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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 ..... des circulars issued upto September 14, 2016. 2. In case of any inconsistency between 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 .................................................................................. 29 NEW PRODUCTS .... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........................................... 189 TRANSACTION IN MUTUAL FUNDS UNITS ................................... 189 CHAPTER 17 ............................................................................... 198 MISCELLANEOUS ........................................................................ 198 FORMATS ------------------------------------------- Refer the attachment ANNEXURES --------------------------------------- Refer the attachment ABBREVIATIONS American Depository Receipt ADR Asset Management Company AMC Asset under Management AUM Association of Mutual Funds in India AMFI Authorized Dealer AD Bombay Stock Exchange BSE Central Board of Direct Taxes CBDT Compliance Test Reports CTR(s) Common Account Statement CAS Contingent Deferred Sales Charge CDSC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the Board SEBI Circular No. SEBI/IMD/CIR No.5/ 126096/08 dated May 23,2008 and SEBI Circular No SEBI/IMD/CIR No.10/178129/09 dated September 29,2009 1.1.1 The Offer Document shall have two parts i.e. Scheme Information Document (SID) and Statement of Additional Information (SAI). SID shall incorporate all information pertaining to a particular scheme. SAI shall incorporate all statutory information on Mutual Fund. 1.1.2 The Mutual Funds shall prepare SID and SAI in the prescribed formats For format of SID SAI, please refer to the section on Formats . Contents of SID and SAI shall follow the same sequence as prescribed in the format. The Board of the AMC and the Trustee(s) shall exercise necessary due diligence, ensuring that the SID/SAI and the fees paid The filing fees was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D/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 website two working days prior to launch of the scheme SEBI Circular No SEBI/IMD/CIR No.10/178129/09 dated September 29,2009 . Failure to submit the printed SID to the Board before it is issued for circulation shall invite penalties under the Mutual Funds Regulations SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997 . b. In case of any difference, in nature of material alteration of the suggestions made by the Board Regulation 29(2) of the SEBI (Mutual Funds) Regulations, 1996 between the printed SID and the SID filed with the Board, immediate withdrawal of the SID from circulation will be ordered and such withdrawal shall be publicized by the Board The existing schemes shall adopt the SID and KIM for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 updation on the Mutual Fund and AMFI website. SEBI shall be intimated of the changes made in the SAI within 7 days. The effective date for such changes shall be mentioned in the updated SAI. 1.2.2.3 A soft copy of updated SAI shall be filed with SEBI in PDF format along with printed copy of the same. AMC shall also submit an undertaking to SEBI while filing the soft copy that information contained in the soft copy of SAI to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC shall be fully responsible for the contents of soft copy of SAI SEBI Circular No SEBI/IMD/CIR No.10/178129/09 dated September 29,2009. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicable load structure shall be attached to all KIM and SID already in stock till it is updated). 1.7 Easy Availability of Offer Document 1.7.1 Trustees and AMCs shall ensure that the SID of the schemes and SAI are readily available with all the distributors/ISCs and confirm the same to SEBI in the half yearly trustee report. 1.8 Selection of Benchmarks SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000, SEBI Circular No. MFD/CIR/16/400/02 dated March 26, 2002, SEBI Circular No. MFD/CIR/01/071/02 April 15, 2002. 500 etc.) as a benchmark index depending on the investment objective and portfolio. 1.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 investors. Further, in case the minimum subscription amount is not garnered by the scheme during the NFO period, the interest earned upon investment of NFO proceeds in CBLO shall be returned to investors, in proportion of their investments, along-with the refund of the subscription amount. 1.9.5 The mutual fund should allot units/refund of money and dispatch statements of accounts within five business days from the closure of the NFO and all the schemes (except ELSS, RGESS) shall be available for ongoing repurchase/sale/trading within five business days of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. 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 would require specific approval of Board of AMCs and Trustees and the same should be informed to SEBI immediately. 1.10.3.4 When restriction on redemption is imposed, the following procedure shall be applied: 1.10.3.4.1 No redemption requests upto INR 2 lakh shall be subject to such restriction. 1.10.3.4.2 When redemption requests are above INR 2 lakh, AMCs shall redeem the first INR 2 lakh without such restriction and remaining part over and above INR 2 lakh shall be subject to such restriction. 1.10.4 Disclosure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under section on Formats. along with comparisons with appropriate benchmark(s) For examples of Benchmarks, refer to chapter on SID . c. The addendum to the SID detailing the modifications (if any) made to the scheme(s). 