Securities And Exchange Board Of India (Mutual Funds) Amendment Regulations, 1998 - S.O. No.32(E) - SEBI/LE/2330/98 - SEBI

SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION Mumbai, the 12th January, 1998 S.O.32(E).- In exercise of the powers conferred by sub-section (1) of section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations further to amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, namely:- I. (i) These regulations may be called the Securities and Exchange Board of India (Mutual Funds) Amendment Regulations, 1998. (ii) They shall come into force on the date of their publication in the Official Gazette. II. In Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, (hereinafter referred to as the said regulations), - 1. in regulation 2, after clause (m) the following clause shall be inserted, namely:- (mm) group means a group as defined in clause (ef) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) . 2. in regulation 7, a new clause (aa) after clause (a) and before clause (b) shall be inserted namely: (aa) the applicant is a fit and proper person. 3. in regulation 16, sub-regulation (5) shall be substituted by the following, namely:- (5) Two thirds of the trustees shall be independent persons and shall not be associated with the sponsors or be associated with them in any manner whatsoever. 4. in regulation 17, in sub-regulation (1), the proviso shall be omitted. 5. in regulation 18- (i) in sub-regulation (18), for the word continuously the word quarterly shall be substituted. (ii) after sub-regulation (23), a new sub-regulation (24) shall be inserted, namely;- (24) The independent trustees referred to in sub-regulation (5) of regulation 16 shall give their comments on the report received from the asset management company regarding the investments by the mutual fund in the securities of group companies of the sponsor . 6. in regulation 21, in sub-regulation (1),- (a) a new clause (aa) after clause (a) and before clause (b) shall be inserted namely:- (aa) the asset management company is a fit and proper person. (b) in clause (c) -, (i) the following words have not been found guilty of moral turpitude or convicted of economic offence or violation of securities laws or shall be inserted after the words, key personnel of the asset management company . (ii) for the words, has not been working the words or worked shall be substituted, (iii) for the word whose the words during the period when its shall be substituted. (c) in clause (f), after the proviso, the following provisos shall be added, namely:- Provided that the period specified in the first proviso may be extended in appropriate cases by the Board upto three years for reasons to be recorded in writing. Provided further that no new schemes shall be allowed to be launched or managed by such asset management company till the net worth has been raised to Rupees ten crores. 7. in regulation 24, in sub-regulation (3), the words in case of schemes launched after the notification of these regulations shall be inserted after the words offer documents . 8. in regulation 25, - (i) sub-regulation (7) shall be substituted by the following, namely:- (7) (a) An asset management company shall not through any broker associated with the sponsor, purchase or sell securities, which is average of 5% 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, 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% 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% 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% 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. (ii) in sub-regulation (10) - (a) the word immediately shall be omitted; (b) after the words be sent to the trustees , the words at its next meeting shall be inserted; (iii) in sub-regulation (11), after the words with justification of such investment the words provided the latter investment has been made within one year of the date of the former investment calculated on either side shall be inserted; (iv) in sub-regulation (12), after clause (b) a new clause (c ) shall be inserted, namely: (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. in regulation 29, - (i) in sub-regulation (1), after the words investment decision , the following words shall be inserted, namely: including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor. ; (ii) in sub-regulation (3), the word working shall be inserted after the figure 21 ; (iii) after sub-regulation (3), a new sub-regulation (4), shall be inserted as follows, namely: (4) No one shall issue any form of application for units of a mutual fund unless the form is accompanied by the memorandum containing such information as may be specified by the Board. 10. in regulation 30, in sub-regulation (2), for the words in addition to the investment objective, the method and periodicity or valuation of the investment, the method and periodicity of sales and repurchases , the words investment objective of each scheme shall be substituted. 