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TMI BlogMaster Circular for Mutual FundsX X X X Extracts X X X X X X X X Extracts X X X X ..... ween the master circular and the applicable circulars, the contents of the relevant circular shall prevail. 3. Master Circular is a compilation of all the existing/applicable circulars issued by Investment Management Department of SEBI to Mutual Funds. Efforts have been made to incorporate certain applicable provisions of existing circulars (as on date ) issued by other Departments/Divisions of SEBI relevant to Mutual Funds. INDEX ABBREVIATIONS ....................................... 5 CHAPTER 1 .......................................... 7 OFFER DOCUMENT FOR SCHEMES ......................... 7 CHAPTER 2 ......................................... 22 CONVERSION AND CONSOLIDATION OF SCHEMES AND LAUNCH OF ADDITIONAL PLAN................................. 22 CHAPTER 3 ......................................... 33 NEW PRODUCTS ...................................... 33 CHAPTER 4 ......................................... 42 RISK MANAGEMENT SYSTEM ............................ 42 CHAPTER 5 ......................................... 47 DISCLOSURES & REPORTING NORMS ...................... 47 CHAPTER 6 ......................................... 64 GOVERNANCE NORMS .................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed Maturity Plans FMP(s) Global Depository Receipt GDR Gold Exchange Traded Fund GETF Gold Monetization Scheme GMS Hindu Undivided Family HUF International Organization of Securities Commission IOSCO Investor Service Center ISC Key Information Memorandum KIM Know Your Client KYC Monthly Cumulative Report MCR Monthly Average Assets Under Management MAAUM Multilateral Memorandum of Understanding MMOU National Stock Exchange NSE Net Asset Value NAV New Fund Offer NFO Non Performing Assets NPA(s) Permanent Account Number PAN Prevention of Money Laundering Act PMLA Qualified Foreign Investor QFI Regulation Reg. Rajiv Gandhi Equity Savings Scheme RGESS SEBI (Mutual Funds) Regulations 1996 Regulations Securities and Exchange Board of India the Board Scheme Information Document SID Offer Statement of Additional Information SAI Document Systematic Investment Plan SIP Systematic Transfer Plan STP Systematic Withdrawal Plan SWP Trustee(s) Board of Trustee(s)/ Trustee Company Uniform Client Code UCC Unit Confirmation Receipt UCR CHAPTER 1 OFFER DOCUMENT FOR SCHEMES 1.1 Filing of Offer Document wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d May 5, 1997. 1.1.3.2 Filing of SAI a. A single SAI (common for all the schemes) can be filed with Board along with first draft of SID or can be filed separately. After incorporating the comments/observations, if any, from the Board, AMC shall file a soft copy of SAI with the Board in PDF format alongwith printed copy of the same SEBI Circular No - SEBI/IMD/CIR No.10/178129/09 dated September 29,2009, upload the SAI on its website and on AMFI website. 1.1.3.3 Filing of Final SID a. Final SID (after incorporating comments of the Board) must reach the Board before it is issued for circulation. Soft copy of the final SID in PDF format along with a printed copy should be filed with Board seven SEBI Circular No - SEBI/HO/IMD/DF2/CIR/P/2016/68 dated August 10, 2016 working days prior to the launch of the scheme. AMC shall also submit an undertaking to the Board while filing the soft copy that information contained in the soft copy of SID to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC is fully responsible for the contents of the soft copy of SID. The soft copy of SID should also be uploaded on AMFI we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e attached to all KIM and SID already in stock till it is updated). 4. A public notice shall be given in respect of such changes 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. 1.2.1.3 A copy of all changes made to the scheme shall be filed with Board within 7 days of the change. A soft copy of updated SID shall be filed with Board in PDF Format along with printed copy of the same. AMC shall also submit an undertaking to the Board while filing the soft copy that information contained in the soft copy of SID to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC is fully responsible for the contents of the soft copy of the SID SEBI Circular No - SEBI/IMD/CIR No.10/178129/09 dated September 29,2009. 1.2.2 Updation of SAI 1.2.2.1 A printed copy of SAI shall be made available to the investor(s) on request. SAI shall be updated within 3 months from end of financial year and filed with SEBI. 1.2.2.2 Any material changes in the SAI shall be made on an ongoing basis by way of updatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shall also be mentioned. While filing the SID and SAI, AMC shall highlight and clearly mention the page number of the SAI and SID on which each standard observation has been incorporated. 1.6 KIM 1.6.1 Application forms for schemes of mutual funds shall be accompanied by the KIM in terms of Regulation 29 (4). KIM shall be printed at least in 7 point font size with proper spacing for easy readability. 1.6.2 Format of KIM 1.6.2.1 Mutual Funds shall prepare KIM in the prescribed formatFor format of KIM please refer to the section on Formats. The contents of KIM shall follow the same sequence as prescribed in the format. 1.6.3 Frequency of updation 1.6.3.1 KIM shall be updated at least once a year and shall be filed with SEBI. 1.6.3.2 In case of changes in the SID other than changes in fundamental attribute in terms of Reg 18 (15A), the addendum circulated to all the distributors/brokers/investor Service Centre (ISC) shall be attached to KIM till the KIM is updated. 1.6.3.3 In case any information in SID is amended more than once, the latest applicable addendum shall be a part of KIM (For example, in case of changes in load structure the addendum carrying the latest app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Instrument or a combination of such instruments. 1.9 New Fund Offer (NFO) Period SEBI Circular no MFD/Cir.No 9/120/2000 dated November 24, 2000. SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010. The provisions mentioned shall be applicable for all NFOs launched on or after July 01, 2010 1.9.1 In case of open ended and close ended schemes (except ELSS schemes), the NFO should be open for 15 days. 1.9.2 The NFO period in case of ELSS schemes shall continue to be governed by guidelines issued by Government of India. 1.9.3 The maximum period for which initial offering of Mutual Fund scheme eligible under RGESS shall be open for subscription shall be thirty days SEBI Circular No. CIR/IMD/DF/02/2013 dated February 6, 2013. 1.9.4 Mutual Funds/AMCs are allowed to deploy the NFO proceeds in CBLO SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016. will be applicable for NFOs launched on or after April 1, 2016 before the closure of NFO period. However, AMCs shall not charge any investment management and advisory fees on funds deployed in CBLOs during the NFO period. The appreciation received from investment in CBLO shall be passed on to investo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific security. AMCs should have in place sound internal liquidity management tools for schemes. Restriction on redemption cannot be used as an ordinary tool in order to manage the liquidity of a scheme. Further, restriction on redemption due to illiquidity of a specific security in the portfolio of a scheme due to a poor investment decision, shall not be allowed. 1.10.3.1.2 Market Failures, exchange closures - when markets are affected by unexpected events which impact the functioning of exchanges or the regular course of transactions. Such unexpected events could also be related to political,economic, military, monetary or other emergencies. 1.10.3.1.3 Operational Issues - when exceptional circumstances are caused by force majeure, unpredictable operational problems and technical failures (e.g. a black out). Such cases can only be considered if they are reasonably unpredictable and occur in spite of appropriate diligence of third parties, adequate and effective disaster recovery procedures and systems. 1.10.3.2 Restrictions on redemption may be imposed for a specified period of time not exceeding 10 working days in any 90 days period. 1.10.3.3 Any imposition of restriction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.22/2311/03 dated January 30, 2003. 2.1.1 Although the procedure for conversion of close ended scheme(s) to open ended scheme(s) has been clearly enumerated in the Mutual Funds Regulations Regulation 33(3) of the SEBI (Mutual Funds), Regulations, 1996., following requirements are clarified again: 2.1.1.1 Since the scheme(s) would reopen for fresh subscriptions, disclosures contained in the SID shall be revised and updated. A copy of the draft SID shall be filed with the Board as required under Regulation 28(1) of the Mutual Funds Regulations along with filing fees prescribed under Regulation 28(2) of the Mutual Funds Regulations. Instructions issued by the Board SEBI Circular No. SEBI/IMD/Cir No 5/126096/08 dated May 23, 2008 for filing of the SID shall also be followed. 2.1.1.2 A draft of the communication to be sent to unit holders shall be submitted to the Board which shall include the following: a. Latest portfolio of the scheme(s) in the prescribed format Refer to format of half yearly portfolio disclosure under section on formats. b. Details of the financial performance of the scheme(s) since inception in the format prescribed in SID Please refer to format of SID und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half yearly portfolio disclosure under section on Formats. 2. Details of the financial performance of the concerned schemes since inception in the format prescribed in SID Please refer to SID Format under section on Formats along with comparisons with appropriate benchmarks. 3. Information on the investment objective, asset allocation and the main features of the new consolidated scheme. 4. Basis of allocation of new units by way of a numerical illustration 5. Percentage of total NPAs and percentage of total illiquid assets to net assets of each individual scheme(s) as well the consolidated scheme. 6. Tax impact of the consolidation on the unit holders. 7. Any other disclosure as specified by the Trustees. 8. Any other disclosure as directed by the Board. 2.2.2.3 Updation of SID shall be as per the requirements for change in fundamental attribute of the scheme Please refer to SID chapter for further details. 2.2.2.4 Maintenance of Records: a. AMC(s) shall maintain records of dispatch of the letters to the unit holders and the responses received from them. A report giving information on total number of unit holders in the schemes and their net assets, number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of launch of such additional plan(s). 2.4 Single Plan SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012 2.4.1 Mutual funds/AMCs shall launch schemes under a single plan and ensure that all new investors are subject to single expense structure. 2.4.2 Existing schemes with multiple plans based on the amount of investment (i.e. retail, institutional, super-institutional, etc) shall accept fresh subscriptions only under one plan. 2.4.3 Other plans will continue till the existing investors remain invested in the plan. 2.5 Direct Plan SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012 2.5.1 Mutual funds/AMCs shall provide a separate plan for direct investments, i.e., investments not routed through a distributor, in existing as well as new schemes. 2.5.2 Such separate plan shall have a lower expense ratio excluding distribution expenses, commission, etc., and no commission shall be paid from such plans. The plan shall also have a separate NAV. PART IV - CATEGORIZATION AND RATIONALIZATION OF MUTUAL FUND SCHEMES SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017 It is desirable that different schemes launched by a Mutual Fund are clearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket capitalization 2.7.2 Mutual Funds would be required to adopt the list of stocks prepared by AMFI in this regard and AMFI would adhere to the following points while preparing the list: i. If a stock is listed on more than one recognized stock exchange, an average of full market capitalization of the stock on all such stock exchanges, will be computed; ii. In case a stock is listed on only one of the recognized stock exchanges, the full market capitalization of that stock on such an exchange will be considered. iii. This list would be uploaded on the AMFI website and the same would be updated every six months based on the data as on the end of June and December of each year. The data shall be available on the AMFI website within 5 calendar days from the end of the 6 months period. iv. While preparing the single consolidated list of stocks, average full market capitalization of the previous six month of the stocks shall be considered SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2017/126 dated December 04, 2017. 