2.1.1.3 The letter to unit holders and revised SID (if any) shall be issued only after the final observations as communicated by the Board in terms of Regulation 29(3) of the Mutual Funds Regulations have been incorporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unit holders who opted to exit and net assets held by them and number of unit holders and net assets in the consolidated scheme shall be filed with the Board within 21 days from the date of closure of the exit option SEBI Circular No- SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009. 2.2.2.5 Merger or consolidation shall not be seen as change in fundamental attrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment (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. CHAPTER 3 NEW PRODUCTS 3.1 Fund of Funds Scheme SEBI Circular No. MFD/CIR. No.04/11488/2003 dated June 12, 2003. 3.1.1 The SID and the advertisements pertaining to Fund of Funds Scheme Regulation 2(ma) of the Mutual Funds Regulations introduced vide Gazette Notification No. S.O 632(E) dated May 29, 2003. shall disclose that the investors are bearing the recurring expenses of the scheme, in addition to the expenses of other schemes in which the Fund of Funds Scheme makes investments. 3.1.2 AMCs sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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/16/2013 dated October 18, 2013 . 3.2.1.4 Existing investments by Gold ETFs of Mutual Funds under the GDS will be allowed to run till maturity unless these are withdrawn prematurely. 3.2.2 Valuation : 3.2.2.1 Gold shall be valued based on the methodology provided in Clause 3A of, Schedule Eight of the Mutual Funds Regulations SEBI Circular No. SEBI/IMD/CIR No.14/84243/07 dated January 15, 2007 read with Gazette Notification F. No. SEBI/LAD/DoP/82534/2006 dated December 20, 2006. 3.2.3 Determination of Net Asset Value SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006. 3.2.3.1 The NAV of units under the GETF Scheme shall be calculated up to four decimal points as shown below: Market or Fair Value of Scheme's investments + Current Assets - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 scheme Regulation 49 A(a)(i) of SEBI (Mutual Fund) Regulations, 1996 can invest in real estate assets in the cities mentioned in: 3.4.1.1 List of Million Plus Urban Agglomerations/Cities; or 3.4.1.2 List of Million Plus Cities 3.4.2 Such list appears in Census Statistics of India (2001) at www.censusindia.gov.in. A printout of cities which appear in the foresaid categories taken from the said website is attached for ready reference at Annexure 4. 3.5 Rajiv Gandhi Equity Savings Scheme SEBI Circular No. CIR/MRD/DP/32/2012 dated December 6, 2012 , 2012 3.5.1 As announced in the Union Budget 2012-13, the Finance Act 2012 has introduced a new section 80CCG on Deduction in respect of investment made under an equity savings scheme to give tax benefits to new investors who invest up to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itories 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 schemes / ETFs to the stock exchanges. 3.5.6 Mutual Funds / AMCs are directed to create wide publicity of the scheme among the investors, including displaying details on their website. 3.6 Infrastructure Debt Schemes SEBI Circular No. CIR/IMD/DF/7/2013 dated April 23, 2013 3.6.1 Placement Memorandum: 3.6.1.1 Private Placement to less than 50 investors has been permitted as an alternative to New Fund Offer to the public, in case of Infrastructure Debt Funds (IDF). In case of private placement, the mutual funds would have to file a Placement Memorandum with SEBI instead of a Scheme Information Document and a Key Information Memorandum. However, all the other conditions applicable to IDFs offered through the NFO rou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 operating manual. These are Risk Management function that shall be assigned to Compliance Officer or Internal Risk Management Committee or to an external agency a. Disaster Recovery and Business Contingency plans, and b. Insurance cover against certain risks. 4.2.3 Best Practices to be followed by Mutual Funds: 4.2.3.1 Mutual Funds shall adopt these practices as a part of their due diligence exercise after considering the size of their operations. 4.3 Implementation of the Risk Management System 4.3.1 Mutual Funds shall adopt the following approach to implement the Risk Management System: 4.3.2 Identification of observance of eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, and if the market conditions require so, AMC should conduct more frequent stress test. 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 revealing any vulnerability or early warning signal, it would be required to bring it to the notice of the Trustees and take corrective action as deemed necessary, to reinforce their robustness. Each AMC should also be required to have documented guidelines, to deal with the adverse situation effectively. 4.4.2.6 Such stress-testing policy shall be reviewed by the Board of AMC and Trustees, at least on an annual basis, in light of the evolving market scenarios and should cover the following aspects: i. Adequacy of the documentation for various elements of the stress testing framework ii. Scope of covera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. MFD/CIR No.010/024/00 dated January 17, 2000 . 5.2.2 The Scheme Portfolio(s) For format of half yearly portfolio, please refer to the section on formats shall also be disclosed on the Mutual Funds web sites before the expiry of one month from the closure of each Half Year (i.e. March 31 and September 30) and a copy of the same shall be filed with the Board along with the Half Yearly Results SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001 . 