11. in regulation 33, (i) in sub-regulation (2), the words without listing after the word intervals shall be omitted. (ii) in sub-regulation (3), clause (b) shall be substituted by the following, namely: (b) the unitholders are provided with an option to redeem their units in full ; (iii) in sub-regulation (4), - (a) the words unless majority of the unit holders otherwise decide for its rollover by passing a resolution shall be omitted, (b) the proviso to sub-regulation (4) shall be substituted by the following provisos, namely:- Provided that a close ended scheme may be allowed to be rolled over if the purpose, period and other terms of the roll over and all other material details of the scheme including the likely composition of assets immediately before the roll over, the net assets and net asset value of the scheme, are disclosed to the unitholders and a copy of the same has been filed with the Board. Provided further, that such roll over will be permitted only in case of those unitholders who express their consent in writing and the unitholders who do not opt for the roll over or have not given written consent shall be allowed to redeem their holdings in full at net asset value based price . 12. in regulation 34, the word initial shall be inserted before the word offering . 13. in regulation 36, for the words subscription list the words initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme shall be substituted. 14. in regulation 39, in sub-regulation (3), the words sub-regulation (1) or shall be deleted. 15. in regulation 41, in sub-regulation (4), the words until winding up is completed or the scheme ceases to exist shall be inserted after the word applicable . 16. In regulation 44, - (i) a new sub-regulation (1A) after sub-regulation (1) shall be inserted, namely:- (1A) The mutual fund having an aggregate of securities which are worth 10 crores or more, as on the latest balance sheet date, shall subject to such instructions as may be issued from time to time by the Board settle their transactions entered on or after January 15, 1998 only through de-materialised securities. (ii) after sub-regulation (3), a new sub-regulation (4) as follows shall be inserted, namely: (4) The mutual fund may lend securities in accordance with the Stock Lending Scheme of the Board . 17. in regulation 49, in sub-regulation (4), clause (b), shall be substituted by the following, namely: (b) the sale price is determined with or without a fixed premium added to the future net asset value which is declared in advance . 18. in regulation 50, in sub-regulation (2) for the words ten years , the words eight years shall be substituted. 19. in regulation 51, in the proviso, for the words following year. , the words that financial year. shall be substituted. 20. in regulation 52, - (a) in sub-regulation (4), in clause (b), (i) sub-clause (vii) shall be renumbered as sub-clause (xiii) (ii) after sub-clause (vi), the following sub-clauses shall be inserted namely: (vii) costs related to investor communication; (vii) costs of fund transfer from location to location; (ix) cost of providing account statements and dividend/redemption cheques and warrants; (x) insurance premium paid by the fund; (xi) winding up costs for terminating a fund or a scheme; (xii) costs of statutory advertisements; (b) in sub-regulation (5), the words or trustee or sponsors shall be inserted after the words asset management company . (c) after the proviso to sub-regulation (5), the following proviso shall be inserted namely: Provided further that any excess over the 6% initial issue expense shall be borne by the asset management company. (d) in sub-regulation (7), the words or by the trustee or sponsors shall be inserted after the words asset management company . 21. in regulation 56, - (i) in sub-regulation (1), the words and an abridged scheme wise annual report shall be mailed to all unitholders shall be inserted after the words through an advertisement and before the words as soon as . (ii) After sub-regulation (2), the following provisos shall be inserted, namely:- Provided that the abridged scheme wise annual report mailed to unitholders need not contain full portfolio disclosure but must contain details on group company investments such as the name of the company, the amount of investment made in each company of the group by each scheme and the aggregate investments made by all schemes in the group companies of the sponsor. Provided further that full portfolio disclosure is not required if the full accounts are published in newspapers . (iii) in sub-regulation (3), the words for unitholders of a scheme , shall be inserted after the words a note that . 22. in regulation 57, the words and asset management company shall be omitted. 23. in regulation 58, in sub-regulation (2), the words and asset management company shall be omitted. 24. in the Third Schedule, in clause 15, the words and the asset management company shall be deleted. 