2.7.3 Subsequent to any updation in the list, Mutual Funds would have to rebalance their portfolios (if required) in line with updated list, within a period of one mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such gold related instrument. However, as per RBI notification dated October 22, 2015, the Gold Monetisation Scheme, 2015 (GMS) will replace the Gold Deposit Scheme, 1999. Accordingly, it has been decided that GMS will also be designated as a gold related instrument SEBI Circular No. CIR/IMD/DF/11/2015 dated December 31, 2015, in line with GDS of Banks. Investment in GDS and GMS by Gold ETFs of mutual funds will be subject to following conditions: a. The cumulative Investment by Gold ETF in GDS and GMS will not exceed 20% of total AUM of such schemes. b. Before investing in GDS of Banks and GMS , mutual funds shall put in place a written policy with regard to investment in GDS and GMS with due approval from the Board of the Asset Management Company and the Trustees. The policy should have provision to make it necessary for the mutual funds to obtain prior approval of their trustees for each investment proposal in GDS and GMS. The policy shall be reviewed by mutual funds, at least once a year. c. Certificates issued in respect of investments made by Gold ETFs in GDS of Banks and GMS can be held by the mutual funds in dematerialized or physical form SEBI Circular No. CIR/IMD/DF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds protection of capital" and not "with guaranteed returns." It shall also be indicated that the orientation towards protection of capital originates from the portfolio structure of the scheme and not from any bank guarantee, insurance cover etc. 3.3.2 The proposed portfolio structure indicated in the SID and KIM shall be rated by a Credit Rating Agency registered with the Board from the view point of assessing the degree of certainty for achieving the objective of capital protection and the rating shall be reviewed on a quarterly basis. 3.3.3 The Trustees shall continuously monitor the portfolio structure of the scheme and report the same in the Half Yearly Trustee Reports For format of Half Yearly Trustee Report please refer section on Formats to the Board. The AMC(s) shall also report on the same in its bimonthly (CTR(s) For format of bimonthly CTR please refer section on Formats to the Board. 3.3.4 It shall also be ensured that the debt component of the portfolio structure has the highest investment grade rating. 3.4 Real Estate Mutual Funds SEBI Circular No - SEBI/IMD/CIR No.4/124477/08 May 2,2008: 3.4.1 A real estate mutual fund schemeRegulation 49 A(a)(i) of SEBI (Mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations, the new retail investors shall submit a declaration indicating that such securities are not to be included within the above limit of investment. It is clarified that such declaration shall be submitted by an investor to its Depository Participant within a period of one month from the date of transaction. d. For transactions undertaken by investors through their RGESS designated demat account, Depositories may seek necessary transactional details from stock exchanges viz. Actual Trade value, Trading date, Settlement number, etc, for the purpose of enforcing lock-in and for generating reports mandated vide MoF notification on RGESS. On receipt of such request from depositories, stock exchanges shall provide the details to depositories on an immediate basis. It shall also be ensured that a uniform file structure is used by stock exchanges and depositories for such intimation of transaction details. e. With regard to the securities held in the RGESS designated account, treatment of the corporate actions shall be given in the prescribed format Please refer to section on Formats for requisite formats. 3.5.5 Mutual Funds / AMCs shall communicate list of RGESS eligible MF sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... YSTEM SEBI Circular No. MFD/CIR/15/19133/2002 dated September 30, 2002. 4.1 An Operating Manual The Manual has been developed by AMFI in association with Pricewaterhouse Coopers as a part of Indo-US Financial Institutions Reforms and Expansion Project. for Risk Management has been developed to ensure minimum standards of due diligence and Risk Management Systems for all the Mutual Funds in various operational areas (for e.g. Fund Management, Operations, Customer Service, Marketing and Distribution, Disaster Recovery and Business Contingency, etc.) and is enclosed herewith as Annexure 2. 4.2 The Risk Management practices covered in the Operating Manual are under three categories as detailed below: 4.2.1 Existing Industry Practices: 4.2.1.1 Under each head of risk, the Manual covers the exemplary practices followed by some / most of Mutual Funds in India. However, the extent and degree of observance of these practices differs among the Mutual Funds. Mutual Funds shall accordingly develop their systems and follow these practices. 4.2.2 Practices to be followed on Mandatory Basis: 4.2.2.1 Mutual Funds shall follow the practices which have been indicated as mandatory in the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would evaluate potential vulnerabilities on account of plausible events and provide early warning on the health of the underlying portfolio of Liquid Fund and MMMF Schemes, it has been decided to stipulate the following guidelines: 4.4.2.1 As a part of the extant risk management framework, AMCs should have stress testing policy in place which mandates them to conduct stress test on all Liquid Fund and MMMF Schemes. 4.4.2.2 The stress test should be carried out internally at least on a monthly basis, and if the market conditions require so, AMC should conduct more frequent stress test. 4.4.2.3 The concerned schemes shall be tested on the following risk parameters, among others deemed necessary by the AMC: a) Interest rate risk; b) Credit risk; c) Liquidity & Redemption risk. 4.4.2.4 While conducting stress test, it will be required to evaluate impact of the various risk parameters on the scheme and its Net Asset Value (NAV). The parameters used and the methodology adopted for conducting stress test on such type of scheme, should be detailed in the stress testing policy, which is required to be approved by the Board of AMC. 4.4.2.5 Further, in the event of stress test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hosting of the half-yearly statement of its schemes portfolio on their respective website and on the website of AMFI and the modes such as SMS, telephone, email or written request (letter) through which a unitholder can submit a request for a physical or electronic copy of the statement of scheme portfolio. Such advertisement shall be published in the all India edition of at least two daily newspapers, one each in English and Hindi. d) Mutual Funds/ AMCs shall provide a physical copy of the statement of its scheme portfolio, without charging any cost, on specific request received from a unitholder. 5.1.2. The format for monthly portfolio disclosure Please refer to section on Formats for requisite Formats shall be same as that of half yearly portfolio disclosures. The format SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000, SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No. MFD/CIR/14/18337/2002 dated September 19, 2002, SEBI Circular No. IMD/CIR 8/132968/2008 dated July 24, 2008 for disclosure for monthly and half yearly portfolio is placed at format section. 5.1.3. Mutual funds/AMCs may disclose additional information (such as ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lope enabling unitholders to 'opt-in' within 30 days, to continue receiving a physical copy of the scheme-wise annual report or abridged summary thereof. 5.4.4 To ensure that unitholders get sufficient opportunity to communicate their preference of 'opt-in' or 'opt-out' with respect to receiving the annual report or abridged summary thereof in physical copy, Mutual Funds/ AMCs shall conduct one more round of similar exercise for those unitholders who have not responded to the 'opt-in' communication as stated at paragraph 5.4.3 above, after a period of not less than 30 days from the date of issuance of the first communication. Further, a period of 15 days from the date of issuances of the second communication may be given to unitholders to exercise their option of 'opt-in' or 'opt-out'. 5.4.5 Mutual Funds/ AMCs shall publish an advertisement every year disclosing the hosting of the scheme wise annual report on their respective website and on the website of AMFI and the modes such as SMS, telephone, email or written request (letter), etc. through which unitholders can submit a request for a physical or electronic copy of the scheme wise annual report or abridged summary the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 02, 2018. cities (i.e. other than top 30 cities as identified by AMFI) and T-30 cities (Top 30 cities). c. Contribution to Monthly AAUM from sponsor and its associates. d. Contribution to Monthly AAUM from entities other than sponsor and its associates. e. Contribution to Monthly AAUM from investors type (retail, corporate, etc.) in different scheme type (equity, debt, ETF, etc.). f. Monthly AAUM garnered through sponsor group/ non-sponsor group distributors. g. State-wise/Union Territory-wise contribution to MAAUM. 5.6.3 In order to have a holistic picture, Mutual Fund wise and consolidated data on the above parameters shall also be disclosed on AMFI website. The above shall be disclosed as per the format For formats, please refer to chapter on Formats. 5.6.4 AMCs shall disclose the above on their website (in spreadsheet format) and forward to AMFI within 7 working days from the end of the month. AMFI in turn shall disclose the consolidated data in this regard on its website (in spreadsheet format). 5.7 Commission disclosure SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011 5.7.1 Mutual Funds / AMCs shall disclose on their respective websites the total co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided in SID of the MF scheme: 5.8.2.1 The aggregate investment in the scheme under the following categories: a) AMC's Board of Directors b) Concerned scheme's Fund Manager(s) and c) Other key managerial personnel. 5.8.2.2 Illustration of impact of expense ratio on scheme's returns (by providing simple example). 5.8.3 Separate SID / KIM for each MF scheme managed by AMC shall also be made available on MFs / AMCs website. 5.8.4 Each MF is required to have a dashboard on their website providing performance and key disclosures pertaining to each scheme managed by AMC. The information should include scheme's AUM, investment objective, expense ratios, portfolio details, scheme's past performance, among others. Such information shall be provided in a comparable, downloadable (spreadsheet) and machine readable format. 5.9 Annual report of the AMC MFD/CIR/9/120/2000 dated November 24, 2000 5.9.1 Annual report containing accounts of the asset management companies should be displayed on the website of the mutual funds. It should also be mentioned in the annual report of the mutual fund schemes that the unitholders, if they so desire, may request for a copy of the annual report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor complaints received by them from all sources. The said details should be vetted and signed off by the Trustees of the concerned Mutual Fund. 5.12.2 The Mutual Funds are advised to: 5.12.2.1 Upload the report for the financial year within 2 months of the close of the financial year. 5.12.2.2 Include the report in their annual reports, as part of the Report of the Trustees. 5.13 Brokerage and commission paid to associates SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010 5.13.1 Regulations Regulation 25 (8) of SEBI (Mutual Funds) Regulations, 1996 govern payment of brokerage or commission if any, to the sponsor or any of its associates, employees or their relatives. 5.13.2 Disclosures on brokerage and commission paid to associates/related parties/group companies of sponsor/Asset Management Company in the unaudited half yearly financial results, the abridged scheme wise annual report and the SAI, shall be made in the format as prescribed Please refer to the section on Formats. 5.14 Mutual Funds/ AMCs shall make continuous efforts to update email ID and mobile number of all unitholders. The said contact details shall be used for sending e-mails and SMS as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -monthly basis. The details sought in the annexures of the CTR shall be furnished to the Board in case of non-compliance only along with exception report. This exception report shall also be placed before the Trustee(s). 5.17.2 The CTRs For CTR format, please refer the section on Formats. should be submitted by the AMC to the Board once in every two months so as to reach within 21 days of completion of the two months period. As a compliance of SEBI Regulations is a continuous process, AMCs are advised to incorporate the modifications/additions under the relevant sections of the format,based on amendments to the Regulations/guidelines issued in the future from time to time. 5.18 Annual Statistical Report (ASR) IIMARP/CIR /08/845/97 DATED May 7,1997, MFD/CIR/02/110/02 dated April 26,2002, SEBI Cir No- IMD/CIR No 6/72245/06 dated July 20,2006, 5.18.1 AMC should submit the annual statistical report to SEBI in the prescribed format by 30th of April each year For format of ASR refer the section on Formats Quarterly Movement of Net Assets- SEBI CIR - IIMARP/MF/CIR/05/788/97 dated April 28, 1997 required mutual funds to submit the statement for quarterly movement of net assets. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The report shall mention that the Trustees have satisfied themselves about the adequacy of compliance systems in the Mutual Fund. 5.20.5 AMC(s) and the Trustees shall update the reporting formats including relevant provisions of amendments made to the Mutual Funds Regulations and/or guidelines and/or circulars issued by the Board and shall specifically comment on their compliance. 5.21 Filing of Annual Information Return by Mutual FundsSEBI cir no IMD/CIR No.8/73580/06 dated August 4,2006 It may be noted that Annual Information Returns (AIRs) constitute an important source of information to Income Tax Department and, as such, it is imperative that the data furnished to them is complete and accurate in all respects. It is therefore advised that to re-check the accuracy of the data furnished by your office for the Financial Year 2004-05 and ensure that all the columns are correctly filled-in and submit a 'Supplementary Information Report', if need be, to the Income Tax Department. The AIRs for the financial year 2005-2006 are required to be filed before August 31, 2006. 5.21.1 Mutual Funds are required to submit the Annual Information Return under section 285 BA in the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trustees on a quarterly basis details of transactions in securities exceeding ₹ 1 lac SEBI Circular No. SEBI/MFD/CIR/10/039/2001 dated February 9, 2001. 6.2.1.2 Trustee(s) Directors a. Trustees are required to report to Mutual Funds only those transactions in securities that exceed ₹ 1 lac in value Regulation 18(11) of SEBI (MF) Regulations, 1996 and SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000. 6.2.2 Review of transactions 6.2.2.1 Trustees shall review all transactions of the Mutual Fund with the associates as defined below on a regular basis and ensure that Regulations are complied with Regulations 18(6) and 18(7) of SEBI (Mutual Funds), Regulations, 1996 and SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000. 6.3 Role of Independent Director on the Board of the AMC and Independent Trustees SEBI Circular No. MFD/CIR/11/354/2001 dated December 20, 2001, SEBI Circular No. MFD/CIR/13/16799/2002 dated August 29, 2002, SEBI Circular No. MFD/CIR/17/21105/2002 dated October 28, 2002. 6.3.1 An Independent Trustee shall not be associated in any manner with the Sponsor(s) Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors of the AMC or Trustee, their bio-data For biodata of directors (AMC and Trustee), please refer to section on Formats shall be filed with the Board for information or approval respectively. 6.4 Tenure of independent trustees and independent directors SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/125 dated November 30, 2017. 6.4.1 Regulation 16 (5) and Regulation 21 (1) (d) of SEBI (Mutual Funds) Regulations, 1996 mandate appointment of independent trustees of MFs("independent trustees") and independent directors of AMCs("independent directors") respectively. With respect to tenure of independent trustees and independent directors, it has been decided that: 6.4.1.1 An independent trustee and independent director shall hold office for a maximum of 2 terms with each term not exceeding a period of 5 consecutive years. 6.4.1.2 No independent trustee or independent director shall hold office for more than two consecutive terms, however such individuals shall be eligible for re-appointment after a cooling-off period of 3 years. During the cooling-off period, such individuals should not be associated with the concerned MF, AMC & its subsidiaries and / or sponsor of AMC in any m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DF2/CIR/P/2018/19 dated February 07, 2018. c. Such auditors shall subsequently be eligible for re-appointment after a cooling-off period of 5 years, in terms of Para 6.5.2.1 and Para 6.5.2.2. 6.6 Investment and/or for / Trading in Securities by the employees of the AMC(s) and Trustee(s) SEBI Circular No. MFD/CIR No.4/216/2001 dated May 8, 2001, SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003. The guidelines enumerated below specify the minimum requirements that have to be followed. The AMC(s) and Trustees are free to set more stringent norms for investment and/or trading in securities by their employees. The Board of the AMC and Trustees shall ensure compliance with these Guidelines on a continuous basis and shall report any violations and remedial action taken by them in the periodical reports submitted to the Board Regulation 25(9) & 23(b) of SEBI (MF) Regulations, 1996. 6.6.1 Guidelines for Investment and/or Trading in Securities by Employees of AMC(s) and Trustees: 6.6.1.1 Applicability a. These Guidelines shall be applicable to all employees of AMC(s) and Trustees and shall form a part of the Code of Conduct for employees adopted by the AMC(s) and/or T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Savings Certificates, National Savings Schemes, Kisan Vikas Patra, or any other similar investment. 2. Investments of a non-financial nature such as gold etc., where there is no likely conflict between the Mutual Fund's interest and the employees' interest. 3. Investments in government securities, money market instruments, money market mutual fund schemes, liquid schemes and schemes floated by other Mutual Funds/ AMCs. 6.6.2.2 No employee shall pass on information to anybody inducing him to buy/sell securities which are being bought and/or sold by the Mutual Fund of which the AMC is the investment manager. 6.6.2.3 Prior approval of personal investment transactions: a. All access persons except Compliance Officer shall apply in the form prescribed by the AMC(s) and/or Trustees to the Compliance Officer for prior approval of transactions for sale or purchase of securities other than those expressly stated to be exempt under these guidelines. The Compliance Officer shall apply to the Head of the AMC(s). The decision of the Compliance Officer shall be final and binding on the employee. b. In these Guidelines, in the case of the Compliance Officer's own transactions for pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta etc. Employees shall not participate in any private placement of equity by any company. b. Notwithstanding anything stated in (a) above, an employee of an AMC(s) and/or Trustees may apply for shares and/or debentures and/or bonds and/or warrants in a preferential offer, in cases where such a preferential offer is being made by a company that belongs to the same industrial group as the company in which the employee already has an investment, provided that such a preferential offer is made to all shareholders and/or debenture holders of such companies. Details of such applications made shall be intimated to the Compliance Officer. c. The employees of the AMC(s) and/or Trustees including access person may apply for any rights offer of any company in which they are already shareholders. Applications for additional rights (over and above the normal rights entitlement) shares may be made by the employees including access person without getting the clearance from the Compliance Officer. An employee including access person may also sell and/or renounce his rights entitlement without getting the clearance from the Compliance Officer. However, if an access person wishes to purchase th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g plan does not entail trading in securities for market abuse. c. The Compliance Officer shall keep a track of the transactions of the employees and transactions of the Mutual Fund to ensure that there is no conflict of interest between them i.e. the Compliance Officer should track whether the Mutual Fund has transacted in the same securities either before or after the employee's transaction(s). d. The Compliance Officer shall maintain a record of all requests for pre clearance regarding the purchase or sale of a security, including the date of the request, the name of the access person, the details of the proposed transaction and whether the request was approved or denied and waivers given, if any, and its reasons. e. No employee shall purchase any security (including derivatives) on a "Carry Forward" basis or indulge in "Short Sale" of any security (including derivatives) i.e. employees who effect any purchase transaction(s) shall ensure that they take delivery of the securities purchased, before selling them. f. Any transaction of Front Running by any employee directly or indirectly is strictly prohibited. For this purpose, "Front Running" means any transaction of purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to the investors; d. There is a likelihood of a change in the accounting policy, or a significant change in the valuation of any asset, or class of assets and the same has not been communicated to the investors; e. There is a likelihood of conversion of a close ended scheme to an open ended scheme and vice versa and this has not been communicated to the investors. 6.6.5 Periodic Disclosures 6.6.5.1 All access persons shall submit, in the form prescribed by the Mutual Fund of which the AMC is the investment manager, details of their personal transactions of purchase or sale of securities to the Compliance Officer. The details to be submitted are as follows: a. Details of transactions effected for purchase and/or sale of securities including transactions in rights entitlements through the secondary market within 7 calendar days from the date of transaction; b. Details of allotment received against application for public and rights issues within 7 calendar days from the date of receipt of the allotment advice; c. A statement of holding in securities as on March 31 within 30 calendar days from the end of every financial year ending March 31. 6.6.5.2 All employees othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve: a. a minimum of 20 investors and b. no single investor shall account for more than 25% of the corpus of the Scheme/Plan(s). 6.9.1.2 If either/both of such limit(s) is breached during the NFO of the Scheme, it shall be ensured that within a period of three months or the end of the succeeding calendar quarter from the close of the NFO of the Scheme, whichever is earlier, the Scheme complies with these two conditions. 6.9.1.3 In case the Scheme / Plan(s) does not have a minimum of 20 investors in the stipulated period, the provisions of Regulation Regulation 39(2)(c) of the SEBI (MF) Regulations, 1996 would become applicable automatically without any reference from SEBI and accordingly the Scheme / Plan(s) shall be wound up and the units would be redeemed at applicable NAV. 6.9.1.4 If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25 % limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected pursuant to these Guidelines shall be completed within 10 days from the day of winding up of the scheme(s) and/or plan(s). 6.9.6 Reporting to the Board 6.9.6.1 Compliance with these Guidelines shall be reported in Compliance Test Reports (CTRs) and Half Yearly Trustee Reports. 6.10 Minimum Assets under Management (AUM) of Debt Oriented Schemes SEBI Circular No. Cir/IMD/DF/15/2014 dated June 20, 2014 6.10.1 It has been observed that many debt oriented schemes are operating with a very low AUM. In the interest of investors, it is important that debt oriented schemes have an adequate corpus to ensure adherence to the investment objectives as stated in Scheme Information Document and compliance with investment restrictions specified under SEBI (Mutual Funds) Regulations, 1996. 6.10.2 In this regard, it has been decided that: a) The minimum subscription amount of debt oriented and balanced schemes at the time of new fund offer shall be at least 20 crore and that of other schemes shall be at least 10 crore. b) An average AUM of 20 crore on half yearly rolling basis shall be maintained for open ended debt oriented schemes. c) The existing open ended debt oriented scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I (subsequently) to compare the performance of their scheme in case TRI is not available for that particular period(s). (ii) The calculation of composite CAGR is elaborated with an example in the following paragraph. For instance, ABC scheme had been launched on August 2, 1995. The benchmark PRI values are available from the date of inception of the fund. The benchmark TRI values are available from June 30, 1999. The calculation of a composite benchmark performance return in CAGR terms would be as given below: The aforesaid is explained with an example: Example: Consolidated Benchmark CAGR (PRI and TRI) Date Benchmark PRI values Benchmark TRI values 02/08/1995 1007.57 30/06/1999 1187.70 1256.38 30/11/2017 10226.55 13966.58 CAGR 12.20% Thus, in the above example (for advertisements in the month of December, 2017 the last of the preceding month would be November 30, 2017), CAGR= [(1187.70/1007.57)*(13966.58/1256.38) ^ (1/22.3452)]-1 [1 year= 365x days] CAGR= 12.20% (iii) Mutual funds shall use the composite CAGR as explained above, subject to making the following disclosure: *As TRI data is not available since inception of the scheme, benchmark performance is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure, including increases and decreases of capital and preferred stock issuances. 6.21.3 Stock option plans and other management compensation issues; 6.21.4 Social and corporate responsibility issues. 6.21.5 Appointment and Removal of Directors. 6.21.6 Any other issue that may affect the interest of the shareholders in general and interest of the unit-holders in particular. 