5.2.3 Disclosure of derivatives in Half Yearly Portfolios SEBI Circular Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010 5.2.3.1 A format For formats on disclosure of derivatives, please refer to the section on Formats for the purpose of uniform disclosure of investments in derivative instruments by Mutual Funds in half yearly portfolio disclosure, annual report or in any other disclosures is prescribed. 5.2.3.2 Further, while listing net assets, the margin amounts paid should be reported separately under cash or bank balances. 5.3 Unaudited Half Yearly Financials SEBI Circular MFD/CIR/1/200/2001 dated April 20, 2001 SEBI Circular No. IMD/CIR No.8/132968/2008 dated July 24, 2008 5.3.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all mutual funds at one place SEBI Cir No MFD/CIR/15/041/2002 dated March 14,2002 . However, as per the Regulations Regulation 56(1) 56(3) of SEBI (Mutual Funds) Regulations, 1996 , a copy of Scheme wise Annual Report shall be also made available to unitholder(s) on payment of nominal fees. 5.5 Disclosure of large unit holdings SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001. 5.5.1 The number of investors holding over 25 % of the NAV For further details, refer Section II Scheme Governance in the Chapter on Governance Norms , in a scheme and their total holdings in percentage terms shall be disclosed in the Statement of Accounts issued after the NFO and also in the Half Yearly and Annual Results Please refer the section on Formats for requisite formats . 5.6 Asset Under Management (AUM) disclosure SEBI Circular No. Cir/IMD/DF/13/2011 dated August 22, 2011 5.6.1 Wherever the Mutual Funds discloses the AUM figures for the fund, disclosure on bifurcation of the AUM into debt/equity/ balanced etc, and percentage of AUM by geography (i.e. top 5 cities, next 10 cities, next 20 cities, next 75 cities and others) shall be made. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istributors, make additional disclosures SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012. regarding distributor-wise gross inflows (indicating whether the distributor is an associate or group company of the sponsor(s) of the mutual fund), net inflows, average assets under management and ratio of AUM to gross inflows on their respective website on an yearly basis. In case the data mentioned above suggests that a distributor has an excessive portfolio turnover ratio, i.e. more than two times the industry average, AMCs shall conduct additional due-diligence of such distributors. 5.7.3 Mutual Funds / AMCs shall also submit the data mentioned in 5.7.1 and 5.7.2 to AMFI and the consolidated data in this regard shall be disclosed on AMFI website. 5.8 Scheme Related Disclosures SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016 In order to improve transparency as well as ease of access to Mutual Fund (MF) scheme related information, it has been decided that: Effective from June 30, 2016 5.8.1 Mutual Funds shall provide the following additional disclosures in the offer documents (Scheme Information Document (SID) / Key Information Memoran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/CIR/P/2016/42 dated March 18, 2016 With the underlying objective to promote transparency in remuneration policies so that executive remuneration is aligned with the interest of investors, MFs /AMCs shall make the following disclosures pertaining to a financial year on the MF/AMC website under a separate head 'Remuneration': 5.11.1 Name, designation and remuneration of Chief Executive Officer (CEO), Chief Investment Officer (CIO) and Chief Operations Officer (COO) or their corresponding equivalent by whatever name called. 5.11.2 Name, designation and remuneration received of all employees of MF/AMC whose: 5.11.2.1 Annual remuneration was equal to or above INR 60 lakh for that year; 5.11.2.2 Monthly remuneration in the aggregate is not less than INR 5 lakh per month, if the employee is employed for a part of the financial year. 5.11.3 The ratio of CEO's remuneration to median remuneration of MF/AMC employees. 5.11.4 MF s total AAUM, debt AAUM and equity AAUM and rate of growth over last three years. For this purpose, remuneration shall mean remuneration as defined in clause (78) of section 2 of the Companies Act, 2013.The AMCs/MFs shall disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at will reach SEBI by 3rd of September. 5.14.2.2 Further, additional report on overseas investment SEBI Circular No. SEBI/IMD/CIR NO 15/87045/07 dated February 22,2007 by Mutual Funds in ADRs/GDRs, foreign securities and overseas exchange traded funds (ETFs) shall also be provided as per the prescribed format. For format please refer to the section on formats. 5.14.2.3 Compliance officers of all the Mutual Funds are advised to take due care while forwarding the MCR data to SEBI. Compliance Officers shall confirm that the data forwarded is correct and does not require any revision. 5.15 New Scheme Report (NSR) SEBI Circular No. SEBI/IMD/CIR NO 13/118899/08 dated February 29, 2008, SEBI Circular No MFD/CIR/12/16588/02 dated August 28, 2002 SEBI Circular No IIMARP/MF/CIR/05/788/97 dated April 28, 1997, SEBI Circular No. IIMARP/10772/93 dated July 14,1993, 5.15.1 All Mutual Funds shall submit the NSR to SEBI complete in all respects within 10 working days from the date of allotment in the prescribed format For details on format of NSR please refer the section on Formats.. 5.16 Bi monthly Compliance Test Reports SEBI Circular No. SEBI/IMD/CIR NO 6/980 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking day (T+1). 