25. in the Fourth Schedule, (i) in clause (ii) for the words regulation 23 the words sub-regulation (2) of regulation 24 shall be substituted; (ii) in clause (v), the words give or guarantee loans or shall be omitted. (iii) in clause (vii), for the words application form, or sales literature or other printed matter issued to prospective buyers, or advertisement, or report and/or announcement (other than an announcement of prices and yields) addressed to the general body of unitholders, or to the public, or to the press, or other communications media the words offer document of a scheme, key information memorandum, abridged half yearly results and annual results shall be substituted. 26. in the Fifth Schedule, - (i) in clause 1, for the word or , appearing after the word persons and before the words in the interest of special class of unitholders the word as shall be substituted; (ii) in clause 5, for the word cash , the words bank accounts shall be substituted. 27. in the Sixth Schedule, (i) in clause 9, the following shall be omitted: distinction between each of them, both legally and in terms of their functions, responsibilities and obligations (ii) a new clause 9A shall be inserted after clause 9 as follows: 9A. all advertisements containing information regarding performance, advertising yield, return or any scheme detail or inviting subscription to the scheme shall contain disclosures of all the risk factors. 28. in the Seventh Schedule, - (i) in clause 3, after sub-clause (a), an explanation shall be inserted, namely,- Explanation - spot basis shall have same meaning as specified by stock exchange for spot transactions. (ii) after clause 8, a new clause 9 shall be inserted as follows, namely:- 9. No mutual fund 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 1 [ 25% ] of the net assets of all the schemes of the mutual fund . 29. in the Eighth Schedule, - (i) in clause 2, in sub-clause (ii), item (c) shall be omitted and new items (c) and (cc) shall be added as follows, namely:- (c) while investments in call money, bills purchased under rediscounting scheme and short term deposits with banks shall be valued at cost plus accrual; other money market instruments shall be valued at the yield at which they are currently traded. For this purpose, non-traded instruments that is instruments not traded for a period of seven days will be valued at cost plus interest accrued till the beginning of the day plus the difference between the redemption value and the cost spread uniformly over the remaining maturity period of the instruments; (cc) government securities will be valued at yield to maturity based on the prevailing market rate . 30. in the Ninth Schedule, in clause (j) - (i) for the word credited appearing after the words has to be and before the word to Capital Account the word debited shall be substituted. (ii) for the word debited appearing after the words should be and before the words to reserves the word credited shall be substituted. (iii) for the word credited appearing after the words should be and before the words to reserves the word debited shall be substituted. 31. in the Tenth Schedule, in clause (a), the words Trustee Company or Sponsor shall be inserted after the words asset management company . 32. in the Eleventh Schedule, - (i) in the heading, after the words (Mutual Fund) Regulations , for the figure 1993 the figure 1996 shall be substituted. (ii) in clause 1, in sub-clause (vi), the words at a price shall be inserted, after the words, annual report; (iii) in clause 2, - (a) in sub-clause (xi) for the word credited , the word debited shall be substituted; (b) in sub-clause (xii), after the words purchased shall , the word inter aha shall be inserted. (iv) in clause 3, in sub-item (vii), (a) sub-clause (c) shall be substituted by the following new sub-item and proviso as follows, namely:- (c) full scheme-wise portfolio of investments of a mutual fund. Provided that a mutual fund may publish particulars of its full portfolio in the advertisements of abridged annual report or full annual reports in newspapers. ; (b) after sub-item (i) a new sub-item(j) shall be inserted as follows, namely:- (j) the name of the company including the amount of investment made in each company of the group by each scheme and the aggregate investments made by all schemes in the group companies of the sponsor . (c) the existing sub-item (j) shall be read as sub-item (k). 33. in Twelfth Schedule, in clause (C), in clause 2, for the word eight the word three , shall be substituted. [F.No. SEBI/LE/2330/98] D. R. MEHTA, Chairman Foot Note:-(1) The principal regulation, SEBI (Mutual Funds) Regulations, 1996 was issued under NO. S.O. 856(E) dated December 6, 1996 published in the Gazette of India, II, Section 3 (ii), dated December 9, 1996. (2) SEBI (Mutual Funds) Regulations, 1996 was subsequently amended by the SEBI (Mutual Funds) Amendment Regulations, 1997, issued under S.O No. 327 (E), published in Gazette of India dated 15.4.97. ********* Notes:- 1. Corrected vide CORRIGENDUM dated 06-02-1998 before it was read as 30%