6.22 AMCs shall be required to record and disclose specific rationale supporting their voting decision (for, against or abstain) with respect to each vote proposal SEBI Circular No. CIR/IMD/DF/05/2014 dated March 24, 2014. 6.23 AMCs shall additionally be required to publish summary of the votes cast across all its investee company and its break-up in terms of total number of votes cast in favor, against or abstained from. 6.24 AMCs shall be required to make disclosure of votes cast on their website (in spreadsheet format) on a quarterly basis, within 10 working days from the end of the quarter. Further, AMCs shall continue disclosing voting details in their annual report. The votes cast by the Mutual Funds may be given in the revised format For formats, please refer to chapter on Formats for disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by SEBI from time to time may be considered 7.3.1 Mutual Funds are not permitted to operate in the securities market without furnishing a valid Unique Client Code (UCC). SEBI Circular No. SMDRP/Policy/Cir-39/2001 dated July 18, 2001. Mutual Funds are required to obtain UCC from the Bombay Stock Exchange Ltd. (BSE) or The National Stock Exchange Ltd. (NSE) whenever a new scheme(s) or plan(s) (wherever the portfolio of the plans is different) is launched SEBI Circular No. SEBI/IMD/CIR No.01/1756/04 dated January 27, 2004. Such UCC should be obtained before commencing the trading on behalf of the scheme(s)/plan(s). At the time of entering an order, the UCC pertaining to the parent Mutual Fund shall be provided and the allocation to individual schemes shall be done in the post closing session. SEBI Circular No. MRD/DoP/SE/Cir-35/2004 dated October 26, 2004. The UCC can be shared with the unit holders to facilitate tax benefits linked to payment of Securities Transaction Tax (STT). 7.4 Trading in Exchange Traded Derivatives Contracts SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005; SEBI Circular No. DNPD/Cir-30/2006 dated January 20, 2006, SEBI Circular No. SEBI/DNPD/Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d schemes are permitted to undertake transactions in Forward Rate Agreements and Interest Rate Swaps with banks, PDs & FIs as per applicable RBI Guidelines RBI Circular dated November 1, 1999., mutual funds can also trade in interest rate derivatives through the Stock Exchanges subject to requisite disclosures in the SID SEBI Circular No. SEBI/MFD/CIR No.03/158/03 dated June 10, 2003. 7.5.2 The following position limits SEBI Circular No. CIR/MRD/DRMNP/26/2014 dated September 15, 2014 in IRF shall be applicable for Mutual Fund level and scheme level: a. Mutual Funds shall have position limits as applicable to trading members presently. b. Schemes of Mutual Funds shall have position limits as applicable to clients presently. 7.6 Transactions of mutual funds in Government Securities in dematerialised form SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002 7.6.1 According to Regulation Regulation 44(1A) of SEBI (Mutual Funds) Regulations, 1996, the Mutual Funds having an aggregate of securities worth ₹ 10 crore or more are required to settle their transactions only through dematerialised securities. All Mutual Funds should enter into transactions relating to governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess release giving reasons for the delay and explain when they would be able to publish the NAVs SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006. 8.2 Rounding off NAVs SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002, SEBI Circular No. MFD/CIR/11/16159/2002 dated August 22, 2002. 8.2.1 To ensure uniformity, Mutual Funds shall round off NAV up to four decimal places for index funds and all types of debt & liquid/money market schemes. 8.2.2 For all equity oriented and balanced fund schemes, Mutual Funds shall round off NAVs up to two decimal places. However, Mutual Funds can round off the NAVs up to more than two decimal places in case of equity oriented and balanced fund schemes also, if they so desire SEBI Circular No. MFD/CIR/11/16159/2002 dated August 22, 2002. Relevant disclosure in this regard shall be made in the SID/SAI SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002. 8.3 Uniform Cut off Timings for applicability of Net Asset Value of Mutual Fund scheme(s) and/ or plan(s) SEBI Circular No. SEBI/IMD/CIR No. 11/78450/06 dated October 11, 2006. 8.3.1 Mutual Funds should follow the Guidelines enumerated below with respect to uniform Cut - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. where the application is received after 2.00 p.m. on a day and funds are available for utilization on the same day without availing any credit facility, whether, intra-day or otherwise - the closing NAV of the day immediately preceding the next business day ; and c. irrespective of the time of receipt of application, where the funds are not available for utilization before the cut-off time without availing any credit facility, whether, intra-day or otherwise - the closing NAV of the day immediately preceding the day on which the funds are available for utilization. 8.3.5.2 For allotment of units in respect of purchase in liquid schemes, it shall be ensured that: a. Application is received before the applicable cut-off time. b. Funds for the entire amount of subscription/purchase as per the application are credited to the bank account of the respective liquid schemes before the cut-off time. c. The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective liquid schemes. 8.3.5.3 For allotment of units in respect of switch-in to liquid schemes from other schemes, it shall be ensured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2 lakh, irrespective of the time of receipt of such application SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012. 8.3.6.3 For allotment of units in respect of purchase in income/debt oriented mutual fund schemes/plans other than liquid schemes, it shall be ensured that SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010: 8.3.6.3.1 Application is received before the applicable cut-off time (3 pm). 8.3.6.3.2 Funds for the entire amount of subscription/purchase as per the application are credited to the bank account of the respective schemes before the cut-off time (3 pm). 8.3.6.3.3 The funds are available for utilization before the cut-off time (3 pm) without availing any credit facility whether intra-day or otherwise, by the respective scheme. 8.3.6.4 For allotment of units in respect of switch-in to income/debt oriented mutual fund schemes/plans other than liquid schemes from other schemes, it shall be ensured that: 8.3.6.4.1 Application for switch-in is received before the applicable cut-off time. 8.3.6.4.2 Funds for the entire amount of subscription/purchase as per the switch-in request are credited to the bank account of the respective switch-i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he SID or in any addendum thereto. 8.3.9.4 Encumbrance of the scheme property SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010 Regulations Fourth Schedule of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 provides that the AMC shall not acquire any of the assets out of the scheme property which involves the assumption of any liability which is unlimited or which may result in encumbrance of the scheme property in any way. AMC's are advised to strictly adhere to the said provision. 8.4 Requirements with respect to time stamping machines [pursuant to Clause 8(3)] 8.4.1 For every machine, running serial number shall be stamped from the first number to the last number as per its capacity before repetition of the cycle. 8.4.2 Every application for purchase shall be stamped on the face and the corresponding payment instrument shall be stamped on the back indicating the date and time of receipt and running serial number. The application and the payment instrument shall contain the same serial number. 8.4.3 Every application for redemption shall be stamped on the face thereof and on the investor's acknowledgment copy (or twice on the application i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculate the repurchase price. 8.5.3 The formula for the same is as follows: 8.5.3.1 Sale Price = Applicable NAV 8.5.3.2 Repurchase Price = Applicable NAV *(1 - Exit Load, if any) CHAPTER 9 VALUATION 9.1 Definitions SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000, SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001 and SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. 9.1.1 Non Traded Securities SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000. 9.1.1.1 When a security (other than Government Securities) is not traded on any Stock Exchange for a period of thirty days prior to the valuation date, the scrip shall be treated as a non traded security. 9.1.2 Thinly Traded Securities 9.1.2.1 Thinly traded equity/ equity related securities: SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001. a. When trading in an equity and/or equity related security (such as convertible debentures, equity warrants etc.) in a month is both less than ₹ 5 lacs and the total volume is less than 50,000 shares, the security shall be considered as thinly traded security and valued accordingly. b. In order to determine whether a security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9.2.2.1 AMCs shall value non traded and/or thinly traded securities "in good faith" based on the Valuation norms prescribed below: 9.2.3 Non-traded/ and/or thinly traded equity securities: 9.2.3.1 Based on the latest available Balance Sheet, Net Worth shall be calculated as follows: a. Net Worth per share = [Share Capital+ Reserves (excluding Revaluation Reserves) - Miscellaneous expenditure and Debit Balance in Profit and Loss Account] / Number of Paid up Shares. b. Average Capitalization rate (P/E ratio) for the industry based upon either BSE or NSE data (which shall be followed consistently and changes, if any, noted with proper justification thereof) shall be taken and discounted by 75 per cent i.e. only 25 per cent. Of the industry average P/E shall be taken as Capitalization rate (P/E ratio). Earnings per share (EPS) of the latest audited annual accounts shall be considered for this purpose. c. The value as per the Net Worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 10 per cent. for illiquidity so as to arrive at the fair value per share. d. In case the EPS is negative, EPS value for that year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they shall be valued at benchmark yield/ matrix of spread over risk free benchmark yield obtained from agency (ies) entrusted for the said purpose by AMFI. 2. The approach in valuation of non traded debt securities is based on the concept of using spreads over the benchmark rate to arrive at the yields for pricing the non traded security. 3. The Yields for pricing the non traded debt security would be arrived at using the process as defined below. Step 1: A Risk Free Benchmark Yield is built using the government securities as the base. Government securities are used as the benchmarks as they are traded regularly; free of credit risk; and traded across different maturity spectrums every week. Step 2: A Matrix of spreads (based on the credit risk) are built for marking up the benchmark yields. The matrix is built based on traded corporate paper on the wholesale debt segment of an appropriate stock exchange and the primary market issuances. The matrix is restricted only to investment grade corporate paper. Step 3: The yields as calculated above are Marked-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e primary market issuances c. Where there are no secondary trades on the appropriate stock exchange in a particular rating category and no primary market issuances during the fortnight under consideration, then trades on appropriate stock exchange during the 30 day period prior to the benchmark date will be considered for computing the average YTM for such rating category; d. If the matrix cannot be populated using any or all of the above steps, then credit spreads from trades on appropriate stock exchange of the relevant rating category over the AAA trades will be used to populate the matrix; e. In each rating category, all outliers will be removed for smoothening the YTM matrix; f. Spreads will be obtained by deducting the YTM in each duration category from the respective YTM of the GOI securities; g. In the event of lack of trades in the secondary market and the primary market the gaps in the matrix would be filled by extrapolation. If the spreads cannot be extrapolated for the reason of practicality, the gaps in the matrix will be filled by carrying the spreads from the last matrix. h. Accordingly, all Mutual Funds shall provide transaction details of various types ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Put/Call Options: SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000. 9.4.1 The option embedded securities would be valued as follows: 9.4.1.1 Securities with call option a. The securities with call option shall be valued at the lower of the value as obtained by valuing the security to final maturity and valuing the security to call option. In case there are multiple call options, the lowest value obtained by valuing to the various call dates and valuing to the maturity date is to be taken as the value of the instrument. 9.4.1.2 Securities with Put option a. The securities with put option shall be valued at the higher of the value as obtained by valuing the security to final maturity and valuing the security to put option. In case there are multiple put options, the highest value obtained by valuing to the various put dates and valuing to the maturity date is to be taken as the value of the instruments. 