5.19 Responsibilities of AMC(s) and Trustees SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000, SEBI Circular No. SEBI/MFD/CIR/10/039/2001 dated February 9, 2001. 5.19.1 All information and documents relating to the compliance process shall be authenticated and/or adopted by the Board of the AMC(s) to strengthen the compliance mechanism. 5.19.2 The Trustee(s) shall also review all information and documents received from the AMC(s) as required under the compliance process. 5.19.3 AMC(s) shall develop a suitable Management Information System for reporting to the Trustees. The report shall contain specific comments on all issues related to the operation of the Mutual Fund as undertaken by the AMC including those provided in the format for reporting by AMC to Trustees Please refer the formats section for format for reporting by AMC to Trustees . 5.19.4 The half-yearly report on the activities of the mutual fund to be submitted by the trustees to the Board under the Mutual Funds Regulations Regulation 18(23)(a) of SEBI (MF) Regulations, 1996 shall cover all issues mentioned in the prescribed format as well as any other issue relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress fields, wrong PIN codes, etc. 5.20.2.4 Incorrect district and state codes. 5.20.2.5 Incorrect transaction codes. 5.20.2.6 Wrongly showing transaction as of Govt. party. 5.20.3 In this regard, AIRs are required to be filed only by the Mutual Fund and no separate AIR has to be furnished for each scheme of the Mutual Fund. CHAPTER 6 GOVERNANCE NORMS PART I - FUND GOVERNANCE 6.1 Formation of Audit and Valuation Committees by the Trustees and/or AMC SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000. 6.1.1 Audit Committee 6.1.1.1 Trustees shall constitute an audit committee, comprising of the Trustees and chaired by an Independent Trustee to review the internal audit systems and recommendations of the internal and statutory audit reports and ensure that the rectifications as suggested by internal and external auditors are acted upon. 6.1.2 Valuation Committee 6.1.2.1 The AMC shall constitute an in-house valuation committee consisting of senior executives including personnel from accounts, fund management and compliance departments. This committee shall, on a regular basis review the systems and practices of valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the companies who are stakeholders in the Sponsor company or AMC(s) (even if they are not deemed sponsors by virtue of holding less than 40% of net worth of AMC(s)). 6.3.3 Cooling off Period 6.3.4 An Associate Regulation 2(c) of the SEBI (Mutual Funds) Regulations, 1996 as defined above cannot be appointed as Independent Director even after he ceases to be an Associate unless a cooling off period of three years has elapsed from the date of his disassociation. 6.3.5 Mutual Funds are required to have a minimum of 50 per cent. and two-third independent directors on the Board of the AMC(s) and Trustees respectively Regulation 21(d) and Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996 . In case the composition of the directors does not meet these requirements, Mutual Funds are required to inform the Board along with the steps proposed to ensure compliance. 6.3.6 AMC(s) or Trustees shall appoint Independent Directors in place of the resigning director(s) within a period of 3 months from the date of resignation. Where Mutual Funds are unable to meet this time limit, they shall report to the Board explaining the reasons for non compliance. Mutual F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trust and responsibility. b. The employees of AMC(s) and Trustees especially Access Persons shall not take undue advantage of any price sensitive information that they may have about any company. Access Person for the purpose of these Guidelines shall mean the Head of the AMC (designated as CEO/Managing Director/President or by any other name), the Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as decided by the AMC(s) and/or Trustees. c. To guide employees of AMC(s) and Trustees in maintaining a high standard of probity that one would expect from an employee in a position of responsibility. 6.4.4 General 6.4.4.1 Investments Covered: a. These Guidelines cover transactions for purchase or sale of any securities such as shares, debentures, bonds, warrants, derivatives and units of Mutual Fund schemes. b. These Guidelines do not apply to the following investments by the employees: 1. Investments in Fixed Deposits with banks and/or Financial Institutions and/or companies, Life Insurance Policies, Provident Funds (including Public P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from Compliance Officer prior to effecting the transaction. f. All employees shall refrain from profiting from the purchase and sale or sale and purchase of any security within a period of 30 calendar days from the date of their personal transaction SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003. However, in cases where it is done, the employee shall provide a suitable explanation to the Compliance Officer, which shall be reported to the Board of the AMC and the Trustees at the time of review. 6.4.5 Investments in Shares and/or Debentures and/or Bonds and/or Warrants and/or Derivatives Investments in securities shall broadly be classified into investments through (a) primary markets and (b) secondary markets. 