amendment) Regulations, 2016 w.e.f. 12-02-2016. 3 Inserted by SEBI (Mutual Funds) (Amendment) Regulations, 1999 w.e.f 18-12-1999. 4 Omitted by the SEBI (Mutual Funds) (Amendment) Regulations, 2016 w.e.f. 12-2-2016. Prior to this Clause 1B read as under; 1B. No mutual fund scheme shall invest more than thirty percent of its net assets in money market instruments of an issuer: Provided that such limit shall not be applicable for investments in Government securities, treasury bills and collateralized borrowing and lending obligations. 5 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2018 w.e.f. 13-3-2018. 6 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 1998 w.e.f. 12-1-1998. 7 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2003 w.e.f. 29-5-2003. 8 Omitted by the SEBI (Mutual Funds) (Amendment) Regulations, 2008, w.e.f. 16-4-2008. Prior to this, clause 5 read as under; The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme. 9 Substituted by the SEBI (Mutual Funds) (Second Amendment) Regulations, 2007, w.e.f. 31-10-2007. Prior to substitution, clause 6 read as under; 6. Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transactions or engage in badla finance: Provided that a Mutual Fund may enter into derivatives transactions in a recognized stock exchange, subject to such guidelines as may be specified by the Board 10 Substituted by the SEBI (Mutual Funds) (Second Amendment) Regulations, 2007, w.e.f. 31-10-2007. Prior to substitution, it read as under; [Provided that a mutual fund may enter into derivatives transactions in a recognised stock exchange, subject to such Guidelines as may be specified by the Board] [this proviso had been substituted by the SEBI (Mutual Funds) (Second Amendment) Regulations, 2006 w.e.f. 22-5-2006] for, Provided that mutual funds shall enter into derivative transactions in a recognised stock exchange for the purpose of hedging and portfolio balancing, in accordance with the guidelines issued by the Board. [this Proviso had been inserted by the SEBI (Mutual Funds) Amendments Regulations, 1999] 11 Inserted by the SEBI (Mutual Funds) (Second Amendment) Regulations, 2008 w.e.f. 22-5-2008. 12 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 1998 w.e.f. 12-1-1998. This was corrected by w.e.f. 6-2-1998 13 Words of all the schemes of a mutual fund omitted by the SEBI (Mutual Funds) (Amendment) Regulations, 1999 w.e.f. 8-12-1999. 14 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2003 w.e.f. 29-5-2003. 15 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 1999 w.e.f. 8-12-1999. 16 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2000 w.e.f. 14-3-2000. SEBI (Mutual Funds) (Amendment) Regulations, 2000 w.e.f. 14-3-2000. 17 Substituted by the SEBI (Mutual Funds) (Amendment) Regulations, 2000 w.e.f. 22-5-2000.Earlier clause 11 was amended by the SEBI (Mutual Funds) (Amendment) Regulations, 2000, w.e.f. 14-3-2000..] 18 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2003 w.e.f. 29-5-2003. 19 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2017 w.e.f. 15-02-2017 20. Inserted vide NOTIFICATION No. SEBI/LAD-NRO/GN/2019/011 dated 26-04-2019 21. Substituted vide Notification No. SEBI/LAD-NRO/GN/2019/37 dated 23-09-2019 before it was read as, 2 [1A. A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset management company.] 22. Substituted vide Notification No. SEBI/LAD-NRO/GN/2019/37 dated 23-09-2019 before it was read as 17 [11. A mutual fund scheme shall not invest more than 5% of its NAV in the unlisted equity shares or equity related instruments in case of open ended scheme and 10% of its NAV in case of close ended scheme.] 23. 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 collateralized borrowing and lending obligations 24. 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 Provided further that the schemes already in existence shall with an appropriate time and in the manner, as may be specified by the Board, conform to such limits. 25. Inserted 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 26. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/134 dated 26-06-2023 w.e.f. 01-08-2023 27. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/188 dated 02-07-2024