9.4.1.3 Securities with both Put and Call option on the same day a. The securities with both Put and Call option on the same day would be deemed to mature on the Put/Call day and would be valued accordingly. 9.5 Valuation of Government Securities 9.5.1 Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7.1.1 An 'asset' shall be classified as NPA if the interest and/or principal amount have not been received or remained outstanding for one quarter from the day such income and/or installment was due. 9.7.2 Effective date for classification and provisioning of NPAs 9.7.2.1 The definition of NPA may be applied after a quarter past due date of the interest. For e.g. if the due date for interest is 30.06.2000, it will be classified as NPA from 01.10.2000. 9.7.3 Treatment of income accrued on the NPA and further accruals 9.7.3.1 After the expiry of the 1st quarter from the date the income has fallen due, there will be no further interest accrual on the asset i.e. if the due date for interest falls on 30.06.2000 and if the interest is not received, accrual will continue till 30.09.2000 after which there will be no further accrual of income. In short, taking the above example, from the beginning of the 2nd quarter there will be no further accrual on income. 9.7.3.2 On classification of the asset as NPA from a quarter past due date of interest, all interest accrued and recognized in the books of accounts of the Mutual Fund till the date shall be provided for. For e.g. if interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.01.2001 6 months past due date of interest i.e. 3 months from the date of classification of asset as NPA (01.10.2000) 20% provision 01.04.2001 20% provision 01.07.2001 25% provision 01.10.2001 25% provision 01.01.2002 b. Thus, one and half years past the due date of income or one year and three months from the date of classification of the 'asset' as an NPA, the 'asset' will be fully provided for. If any installment is fallen due, during the period of interest default, the amount of provision shall be the installment amount or above provision amount, whichever is higher. 9.7.5 Reclassification of assets 9.7.5.1 Upon reclassification of assets as 'performing assets': a. In case a company has fully cleared all the arrears of interest, the interest provisions can be written back in full. b. The asset will be reclassified as performing on clearance of all interest arrears and if the debt is regularly serviced over the next two quarters. c. In case the company has fully cleared all the arrears of interest, the interest not credited on accrual basis shall be credited at the time of receipt. d. The provision made for the principal amount can be written back in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the asset as NPA shall be continued and existing provisions shall not be written back. This practice shall be continued for two quarters of regular servicing of the debt. Thereafter, this be classified as 'performing asset' and the interest provided can be written back. b. If the reschedulement is done due to default in interest and principal amount, the asset shall continue as NPA for a period of 4 quarters, even though the asset is continued to be serviced during these 4 quarters regularly. Thereafter, the asset can be classified as 'performing asset' and all the interest provided till such date shall be written back. c. If the reschedulement is done for a second/ third time or thereafter, the characteristics of NPA should be continued for eight quarters of regular servicing of the debt. The provision shall be written back only after the asset is reclassified as 'performing asset'. 9.7.9 Disclosure in the Half Yearly Portfolio Reports 9.7.9.1 Mutual Funds shall make scrip wise disclosures of NPAs on Half Yearly basis along with the Half Yearly Portfolio Disclosure in the format prescribed For formats of Half yearly disclosure, please refer to the section on Formats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Net Worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 15 per cent for illiquidity so as to arrive at the fair value per share. 9.8.1.2 The above valuation methodology shall be subject to the following conditions: a. All calculations shall be based on audited accounts. b. If the latest Balance Sheet of the company is not available within nine months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero. c. If the Net Worth of the company is negative, the share would be marked down to zero. d. In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalised earning. e. In case an individual security accounts for more than 5 per cent of the total assets of the scheme, an independent valuer shall be appointed for the valuation of the said security. To determine if a security accounts for more than 5 per cent of the total assets of the scheme, it shall be valued in accordance with the procedure as mentioned above on the date of valuation. 9.8.2 At the discretion of the AMCs and with the approval of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.10.1 All mutual funds shall provide transaction details, including inter scheme transfers, of money market and debt securities on daily basis to the agency entrusted for providing the benchmark yield/ matrix of spread over risk free benchmark yield. Submission of data SEBI Circular No.MFD/CIR/23 /066 / 2003 dated March 7, 2003. For disclosure of transaction details, please refer to the section on Formats would help in daily matrix generation and would improve uniformity and accuracy of valuation in the mutual funds industry. 9.10.2 The AMCs shall also disclose all details of debt and money market securities transacted (including inter scheme transfers) in its schemes portfolio on its website and the same shall be forwarded to AMFI for consolidation and dissemination as per format For format please refer to the section on formats. These disclosures shall be made settlement date wise on daily basis with a time lag of 30 days SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012. 9.11 Consistency 9.11.1 All AMC's shall ensure that similar securities held under its various schemes shall be valued consistently. CHAPTER 10 LOADS, FEES, CHARGES AND EXPENSES 10.1 Limits on fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) (c) of SEBI (Mutual Funds) Regulations, 1996, allows an AMC to charge additional expenses, incurred towards different heads mentioned under Regulation 52 (2) and Regulation 52 (4), not exceeding 0.05 Regulation 52(6A)(c) of the SEBI (Mutual Funds) Regulations, 1996. per cent of daily net assets of the scheme. In this respect, Mutual Fund schemes including close ended schemes, wherein exit load is not levied / not applicable, the AMCs shall not be eligible to charge the above mentioned additional expenses for such schemes. Further, existing Mutual Fund schemes including close ended schemes, wherein exit load is not levied / not applicable, shall discontinue, with immediate effect, the levy of above mentioned additional expenses, if any. 10.1.5 Total Expense Ratio - Change and Disclosure SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/18 dated February 5, 2018 and SEBI/HO/IMD/DF2/CIR/P/2018/91 dated June 05, 2018. (a) AMCs shall prominently disclose on a daily basis, the TER (scheme-wise, date-wise) of all schemes under a separate head -"Total Expense Ratio of Mutual Fund Schemes" on their website and on the website of AMFI in downloadable spreadsheet format Please refer to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokerage and transaction cost, if any) shall be borne by the AMC or by the trustee or sponsors. 10.1.10 Soft-dollar arrangement refers to an arrangement between AMCs and brokers in which the AMC executes trades through a particular broker and in turn the broker may provide benefits such as free research, hardware, software or even non-research-related services, etc., to the AMC. It may be noted that such arrangements between AMCs and brokers should be limited to only benefits (like free research report, etc.) that are in the interest of investors and the same should be suitably disclosed SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016. 10.1.11 Investor Education and Awareness SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012: (a) Mutual Funds/AMCs shall annually set apart at least 2 basis points on daily net assets within the maximum limit of TER as per regulation 52 of the Regulations for investor education and awareness initiatives. Mutual Funds shall make complete disclosures in the half yearly trustee report to SEBI regarding the investor education and awareness initiatives undertaken. (b) SEBI Circular No. CIR/IMD/DF/23/2017 dated March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Asset Management Companies in case of schemes launched on no load basis SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010. (a) AMC shall not collect any additional management fees referred to in Regulation Regulation 52(3) of SEBI Mutual Funds Regulation, 1996 and SEBI Circular No. SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009. (b) Mutual Fund Schemes to be launched including those for which observation letter have been issued under Regulation Regulation 29 of SEBI (Mutual Funds) Regulations, 1996 would be required to carry out the changes in SID and file the same with SEBI before the launch. 10.2 Restriction on paying brokerage or commission SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001, SEBI Circular No. MFD/CIR No.5/153/2001 dated May 24, 2001. 10.2.1 In case of investments made by the Sponsor(s), no brokerage or commission shall be paid. 10.3 Restriction on charging Service Tax SEBI Circular No. MFD/CIR/04/430/2002 dated June 19, 2002, SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012. 10.3.1 AMC(s) can charge Service Tax, as per applicable Taxation Laws, to the scheme(s) within the limits prescribed under Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI Circular No.CIR/IMD/DF/4/2011 dated March 9, 2011 of the load account shall be subject to the following: a. The load balance shall be segregated into two accounts in the books of accounts of the scheme - one to reflect the balance as on July 31, 2009 and the other to reflect accretions since August 01, 2009. b. However, not more than one- third of load balance as on July 31, 2009 shall be used in any financial year. It is clarified though the unutilized balances can be carried forward, yet in no financial year the total spending can be more than one third of the load balances on July 31, 2009. The accretions after July 31, 2009 can be used by mutual funds for marketing and selling expenses including distributor's/agent's commissions without any restrictions mentioned in Para (b) above. (d) The exit load charged Regulation 51A of SEBI (Mutual Funds) Regulations, 1996., if any, after the commencement of SEBI (Mutual Funds) (Second Amendment) Regulations, 2012, shall be credited to the scheme. (e) The distributors should disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various Mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any malpractice/mis-selling by the distributor while charging transaction costs. (h) There shall be no transaction charge on subscription below ₹ 10,000/- (i) In case of SIPs, the transaction charge shall be applicable only if the total commitment through SIPs amounts to ₹ 10,000/- and above. In such cases the transaction charge shall be recovered in 3-4 installments. (j) There shall be no transaction charge on transactions other than purchases/ subscriptions relating to new inflows. 10.5.2 Mutual Funds shall institute systems to detect if a distributor is splitting investments in order to enhance the amount of transaction charges and take stringent action including recommendations to AMFI to take appropriate action. 10.5.3 Mutual Funds/AMCs shall carry out an exercise of de-duplication of folios across all Mutual Funds within a period of 6 months from August 22, 2011. 10.6 No Load on Bonus Units and Units allotted on Reinvestment of Dividend SEBI Circular No. SEBI/IMD/CIR No. 14/120784/08 dated March 18, 2008 10.6.1 AMC(s) shall not charge entry and/or exit load on bonus units and units allotted on reinvestment of dividend. Necessary disclosures in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered for the purpose of determining the eligibility of investors whose names appear on the register of unit holders for receiving dividends. The NAV shall be adjusted to the extent of dividend distribution and statutory levy, if applicable, at the close of business hours on record date. 11.2.1.3 Within one calendar day of the decision of the Trustees with respect to the dividend to be distributed, the AMC(s) shall issue a notice to the public communicating the decision including the record date. The record date shall be five calendar days from the issue of public notice. 11.2.1.4 Before the issue of such notice, no communication whatsoever indicating the probable date of dividend declaration shall be issued by any Mutual Fund or its distributors of its products. 11.2.1.5 Such notice shall be given in at least one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the head office of the Mutual Fund is situated. 