6.4.5.1 Investments through the primary markets: a. An employee including access person is permitted to apply to a public issue of shares and/or debentures and/or bonds and/or warrants of any company, as long as the application is made in the normal course of the public issue. Such an application may be made without seeking the clearance from the Compliance Officer. Employees of AMC(s) and Trustees are prohibited from applying in any reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and/or warrants of the company or derivatives specified by the employee are held by any scheme of the Mutual Fund of which the AMC is the investment manager, there should be a cooling off period of 15 calendar days. The Compliance Officer shall ensure that the last transaction in that particular security was done by the Mutual Fund at least 15 calendar days prior to the date of the written application by the access person. In other words, an application for a purchase /sale transaction on a personal basis would be cleared only if the Mutual Fund has not transacted in that particular security for at least 15 calendar days. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase or redeem units of any scheme, including Money Market Mutual Fund scheme and liquid scheme SEBI/IMD/DF/10/2014 dated May 22, 2014 of their Mutual Fund: a. There is a likelihood of a change in the investment objectives of the concerned Mutual Fund Scheme(s) and this has not been communicated to the investors; b. There is a likelihood of a rights and/or bonus issue in the concerned Mutual Fund Scheme(s) and this has not been communicated to the investors; c. The concerned Mutual Fund Scheme is contemplating to issue dividend to the unit holders and this has not been communicated 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. 6.4.7 Periodic Disclosures 6.4.7.1 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.6 Applicability of Insider Trading Regulations SEBI Cir MFD/CIR/05/432/2002 June 20, 2002 6.6.1 Securities and Exchange Board of India (Insider Trading) (Amendment) Regulations, 2002 shall be followed strictly by the trustee companies, asset management companies and their employees and directors. PART II -SCHEME GOVERNANCE 6.7 Minimum Number of investors SEBI Circular No. SEBI/IMD/CIR No.10/22701/03 dated December 12, 2003, SEBI Circular No. SEBI/IMD/CIR No.1/42529/05 dated June 14, 2005. 6.7.1 Applicability for an open-ended scheme 6.7.1.1 The Scheme/Plan shall have: 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). 6.7.1.2 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. 6.7.1.3 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of number of investors at the end of the business hours of the scheme on a daily basis. 6.7.3.2 To determine breach of 25% holding limit by an investor, net assets under the scheme shall be calculated daily and the daily holding limit shall be determined accordingly. At the end of the quarter, average daily holding by each investor shall be calculated and any breach of the 25% holding limit will be accordingly determined. 6.7.4 Applicability 6.7.4.1 These Guidelines are applicable at the Portfolio level. 6.7.4.2 These Guidelines are not applicable to Exchange Traded Funds (ETFs). 6.7.5 Redemptions 6.7.5.1 Redemptions effected pursuant to these Guidelines shall be completed within 10 days from the day of winding up of the scheme(s) and/or plan(s). 6.7.6 Reporting to the Board 6.7.6.1 Compliance with these Guidelines shall be reported in Compliance Test Reports (CTRs) and Half Yearly Trustee Reports. 6.8 Minimum Assets under Management (AUM) of Debt Oriented Schemes SEBI Circular No. Cir/IMD/DF/15/2014 dated June 20, 2014 6.8.1 It has been observed that many debt oriented schemes are operating with a very low AUM. In the interest of invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , fund accounting system for calculation of net asset values, financial accounting and reporting system for the AMC, Unit-holder administration and servicing systems for customer service, funds flow process, system processes for meeting regulatory requirements, prudential investment limits and access rights to systems interface. 6.12 Mutual Funds/ AMCs should get the above systems audit conducted once in two years. 6.13 The Systems Audit Report and compliance status should be placed before the Trustees of the mutual fund. 6.14 The systems audit report/findings along with trustee comments should be communicated to SEBI. 6.15 For the financial years April 2008 March 2010, the systems audit should be completed by September 30, 2010. PART IV ROLE OF MUTUAL FUNDS IN CORPORATE GOVERNANCE OF PUBLIC LISTED COMPANIES SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010 6.16 MFs should play an active role in ensuring better corporate governance of listed companies. 6.17 AMCs shall disclose their general policies and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion of the Mutual Funds' annual report website. SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/68 dated August 10, 2016 6.23 Board of AMCs and Trustees of Mutual Funds shall be required to review and ensure that AMCs have voted on important decisions that may affect the interest of investors and the rationale recorded for vote decision is prudent and adequate. The confirmation to the same, along with any adverse comments made by auditors, shall have to be reported to SEBI in the half yearly trustee reports. 6.24 The format For disclosure of voting by mutual funds in general meetings of listed companies, please refer to the section on formats for disclosure of voting by mutual funds in general meetings of listed companies is provided. CHAPTER 7 SECONDARY MARKET ISSUES 7.1 Non Applicability of Listing Deposit SEBI Circular No. SMD-II(N)/2113/94 dated April 12, 1994. Further, in this regard, circulars issued by SEBI from time to time may be considered. 