Regulation 87 - Mutual fund lite asset management company and its obligations - Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

1 [Mutual fund lite asset management company and its obligations 87 . (1) The directors of a mutual fund lite asset management company shall be appointed by the sponsor and the sponsor shall exercise diligence while making such appointments. (2) The mutual fund lite asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any mutual fund lite scheme is not contrary to the provisions of these regulations and the trust deed. (3) The mutual fund lite 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. (4) The mutual fund lite 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. (5) Notwithstanding anything contained in any contract or agreement or termination, the mutual fund lite asset management company or its directors or other officers shall not be absolved of liability to the mutual fund lite for their acts of commission or omission, while holding such position or office. (6) The Chief Executive Officer (whatever be the designation) of the mutual fund lite asset management company shall ensure that the mutual fund lite 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 lite. (7) Chief Executive Officer (whatever be the designation) shall also ensure that the mutual fund lite 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 mutual fund lite asset management company and trustees. (8) 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 these regulations 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). (9) 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 these regulations and submit a quarterly self-certification to the trustees that they have complied with the said code of conduct or list exceptions, if any. (10) The board of directors of the mutual fund lite asset management company shall ensure that all the activities of the mutual fund lite asset management company are in accordance with the provisions of these regulations. (11) A mutual fund lite asset management company shall not: (a) through any broker associated with the sponsor, purchase or sell securities, which is average of 10 per cent or more of the aggregate purchases and sale of securities made by the mutual fund lite in all its schemes: Provided that for the purpose of this clause, the aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund lite and such other transactions as may be specified by the Board: Provided further that the aforesaid limit of 10 per cent shall apply for a block of any three months. (b) purchase or sell securities through any broker other than a broker referred to in clause (a) of sub-regulation (11) which is average of 25 per cent or more of the aggregate purchases and sale of securities made by the mutual fund lite in all its schemes, unless the mutual fund lite asset management company has recorded in writing the justification for exceeding the limit of 25 per cent and reports of all such investments are sent to the trustees on a quarterly basis: Provided that for the purpose of this clause, the aggregate purchase and sale of securities shall exclude such transactions as may be specified by the Board: Provided further that the aforesaid limit of 25 per cent shall apply for a block of three months. (12) In case the mutual fund lite asset management company enters into any securities transactions with any of its associates a report to that effect shall be sent to the trustees at its next meeting. (13) 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 lite in that company or its subsidiaries shall be brought to the notice of the trustees by the MF lite asset management company and be disclosed in the annual accounts of the respective schemes with justification for such investment provided the latter investment has been made within one year of the date of the former investment calculated on either side. (14) The mutual fund lite 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 (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 mutual fund lite asset management company, as the case may be, by the mutual fund lite during the said quarter. (15) Each director of the mutual fund lite 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. (16) The mutual fund lite 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. (17) The mutual fund lite 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. (18) The mutual fund lite asset management company shall abide by the Code of Conduct as specified in PART-A of the Fifth Schedule of these regulations. (19) The mutual fund lite asset management company shall not carry out its operations including trading desk, unit holder servicing and investment operations outside the territory of India. (20) The mutual fund lite 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 of these regulations, and shall publish the same. (21) The mutual fund lite asset management company and the sponsor of the mutual fund lite 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. (22) The board of directors of the mutual fund lite asset management company shall exercise due diligence as follows: (a) The board of directors of the mutual fund lite asset management company shall ensure before the launch of any scheme that the mutual fund lite 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 mutual fund lite asset management company shall ensure that - (i) the mutual fund lite 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 mutual fund lite asset management company has not given any undue or unfair advantage to any associate or dealt with any of the associate of the mutual fund lite asset management company in any manner detrimental to interest of the unit holders; (iii) the transactions entered into by the mutual fund lite asset management company are in accordance with these regulations and the respective schemes; (iv) the transactions of the mutual fund lite are in accordance with the provisions of the trust deed; (v) the mutual fund lite asset management company 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 mutual fund lite asset management company. (vi) the networth of the mutual fund lite asset management company are reviewed on a quarterly basis to ensure compliance with the threshold provided in regulation 86 on a continuous basis; (vii) all service contracts including custody arrangements of the assets and transfer agency of the securities are executed in the interest of the unit holders and test checks of service contracts are arranged. (viii) there is no conflict of interest between the manner of deployment of the networth of the mutual fund lite asset management company and the interest of the unit holders; (ix) the investor complaints received are periodically reviewed and redressed; (x) all service providers are holding appropriate registrations from the Board or with the concerned regulatory authority; (xi) any special developments in the mutual fund lite are immediately reported to the Board; (xii) there has been exercise of due diligence on the reports submitted by the mutual fund lite asset management company to the trustees; (xiii) there has been exercise of due diligence on such matters as may be specified by the Board from time to time. (23) The board of directors of the mutual fund lite asset management company shall review the desirability or continuance of the mutual fund lite asset management company if substantial irregularities are observed in any of the schemes and shall not allow the mutual fund lite asset management company to float new schemes. (24) The Board of Directors of the mutual fund lite asset management company shall be responsible for the overall risk management of the mutual fund lite asset management company as well as the mutual fund lite schemes. (25) The independent directors of the mutual fund lite asset management company shall pay specific attention to the following, as may be applicable, namely: (i) the Investment Management Agreement and the compensation paid under the agreement, (ii) service contracts with associates and whether the mutual fund lite asset management company has charged higher fees than outside contractors for the same services, (iii) selections of the mutual fund lite asset management company s independent directors, (iv) securities transactions involving associates to the extent such transactions are permitted, (v) selecting and nominating individuals to fill independent directors vacancies, (vi) code of ethics must be designed to prevent fraudulent, deceptive or manipulative practices by insiders in connection with personal securities transactions, (vii) the reasonableness of fees paid to sponsors, mutual fund lite asset management company and any others for services provided, (viii) principal underwriting contracts and their renewals, (ix) any service contract with the associates of the mutual fund lite asset management company. (26) The compliance officer appointed under sub-clause (iv) of clause (a) of sub-regulation (22) shall independently and immediately report to the Board any noncompliance observed by him. (27) The mutual fund lite 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. (28) The mutual fund lite asset management company shall be responsible for calculation of any income due to be paid to the mutual fund lite and also any income received in the mutual fund lite, for the unit holders of any scheme of the mutual fund lite, in accordance with these regulations and the trust deed. (29) The mutual fund lite 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. (30) The MF Lite 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. (31) The Chief Executive Officer or Managing Director or such other person of equivalent or analogous rank and Chief Compliance Officer of the mutual fund lite 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. (32) The mutual fund lite 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. (33) The board of directors of the mutual fund lite asset management company, including any of their committees, shall meet at such frequency as may be specified by the Board from time to time. (34) The board of directors of mutual fund lite asset management company shall furnish to the Board on a yearly basis, (a) a report on the activities of the mutual fund lite; (b) a certificate stating that the board of directors of mutual fund lite asset management company have satisfied themselves that there have been no instances of self-dealing or front running by any of the trustees, directors and key personnel of the mutual fund lite asset management company; (c) a certificate to the effect that the mutual fund lite asset management company has been managing the schemes independently of any other activities and in case any activities of the nature referred to in clause (b) of regulation 88 have been undertaken by the mutual fund lite asset management company, it has taken adequate steps to ensure that the interests of the unitholders are protected. ] ************** NOTES:- 1. Inserted vide Notification No.SEBI/LAD-NRO/GN/2024/221 dated 16-12-2024 w.e.f. ninetieth day from the date of their publication in the Official Gazette