11.2.1.6 The notice shall, in font size 10, bold, categorically state that pursuant to dividend distribution, NAV of the scheme would fall to the extent of payout and statutory levy (if appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the date of notification. 12.1 Investments by Index Funds: SEBI Circular No - MFD/CIR/09/014/2000 dated January 5, 2000 12.1.1 Investments by index funds shall be in accordance with the weightage of the scrips in the specific index as disclosed in the SID See Clause 10, Seventh Schedule of Mutual Funds Regulations. In case of sector or industry specific scheme, the upper ceiling on investments may be in accordance with the weightage of the scrips in the representative sectoral index or sub index as disclosed in the SID or 10% of the NAV of the scheme, whichever is higher. 12.2 Investments by Liquid Schemes and plans SEBI Circular No - SEBI/IMD/CIR No.13/150975 / 09 dated January 19, 2009 12.2.1 The 'liquid fund schemes and plans' shall make investment in /purchase debt and money market securities with maturity of upto 91 days only With effect from February 01, 2009 make investment in /purchase debt and money market securities with maturity of upto182 days only.. This shall also be applicable in case of inter scheme transfer of securities Transition provision: Inter-scheme transfers of securities having maturity upto 365 days and held in other schemes as on February 01, 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are rated AA and above and these HFCs are registered with National Housing Bank (NHB) and the total investment/ exposure in HFCs shall not exceed 25% of the net assets of the scheme. 12.4.2 Appropriate disclosures shall be made in Scheme Information Document (SID) and Key Information Memorandum (KIM) of debt schemes. 12.4.3 Group exposure - a) Mutual Funds/ AMCs shall ensure that total exposure of debt schemes of mutual funds in a group (excluding investments in securities issued by Public Sector Units, Public Financial Institutions and Public Sector Banks) shall not exceed 20% of the net assets of the scheme. Such investment limit may be extended to 25% of the net assets of the scheme with the prior approval of the Board of Trustees. b) For this purpose, a group means a group as defined under regulation 2 (mm) of SEBI (Mutual Funds) Regulations, 1996 (Regulations) and shall include an entity, its subsidiaries, fellow subsidiaries, its holding company and its associates. 12.4.4 Trustee shall review exposure of a mutual fund, across all its schemes, towards individual issuers, group companies and sectors. Trustee should satisfy themselves on the levels of exposure and confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Mutual Funds Regulations. Further, for format of Half Yearly Trustee Report please refer to section on Formats. 12.5.4 Existing schemes 12.5.4.1 In case an existing SID does not provide for lending of securities, Mutual Funds may still lend securities belonging to the scheme, in accordance with the SEBI Guidelines, provided approval is obtained from the Trustees and the intention to lend securities is conveyed to the unit holders. 12.6 Approval for Investment in Unrated Debt Instruments SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000. 12.6.1 Mutual Funds may, for the purpose of operational flexibility, constitute committees to approve investment proposals in unrated instruments. However, detailed parameters for investment in unrated debt instruments have to be approved by the Board of the AMC and Trustees. Details of such investments shall be communicated by the AMCs to the Trustees in their periodical reports, along with clear indication as to how the parameters set for investments have been complied with. Prior approval of the Board of the AMC and Trustees shall be required in case investment is sought to be made in an unrated security falling outside the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheduled commercial banks together shall not exceed 20% of the total deployment by the Mutual Fund in short term deposits. 12.10.1.4 No mutual fund scheme shall park more than 10% of the net assets in short term deposits with any one scheduled commercial bank including its subsidiaries. 12.10.1.5 Trustees shall ensure that funds of a particular scheme are not parked in short term deposit of a bank which has invested in that scheme. 12.10.1.6 In case of liquid and debt oriented schemes, AMC(s) shall not charge any investment management and advisory fees for parking of funds in short term deposits of scheduled commercial banks. 12.10.1.7 Half Yearly portfolio statements shall disclose all funds parked in short term deposit(s) under a separate heading. Details shall also include name of the bank, amount of funds parked, percentage of NAV. 12.10.1.8 Trustees shall, in the Half Yearly Trustee Reports certify that provisions of the Mutual Funds Regulations pertaining to parking of funds in short term deposits pending deployment are complied with at all points of time. The AMC(s) shall also certify the same in its CTR(s). 12.10.1.9 Investments made in short term deposits pend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate debt securities shall not be more than 10 % of the net assets of the concerned scheme. 12.12.1.2 The cumulative gross exposure through repo transactions in corporate debt securities along with equity, debt and derivatives shall not exceed 100% of the net assets of the concerned scheme. 12.12.1.3 Mutual funds shall participate in repo transactions only in AA SEBI Circular No. CIR/IMD/DF/23/2012 dated November 15, 2012 and above rated corporate debt securities. 12.12.1.4 In terms of Regulation 44 (2) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, mutual funds shall borrow through repo transactions only if the tenor of the transaction does not exceed a period of six months. 12.12.1.5 The Trustees and the Asset Management Companies shall frame guidelines about, inter alia, , the following in context of these transactions keeping in mind the interest of investors in their schemes: a. Category of counterparty b. Credit rating of counterparty c. Tenor of collateral d. Applicable haircuts 12.12.1.6 Mutual funds shall ensure compliance with the Seventh Schedule of the Mutual Funds Regulations about restrictions on investments, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas only for hedging and portfolio balancing with underlying as securities. 12.13.2.9 Short term deposits with banks overseas where the issuer is rated not below investment grade. 12.13.2.10 Units / securities issued by overseas Mutual Funds or unit trusts registered with overseas regulators and investing in a. Aforesaid Securities b. Real Estate Investment Trusts listed on recognized Stock Exchanges overseas or c. Unlisted overseas securities, not exceeding 10% of their net assets 12.13.3 Other Conditions: Funds Regulations and guidelines issued from time to time, Mutual Funds shall adhere to the following specific guidelines while making overseas investments: 12.13.3.1 Appointment of a Dedicated Fund Manager: a. A dedicated fund manager shall be appointed for making the above overseas investments stipulated under clause 12.13.2.1 to 12.13.2.10. 12.13.3.2 Due Diligence: a. The Board of the AMC and Trustees shall exercise due diligence in making investment decisions and record the same. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000. They shall make a detailed analysis of risks and returns of overseas investment and how these investments would be in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 12.13.3.1. Additional disclosures specified above shall be included by way of addendum and unit holders will be informed accordingly. b. In case the SID of an existing scheme does not provide for overseas investment, the scheme, if it so desires, may make such investments in accordance with these Guidelines, provided that prior to the overseas investments for the first time, the AMC shall ensure that a written communication about the proposed investment is sent to each unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated. The communication to unit holders shall also disclose the risk factors associated with such investments. 12.13.3.5 Detailed periodic reporting to Trustees by AMC(s) shall include: a. Performance of overseas investments b. Amount invested in various schemes and any breach of the exposure limit laid down in the SID. 12.13.3.6 Review of Performance: a. The Board of the AMC and Trustees shall review the performance of schemes making overseas investments with appropriate benchmark(s) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investment restrictions mentioned at Clause 13 in the Seventh Schedule of SEBI (Mutual Funds) Regulations, 1996 shall be applicable to all fresh investments by all schemes, including an existing scheme. b. Any existing scheme intending to invest in units of REITs/InvITs shall abide by the provisions of Regulation 18 (15A) of SEBI (Mutual Funds) Regulations, 1996. c. For investment in units of REITs / InvITs by an existing Mutual Fund scheme, unit holders of the scheme shall be given a time period of at least 15 days for the purpose of exercising the exit option. 12.16 Investment Restrictions SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000. 12.16.1 All investment restrictions as contained in the Regulations Seventh Schedule of SEBI (Mutual Funds) Regulations, 1996. shall be applicable at the time of making investment. 12.17 Recording of Investment Decisions SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000. 12.17.1 AMC(s) shall exercise due diligence and care in all investment decisions as would be exercised by other persons engaged in the same business. Regulation 25(2) of the SEBI (Mutual Funds) Regulations, 1996. Further AMC(s) shall maintain records in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure due to such positions shall have to be added and treated under limits mentioned in Point 12.18.1.1. c. Any derivative instrument used to hedge has the same underlying security as the existing position being hedged. d. The quantity of underlying associated with the derivative position taken for hedging purposes does not exceed the quantity of the existing position against which hedge has been taken. 12.18.1.6 Mutual Funds may enter into plain vanilla interest rate swaps for hedging purposes. The counter party in such transactions has to be an entity recognized as a market maker by RBI. Further, the value of the notional principal in such cases must not exceed the value of respective existing assets being hedged by the scheme. Exposure to a single counterparty in such transactions should not exceed 10% of the net assets of the scheme. 12.18.1.7 Exposure due to derivative positions taken for hedging purposes in excess of the underlying position against which the hedging position has been taken, shall be treated under the limits mentioned in point 12.18.1.1. 12.18.1.8 Hedging of Interest Rate Risk a. SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2017/109 dated September 27, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the scheme should be considered as creating exposure and shall be included in the computation of gross exposure in terms of 12.18.1.1. d. The basic characteristics of the scheme should not be affected by hedging the portfolio or part of the portfolio (including one or more securities)based on the weighted average modified duration. Explanation: In case of long term bond fund, after hedging the portfolio based on the modified duration of the portfolio, the net modified duration should not be less than the minimum modified duration of the portfolio as required to consider the fund as a long term bond fund. e. The interest rate hedging of the portfolio should be in the interest of the investors. f. Mutual Fund schemes may imperfectly hedge their portfolio or part of their portfolio using IRFs, subject to the following conditions: i. Prior to commencement of imperfect hedging, existing schemes shall comply with the provisions of Regulation 18 (15A) of SEBI (Mutual Funds) Regulations, 1996 and all unit holders shall be given a time-period of at least 30 days to exercise the option to exit at prevailing NAV without charging of exit load. The risks associated with imperf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me). The specified transaction period shall be of minimum 2 working days. 12.19.2.3 Minimum duration of an interval period in an interval scheme/plan shall be 15 days. 12.19.2.4 Investments shall be permitted only in such securities which mature on or before the opening of the immediately following specified transaction period. Explanation: In case of securities with put and call options the residual time for exercising the put option of the securities shall not be beyond the opening of the immediately following transaction period. 12.20 CDS - mutual funds as users (protection buyers) SEBI Circular No. CIR/IMD/DF/23/2012 dated November 15, 2012. 12.20.1 Mutual funds have been permitted to participate in CDS market, as per the guidelines issued by RBI from time to time , subject to the following conditions: a. Mutual funds shall participate in CDS transactions only as users (protection buyer). Thus, mutual funds are permitted to buy credit protection only to hedge their credit risk on corporate bonds they hold. They shall not be allowed to sell protection and hence not permitted to enter into short positions in the CDS contracts. However, they shall be permitted to exit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Schemes SEBI Circular No. CIR/IMD/DF/14/2011 dated August 9, 2011. 