7.1.1 The requirement of collecting listing deposit as specified under Circular Letter No. SE/12936 dated April 6, 1992 shall not be applicable to Mutual Fund schemes seeking listing on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be considered as trading members like registered FIIs and the schemes of Mutual Funds will be treated as clients like sub-accounts of FIIs. 7.4.1.3 Appropriate disclosures shall be made in the offer document regarding the extent and manner of participation of the schemes of the Mutual Funds in derivatives and the risk factors, which should be explained by suitable numerical examples. 7.4.1.4 The participation of existing schemes of the Mutual Funds in the derivatives market shall be subject to the following conditions: a. The extent and the manner of the proposed participation in derivatives shall be disclosed to the unit holders. b. The risks associated with such participation shall be disclosed and explained by suitable numerical examples. c. Positive consent shall be obtained from majority of the unit holders. d. An exit option shall be provided to the dissenting unit holders. Such option shall be kept open for a period of one month prior to the scheme commencing trading in derivatives. e. No exit load shall be charged to the unit holders exercising such exit options. 7.4.1.5 Positions limits as specified by SEBI for Mutual Funds and its schemes from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fund Schemes shall be updated on AMFI s website and the Mutual Funds websites by 9 p.m. of the same day SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006. 8.1.3 Fund of Fund Schemes shall have an extended time up to 10 a.m. the following business day in this regard SEBI Circular No. SEBI/IMD/CIR No.5/96576/2007 dated June 25, 2007. and the NAVs shall be published in newspapers with an asterisk to indicate the one day time lag/or the actual time lag. 8.1.4 Delay beyond 10 a.m. of the following business day in case of Fund of Fund schemes and 9 p.m. on the same day for all other schemes shall be explained in writing to AMFI and the Board and shall also be reported in the CTR(s) For format of CTR, please refer to section on formats in terms of number of days of non-adherence of time limit for uploading NAV on AMFI s website and the reasons for the same. Corrective steps taken by AMC to reduce the number of occurrences shall also be disclosed SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006. 8.1.5 In case the NAVs are not available before the commencement of business hours on the following day due to any reason, Mutual Funds sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.4 Fixation of uniform Cut-off Timings 8.3.4.1 Mutual Funds shall reckon the Cut-off Timings for their schemes and plans in compliance with these Guidelines and the same shall be uniformly implemented for all investors. 8.3.4.2 Mutual Funds shall ensure that each payment instrument for subscription or purchase of units is deposited in a bank expeditiously by utilization of the appropriate banking facility, so as to comply with the requirement in Clause 8.3.4.1 above. 8.3.4.3 AMCs shall compensate any loss occasioned to any investor or to the scheme and/or plan on account of non compliance with Clause 8.3.4.2 above. 8.3.5 Cut-off Timings for liquid fund schemes and plans For determining the applicable NAV SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010: 8.3.5.1 The following cut-off timings shall be observed by a mutual fund in respect of purchase of units in liquid fund schemes and their plans, and the following NAVs shall be applied for such purchase: a. where the application is received upto 2.00 p.m. on a day and funds are available for utilization before the cut-off time without availing any credit facility, whether, intra-day or otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t accessible. 8.3.6 Cut-off Timings for schemes and plans other than liquid fund schemes and plans 8.3.6.1 A Mutual Fund shall reckon only prospective NAV, in accordance with this clause, in respect of all their schemes and plans i.e. for other than liquid fund schemes and plans 8.3.6.2 The following Cut-off Timings shall be observed by Mutual Funds in respect of purchase of units in other schemes and plans and following NAVs shall be applied for such purchase: 8.3.6.2.1 Where the application is received up to 3.00 pm with a local cheque or demand draft payable at par at the place where it is received closing NAV of the day on which the application is received; 8.3.6.2.2 Where the application is received after 3.00 pm with a local cheque or demand draft payable at par at the place where it is received closing NAV of the next business day; and 8.3.6.2.3 Where the application is received with an outstation cheque or demand draft which is not payable on par at the place where it is received closing NAV of day on which the cheque or demand draft is credited. In respect of purchase of units of mutual fund schemes (other than liquid schemes), the closing NAV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase transactions and to reverse sweep transactions as if they were repurchase transactions. 8.3.7.3 In case of switch transactions from one scheme to another, the allocation shall be in line with redemption payouts. 8.3.8 Time Stamping 8.3.8.1 Application from investors shall be received by Mutual Funds only at official points of acceptance, addresses of which shall be disclosed in the SID and on Mutual Funds websites. 8.3.8.2 Cut off timings as prescribed under Paragraphs 8.3.5 and 8.3.6 shall apply with reference to the point of time at which the applications are received at such official points of acceptance. 8.3.8.3 Time stamping machines at all official points of acceptance shall be in compliance with the requirements mentioned in Section 8.4. 8.3.9 Compliance Reporting 8.3.9.1 Status of compliance with these Guidelines shall be reported to the Board in the CTR(s) for CTR format, please refer to the section on formats of the AMC(s) and the Half Yearly Trustee Reports For Trustee report, please refer to the section on formats. 8.3.9.2 The Half Yearly Trustee Reports shall contain a declaration on whether the Trustees are satisfied with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tamping method that has already been approved by the Board of the AMC and the Trustee(s). An audit trail shall be available to check and ensure the accuracy of the time stamping process during the said period. 8.4.9 Any alternate mode of application that does not have any physical or electronic trail shall be converted into a physical piece of information and time stamped in accordance with these Guidelines. 8.4.10 Mutual Funds shall maintain and preserve all applications/ requests, duly time stamped as aforesaid, at least for a period of eight years Regulation 50(2) of SEBI (Mutual Funds) Regulations, 1996 to be able to produce them as and when required by the Board or auditors appointed by the Board. 8.5 Uniformity in calculation of sale and repurchase price SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002 SEBI Circular No. SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009 8.5.1 The following method is being prescribed 8.5.1.1 To streamline the calculation of sale and repurchase price of mutual fund units Regulation 49(3) of the SEBI (Mutual Funds) Regulations, 1996. 8.5.1.2 To avoid variation in the amounts payable to investors and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.3 Thinly traded Debt Securities SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. 9.1.3.1 A debt security (other than Government Securities) shall be considered as a thinly traded security if, on the valuation date, there are no individual trades in that security in marketable lots (currently applicable) on the principal Stock Exchange or any other Stock Exchange. 9.2 Valuation of Securities 9.2.1 Traded Securities: SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. 9.2.1.1 When a security (other than debt securities) is not traded on any Stock Exchange on a particular valuation day, the value at which it was traded on the selected Stock Exchange, as the case may be, on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date. 9.2.1.2 When a debt security (other than Government Securities) is not traded on any Stock Exchange on any particular valuation day, the value at which it was traded on the principal Stock Exchange or any other Stock Exchange, as the case may be, on the earliest previous day may be used provided such date is not more than fifteen days prior to valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spended up to thirty days, then the last traded price shall be considered for valuation of that security. If an equity security is suspended for more than thirty days, then the AMC(s) or Trustees shall decide the valuation norms to be followed and such norms shall be documented and recorded. 9.2.4 Non traded/thinly Traded Debt security 9.2.4.1 A thinly traded debt security as defined above shall be valued as per the norms for non traded debt security. a. Valuation SEBI Circular No. SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010 of money market and debt securities with residual maturity of upto 60 SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012 days: 1. All money market and debt securities, including floating rate securities, with residual maturity of upto 60 days shall be valued at the weighted average price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they shall be valued on amortization basis. It is further clarified that in case of floating rate securities with floor and caps on coupon rate and residual maturity of upto 60 days then those shall be valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy suggested by AMFI giving benchmark yield/ matrix of spreads over benchmark yield. b. The benchmark as calculated above will be set at least weekly, and in the event of any significant movement in prices of Government Securities on account of any event impacting interest rated on any day such as a change in the Reserve Bank of India (RBI) policies, the benchmark will be reset to reflect any change in the market conditions. 9.3.2 Building a Matrix of Spreads for Marking-up the Benchmark Yield SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000. 9.3.2.1 Mark up for credit risk over the risk free benchmark YTM as calculated in 9.3.1 above, will be determined using the trades of corporate debentures/bonds of different ratings. All trades on appropriate stock exchange during the fortnight prior to the benchmark date will be used in building the corporate YTM and spread matrices. Initially these matrices will be built only for corporate securities of investment grade. The matrices are dynamic and the spreads will be computed every week. The matrix will be built for all duration buckets for which the benchmark GOI matrix is built to effectively link the corporate m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... external rating agencies SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. Category Discretionary markup/mark down + - Rated instruments with duration upto 2 years 100 bps 50 bps Rated instruments with duration over 2 years 75 bps 25 bps 1. The rationale for the above discount structure is to take cognizance of the differential interest rate risk of the securities. This structure will be reviewed periodically. b. Adjustments for Internally Rated Securities SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. 