13.1 Foreign investors (termed as Qualified Foreign Investors/ QFIs) who meet KYC requirement may invest in equity and debt schemes of Mutual Funds (MF) through the following two routes: 13.1.1 Direct route - Holding MF units in demat account through a SEBI registered depository participant (DP). 13.1.2 Indirect route- Holding MF units via Unit Confirmation Receipt (UCR). 13.2 The investment through the above mentioned routes shall be subject to the following conditions: 13.2.1 Qualified Foreign Investor (QFI) shall mean a person resident in a country that is compliant with Financial Action Task Force (FATF) standards and that is a signatory to International Organization of Securities Commission's (IOSCO's) Multilateral Memorandum of Understanding, Provided that such person is not resident in India, Provided further that such person is not registered with SEBI as Foreign Institutional Investor or Sub-account. Explanation- For the purposes of this clause: (1) the term "Person" shall carry the same meaning under Section 2(31) of the Income Tax Act, 1961 (2) the phrase "resident in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are received from that overseas account and redemption proceeds are also transferred into the same overseas account. MF/ DP shall also ensure that the overseas bank account which QFIs has designated for the purpose is based in countries which are compliant with FATF standards and are signatory to MMOU of IOSCO. 13.2.10 In case of subscription, MF shall allot units based on the NAV of the day on which funds are realized in the MF's scheme bank account in India and in case of redemption, units shall be 181 Master Circular for Mutual Funds redeemed on the day on which transaction slip/instruction is received and time stamped by MF, as per the applicable cut off time. The Scheme information documents of the MF shall clearly mention the applicable cut off time for QFIs and the other requirements / applicable guidelines for QFIs. 13.2.11 MF shall ensure that Systematic Investments/ transfer/ withdrawals and switches are not available to the QFIs. QFIs can only subscribe or redeem. 13.2.12 MF/ DP shall ensure that units/ UCRs held by QFIs are free from all encumbrances i.e. pledge or lien cannot be created for such units. 13.2.13 MF shall comply with all the requirements as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements as per the PMLA, FATF standards and SEBI circulars issued in this regard. 13.3.5 For the purpose of account opening, MF can rely on the KYC done by DPs. Further, MF shall obtain the relevant records of KYC/ other documents from the DP and ensure compliance with para 13.2.14. However, MF shall comply with PMLA, FATF standards and SEBI circulars issued in this regard from time to time on an ongoing basis. 13.3.6 The qualified DP shall open a separate single rupee pool bank account with a designated AD Category -I bank, exclusively for the purpose of investments by QFIs in India. 13.3.7 Process Flow Subscription a. The QFIs shall place a purchase/ subscription order mentioning the name of the scheme/MF with its DP and remit foreign inward remittances through normal banking channel in any permitted currency (freely convertible) directly to the single rupee pool bank account of the DP maintained with a designated AD category - I bank. b. DP in turn shall forward the purchase order to the concerned MF and remits the money to the MF's scheme account on the same day as the receipt of funds from QFIs. In case of receipt of money after business hours, DP shall remit the funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemes needs to be disclosed. b. When Scheme A (Transferor Scheme) gets merged into Scheme B (Transferee Scheme) and the features of Scheme B are retained, the performance of the scheme whose features are retained needs to be disclosed. c. When Scheme A (Transferor Scheme) gets merged into Scheme B (Transferee Scheme) and the features of Scheme A (Transferor scheme) are retained, the performance of the scheme whose features are retained needs to be disclosed. d. When Scheme A (Transferor Scheme) gets merged with Scheme B (Transferee Scheme) and a new scheme, Scheme C emerges after such consolidation or merger of schemes, the past performance need not be provided. 13.3.8.2 In addition to disclosing the performance of the scheme as mentioned above, past performance of such scheme(s) whose features are not retained post-merger may also be made available on request with adequate disclaimer. 13.3.8.3 This Circular shall be applicable with effect from May 01, 2018. 13.4 Other conditions for Indirect route (Unit Confirmation Receipts) 13.4.1 There shall be four parties involved - QFIs, UCR issuer (based overseas), SEBI registered Custodian (based in India) and MF. 13.4.2 QFIs ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investors of UCR issuer 13.4.15 Process flow: a. The QFIs places a purchase/ subscription order through the UCR issuer. In case of MF opening bank account overseas (in accordance with the relevant extant FEMA regulations) b. UCR issuer shall forward the order of QFIs to the MF/Custodian. Upon receipt and transfer of funds to India; the MF shall issue units to the custodian and custodian in turn confirm to the UCR Issuer to issue UCR to the QFIs. c. In case of redemption, UCR issuer shall confirm receipt of redemption request to the MF and Custodian. Upon receipt of instruction, MF shall process the same and shall transfer the redemption proceeds to the MF overseas bank account for making payment to the designated overseas bank account of the QFIs. d. In case of dividend payout, the MF shall transfer the dividend amounts to the MF overseas bank account for making payment to the designated overseas bank account of the QFIs. In case MF receives money in India from UCR issuer. e. UCR issuer shall forward the purchase order to MF and Custodian, and remit the funds into MF scheme account (in rupee terms). Upon receipt of funds; the MF shall issue units to the custodian and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.3.1.2 In order to provide ease of understanding to retail investors, point-to-point returns on a standard investment of ₹ 10,000/- shall also be provided in addition to CAGR of the scheme. 14.3.1.3 Performance advertisements of Mutual Fund schemes should provide information based on period computed from the last day of month-end preceding the date of advertisement. 14.3.1.4 It should be specifically mentioned whether performance so disclosed, is of regular or direct plan of the Mutual Fund scheme along-with a footnote mentioning that different plans have a different expense structure. 14.3.1.5 If a Mutual Fund scheme has not been managed by the same fund manager for the full period of the information being published in the advertisement, the same should be disclosed in a footnote 14.3.2 When a scheme has been in existence for more than 1 year but less than 3 years or 5 years, the same shall be mentioned as a footnote in the performance advertisement of the Mutual Fund scheme 14.3.3 Where the scheme has been in existence for less than one year, past performance shall not be provided SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011. 14.3.4 In case of Money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a footnote. iv. Further, for advertisement published in internet-enabled media, Mutual Funds shall be permitted to provide an exact website link to such summarized information of performance of other schemes managed by the concerned fund manager. v. An indicative format Please refer to section on Formats for requisite formats of disclosure of performance of other schemes managed by the concerned fund manager is provided. 14.4 Indicative portfolios and yields in mutual funds schemes SEBI Circular No. IMD/CIR No. 14/1510/2009 dated January 19, 2009 14.4.1 Mutual Funds shall not offer any indicative portfolio and indicative yield. No communication regarding the same in any manner whatsoever shall be issued by any Mutual Fund or distributors of its products. The compliance of the same shall be monitored by the AMC and Trustees and reported in their respective reports to SEBI. 14.4.2 Indicative portfolio or yield in close ended debt oriented mutual fund schemes SEBI Circular No. CIR/IMD/DF/12/2011 dated August 01,2011 Mutual Funds (MFs) / AMCs may make following additional disclosures in the SID/SAI and KIM without indicating the portfolio or yield, directly or indirectly: 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deployed only in call money market or money market instruments, shall also be allowed to be invested in a separate plan of Liquid scheme / Money Market Mutual Fund scheme floated by Mutual Funds specifically for deployment of the unclaimed amounts. 15.2.2 AMCs shall not be permitted to charge any exit load in this plan and TER (Total Expense Ratio) of such plan shall be capped at 50 bps. 15.2.3 Further, for the Unclaimed redemption and dividend amounts deployed by Mutual Funds in Call Money Market or Money Market instruments, the investment management and advisory fee charged by the AMC for managing unclaimed amounts shall not exceed 50 basis points. 15.2.4 Investors who claim the unclaimed amounts during a period of three years from the due date shall be paid initial unclaimed amount along-with the income earned on its deployment. Investors, who claim these amounts after 3 years, shall be paid initial unclaimed amount along-with the income earned on its deployment till the end of the third year. After the third year, the income earned on such unclaimed amounts shall be used for the purpose of investor education. 15.2.5 The AMC shall make a continuous effort to remind the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation Regulation 36(4) of SEBI (Mutual Funds) Regulations, 1996, AMCs shall issue consolidated account statement for each calendar month to the investors in whose folios transaction(s) has/have taken place during that month. 15.3.2.2 Pursuant to the Interim Budget announcement in 2014 to create one record for all financial assets of every individual, it has been further decided that AMCs/ RTAs shall share the requisite information with the Depositories on monthly basis to enable generation of CAS SEBI Circular No CIR/MRD/ DP/ 31/2014 dated November 12, 2014. 15.3.2.3 The depositories and the Asset Management Companies (AMCs)/ MF-RTAs shall put in place systems to facilitate generation and dispatch of single Consolidated Account Statements (CAS) for investors having MF investments and holding demat accounts. AMCs/ RTAs shall share the requisite information with the Depositories on monthly basis to enable generation of CAS. 15.3.2.4 Consolidation of account statement shall be done on the basis of PAN. In case of multiple holding, it shall be PAN of the first holder and pattern of holding. Based on the PANs provided by the AMCs/MF-RTAs, the Depositories shall match their PAN d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed entities like third party printers, the depositories shall enter into necessary data confidentiality agreements with them. 15.3.2.10 The CAS shall be implemented from the month of March 2015 with respect to the transactions carried out during the month of February 2015. 15.3.2.11 If an investor does not wish to receive CAS, an option shall be given to the investor to indicate negative consent. Depositories shall accordingly inform investors in their statements from the month of January 2015 about the facility of CAS and give them information on how to opt out of the facility if they do not wish to avail it. 15.3.2.12 Where such an option is exercised, the concerned depository shall inform the AMC/MF-RTA accordingly and the data with respect to the said investor shall not be shared by the AMC/MF-RTA with the depository. 15.3.2.13 If there is any transaction in any of the demat accounts of the investor or in any of his mutual fund folios, then CAS shall be sent to that investor on monthly basis. In case there is no transaction in any of the mutual fund folios and demat accounts then CAS with holding details shall be sent to the investor on half yearly basis. However, in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned half-year period. d. Further, an indicative format Please refer to section on Formats for requisite formats providing guidance on the key components which shall be reflected in half-yearly CAS may be referred. 15.3.3 Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) or Systematic Withdrawal Plan (SWP) SEBI Circular No. IMD/CIR/12/80083/2006 dated November 20, 2006 a. Mutual Funds may dispatch the Statement of Accounts to the unit holders under SIP or STP or SWP, once every quarter ending March, June, September and December within 10 working days of the end of the respective quarter. The first Statement of Accounts shall however be issued within 10 working days of the initial transaction. b. Mutual funds shall also provide Statement of Accounts to unit holders within 5 working days, without any charges, if specific requests are received from the investors. Further, if so mandated, a soft copy of the Statement of Accounts shall be e-mailed to the unit holders on a monthly basis. 15.3.4 Dormant Accountholders a. Mutual Funds shall also provide Statement of Accounts to those unit holders who have not transacted during the last six months prior to the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic issue of equity capital of companies has been extended to the investors subscribing to New Fund Offers (NFOs) of mutual fund schemes. It shall co-exist with the current process, wherein cheques/ demand drafts are used as a mode of payment. 15.7.2 The banks which are in SEBI's list shall extend the same facility in case of NFOs of mutual fund schemes to all eligible investors in Mutual Fund units. 15.7.3 Mutual Funds shall ensure that adequate arrangements are made by Registrar and Transfer Agents for the implementation of ASBA. Mutual Funds/AMCs shall make all relevant disclosures in this regard in the SAI. 15.7.4 SEBI circulars SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008, SEBI/CFD/DIL/2008/25/09dated September 25, 2008, SEBI/CFD/DIL/MB/IS/5/2009/05/08 dated August 5, 2009 and SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009 and CIR/CFD/DIL/7/2010 dated July 13, 2010 related to ASBA shall be followed to the extent applicable. 15.7.5 The Mutual Funds/AMCs have to compulsorily provide ASBA facility to the investors for all NFOs launched on or after October 1, 2010. 15.8 Instant Access Facility and use of e-wallet for investment in Mutual Funds S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be processed as a normal redemption request in such circumstances. e. Approvals and Controls i. MFs/ AMCs shall offer IAF only after obtaining approvals from the AMC Board and the Trustees and keep in place adequate safeguards in the system to implement this facility. ii. IAF shall also be considered while carrying out stress testing of the schemes. 15.8.2 Use of e-wallet for investment in MFs 15.8.2.1 With an objective to promote digitalization, MFs/AMCs can accept investment by an investor through e-wallets (Prepaid Payment Instruments (PPIs)) subject to the following: a. MFs/ AMCs shall ensure that extant regulations such as cut-off timings, time stamping, etc., are complied with for investment in MFs using e-wallets. b. MFs/ AMCs shall enter into an agreement / arrangement with issuers of PPIs for facilitating payment from e-wallets to MF schemes. c. Redemption proceeds should be made only to the bank account of the investor/ unit holder as required under SEBI Circular MFD/CIR/15/19133/2002 dated September 30, 2002. d. MFs/ AMCs shall ensure that total subscription through e-wallets for an investor is restricted to INR 50,000/-per MF per financial year. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as publisher. This may also be displayed prominently on their web sites 15.11.4 AMFI may consider including the brochure as a part of study material for their training programmes for investors and for their certification programme conducted for agents and distributors. 15.11.5 Board may be kept informed about the steps taken by the AMCs in this regard from time to time. 15.12 Financial Inclusion: 15.12.1 In context of Mutual Funds, financial inclusion implies that the concept of Mutual Fund products is understood by all and are accessible to anyone who wishes to make an investment in them. Also, investors should be capable of figuring out which Mutual Fund scheme is appropriate for their financial objectives. Towards this, it has been decided that: a. Mutual Funds shall mandatorily also make available printed literature on mutual funds in regional languages for investor awareness and education. b. Mutual Funds to introduce Investor awareness campaign in regional languages both in print and electronic media CHAPTER 16 CERTIFICATION AND REGISTRATION OF INTERMEDIARIES SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No. MFD/CIR/20/23230/2002 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of over ₹ 1 Crore p.a. across industry d. Commission received of over ₹ 50 Lakh from a single Mutual Fund 16.4.1.3 At the time of empaneling distributors and during the period i.e. review process, Mutual Funds/AMCs shall undertake a due diligence process to satisfy 'fit and proper' criteria that incorporate, amongst others, the following factors: a. Business model, experience and proficiency in the business. b. Record of regulatory / statutory levies, fines and penalties, legal suits, customer compensations made; causes for these and resultant corrective actions taken. c. Review of associates and subsidiaries on above factors. d. Organizational controls to ensure that the following processes are delinked from sales and relationship management processes and personnel: 1. Customer risk / investment objective evaluation. 2. MF scheme evaluation and defining its appropriateness to various customer risk categories. 16.4.1.4 In this respect, customer relationship and transactions shall be categorized as: a. Advisory - where a distributor represents to offer advice while distributing the product, it will be subject to the principle of 'appropriateness' of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their distributors, agents, brokers to ensure that they do not indulge in any malpractice or unethical practice while selling or marketing Mutual Funds units. Any non compliance with the Mutual Funds Regulations and Guidelines pertaining to Mutual Funds especially guidelines on advertisements and/ or sales literature and/or Code of Conduct shall be reported in the periodic meetings of the Board of the AMC and the Trustee(s) and shall also be reported to the Board by the AMC(s) in their CTR(s) and by the Trustees in their Half Yearly Reports. 16.5.2 AMFI has prescribed a Code of Conduct for Mutual Fund intermediaries enclosed herewith as Annexure 1 Refer Annexure and Reports for details on Code of Conduct. All intermediaries shall follow the Code of Conduct strictly and not indulge in any practice contravening it directly or indirectly. 16.5.3 Non compliance with the Code of Conduct shall be reported by the Mutual Funds to the Board and AMFI. Further, no Mutual Fund shall deal with intermediaries contravening the prescribed Code of Conduct. 16.6 Empanelment of Intermediaries by Mutual Funds 16.6.1 Empanelment of intermediaries by Mutual Funds, payment of commissions, brokerag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irements as laid down by NISM under the relevant clauses of the Certification Regulations, by December 31, 2010. 16.7.4 An associated person holding a valid AMFI/NISM certification whose validity expires anytime after December 31, 2010, would be required to comply with the CPE requirements as laid down by NISM under the relevant clauses of the Certification Regulations, prior to the expiry of the validity of the certification. 16.7.5 The requirement of obtaining registration from AMFI after obtaining certification, as per the Circular dated November 28, 2002, would continue. 16.8 New cadre of distributors SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012. 16.8.1 A new cadre of distributors, such as postal agents, retired government and semi-government officials (class III and above or equivalent) with a service of at least 10 years, retired teachers with a service of at least 10 years, retired bank officers with a service of at least 10 years, and other similar persons (such as Bank correspondents) as may be notified by AMFI/AMC from time to time, shall be allowed to sell units of simple and performing mutual fund schemes. 16.8.2 Simple and performing mutual fund s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investor for the sale of mutual fund products, in addition to the AMFI Registration Number (ARN) of the distributor. 16.10.2 The application form for mutual fund schemes shall have provision for disclosing the unique identity number of such sales personnel along with the ARN of distributor. CHAPTER 17 TRANSACTION IN MUTUAL FUNDS UNITS 17.1 Maintenance of documents SEBI Circular No - SEBI/IMD/CIR No.12 /186868 /2009 dated December 11,2009 17.1.1 As per the requirements specified by Board in respect of "Anti Money Laundering (AML) Standards/Combating Financing of Terrorism (CFT) / Obligations of Securities Market Intermediaries under Prevention of Money Laundering Act, 2002 and Rules framed there-under" SEBI Circular No ISD/AML/CIR-1/2008 dated December 19, 2008, maintenance of all documentation pertaining to the unitholders/ investors is the responsibility of the AMC. 17.1.2 Accordingly, vide SEBI Circular No - SEBI/IMD/CIR No.12 /186868 /2009 dated December 11, 2009, AMCs were advised to confirm whether all the investor related documents were maintained/ available with the AMC. If not, and to the extent of and relating to such investor accounts/folios where investor rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echanism would also extend the present convenience available to secondary market investors to mutual fund investors. 17.2.2 Units of mutual fund schemes may be permitted to be transacted through registered stock brokers of recognized stock exchanges and such stock brokers will be eligible to be considered as official points of acceptance SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006. 17.2.3 The respective stock exchange would provide detailed operating guidelines to facilitate the same. 17.2.4 In this regard, Mutual Funds/AMC are advised that: 17.2.4.1 Empanelment and monitoring of Code of Conduct for brokers acting as mutual fund intermediaries- a. The stock brokers intending to extend the transaction in Mutual Funds through stock exchange mechanism shall be required to comply with the requirements of passing the AMFI certification examination Please refer Chapter 16 on Certification and Registration of Mutual Funds intermediaries. All such stock brokers would then be considered as empaneled distributors with mutual fund/AMC. b. These stock brokers shall also comply with Code of Conduct For Code of Conduct, please refer to Annexure I for intermediari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all Statement of Account/Common Account Statement (CAS) issued to the investors. 17.2.4.7 Know your client (KYC) a. Where investor desires to hold units in dematerialised form, the KYC performed by DP in terms of SEBI requirements SEBI Circular No - MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004 would be considered compliance with applicable requirements specified in this regard SEBI Circular No - ISD/AML/CIR-1/2008 dated December 19, 2008 by Mutual Funds/AMCs. b. The Mutual Funds/AMC shall take necessary steps to do KYC requirements of all investors as per the prescribed guidelines SEBI Circular No. MIRSD/SE/Cir-21/2011, dated October 5, 2011, SEBI Circular No.MIRSD/Cir-23/2011 dated December 2, 2011 and SEBI Circular No.MIRSD/Cir- 26 /2011 dated December 23, 2011. 17.2.4.8 Stock exchanges and mutual funds/AMCs, based on the experience gained may improve the mechanism in the interest of investors. 17.2.4.9 In addition to the existing facilities of purchasing and redeeming directly with the Mutual Funds and Stock Brokers, the following be noted SEBI Circular No CIR/IMD/DF/17/2010 dated November 9, 2010: a. Units of mutual funds schemes may be permitted to be transacted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units and receipt of redemption proceeds at the investor's level. 17.2.4.13 Transferability of Mutual Fund units SEBI Circular No - CIR/IMD/DF/10/2010 dated August 18, 2010 a. Regulations Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996 states that "a unit unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law." The spirit and intention of this regulation is not to prohibit transferability of units as a general rule or practice. b. All AMCs shall clarify by way of an addendum that units of all mutual fund schemes held in demat form shall be freely transferable from the date of the issue of said addendum which shall be not later than October 1, 2010. However, restrictions on transfer of units of ELSS schemes during the lock-in period shall continue to be applicable as per the ELSS Guidelines. 17.2.5 Stock exchanges and mutual funds/AMCs, based on the experience gained may further improve the mechanism in the interest of investors. Necessary clarifications, if any, would be issued at appropriate time by SEBI in this regard. 17.2.6 SEBI Circular No. SEBI/HO/MRD/DSA/CIR/P/2016/113 dated October 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of applications for registration. 18.1.4. In case of any queries and clarifications with regard to the SEBI Intermediary Portal, intermediaries may contact on 022-26449364 or may write at [email protected]. 18.2 Clarification SEBI Circular No.Cir/IMD/DF/7/2012 dated February 28, 2012 to Regulation 24 Of SEBI (Mutual Funds) Regulations, 1996 18.2.1 The amended Regulation mandates that AMCs shall appoint separate fund manager for each separate fund managed by it unless the investment objectives and assets allocations are the same and the portfolio is replicated across all the funds managed by the fund manager. 18.2.2 The replication of minimum 70% of portfolio value shall be considered as adequate for the purpose of said compliance, provided that AMC has in place a written policy for trade allocation and it ensures at all points of time that the fund manager shall not take directionally opposite positions in the schemes managed by him. 18.2.3 Wherein a fund manager is common across mutual fund schemes and schemes/products under other permissible activities of AMC, then the AMC shall: 18.2.3.1 disclose on their websites, the returns provided by the said manager for all the ..... 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