1. To value an un-rated security, the fund manager shall assign an internal credit rating, which will be used for valuation. Since unrated instruments tend to be more illiquid than rated securities, the yields would be marked up by adding discretionary discount as under: Category Discretionary discount Unrated instruments with duration upto 2 years Discretionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets as on September 30, 2000 then such a scheme shall within a period of two years bring down the ratio of illiquid securities within the prescribed limit of 15 per cent. in the following time frame: a. All the illiquid securities above 20 per cent. of total assets of the scheme shall be assigned zero value on September 30, 2001. b. All the illiquid securities above 15 per cent. of total assets of the scheme shall be assigned zero value on September 30, 2002. 2. In respect of closed ended funds, for the purposes of valuation of illiquid securities, the limits of 15 per cent. and 20 per cent. applicable to open ended funds should be increased to 20 per cent. and 25 per cent. respectively. 3. Where a scheme has illiquid securities as at September 30, 2001 not exceeding 15% in the case of an open-ended fund and 20% in the case of closed fund, the concessions of giving time period for reducing the illiquid security to the prescribed limits would not be applicable and at all time the excess over 15% or 20% shall be assigned nil value 9.6.1 Aggregate value of illiquid securities under a scheme, which are defined as non-traded, thinly traded and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 9.7.4.1 Both secured and unsecured investments, once they are recognized as NPAs, call for provisioning in the same manner and where these are related to close ended schemes, the phasing would be such that to ensure full provisioning prior to the closure of the scheme or the scheduled phasing which ever is earlier. 9.7.4.2 The value of the asset shall be provided in the following manner or earlier at the discretion of the Mutual Fund. Mutual Funds will not have discretion to extend the period of provisioning. The provisioning against the principal amount or installments shall be made at the following rates irrespective of whether the principal is due for repayment or not. a. 10 percent of the book value of the asset shall be provided for after 6 months past due date of interest i.e. 3 months form the date of classification of the asset as NPA. b. 20 percent of the book value of the asset should be provided for after 9 months past due date of interest i.e. 6 months from the date of classification of the asset as NPA. c. Another 20 percent of the book value of the assets shall be provided for after 12 months past due date of interest i.e. 9 months from the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 2nd quarter where the provision of principal was made due to the interest defaults only. 2. 50% of the asset provided for in the books will be written back at the end of the 2nd quarter and 25% after every subsequent quarter where both installments and interest payment were in default earlier. 3. Explanation : The words 2nd quarter wherever appear, shall mean 2nd calendar quarter. SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001. e. An asset is reclassified as 'standard asset' only when both, the overdue interest and overdue installments are paid in full and there is satisfactory performance for a subsequent period of 6 months. 9.7.6 Receipt of past dues : 9.7.6.1 When the Mutual Fund has received income/ principal amount after their classifications as NPAs: a. For the next 2 quarters, income shall be recognized on cash basis and thereafter on accrual basis. The asset will be continued to be classified as NPA for these two quarters. b. During this period of two quarters although the asset is classified as NPA no provision needs to be made for the principal if the same is not due and outstanding. c. If part payment is received to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the NPAs shall be disclosed in addition to the total quantum of NPAs and their proportion to the assets of the Mutual Fund scheme. In the list of investments and asterisk mark shall be given against such investments which are recognized as NPAs. Where the date of redemption of an investment has lapsed, the amount not redeemed shall be shown as Sundry Debtors and not investment, provided, that where an investment is redeemable by installments, that will be shown as an investment until all installments have become overdue. 9.8 Investment in Unlisted Equity Shares SEBI Circular No. MFD/CIR/03/526/2002 dated May 9, 2002. 9.8.1 To ensure uniformity in calculation of NAV the following guidelines are issued: 9.8.1.1 Methodology for Valuation - unlisted equity shares of a company shall be valued in good faith as below: a. Based on the latest available audited balance sheet, Net Worth shall be calculated as the lower of item (1) and (2) below: 1. Net Worth per share = [Share Capital + Free Reserves (excluding revaluation reserves) - Miscellaneous expenditure not written off or deferred revenue expenditure, intangible assets and accumulated losses] / Number of Paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e valued at a price lower than the value derived using the aforesaid methodology. 9.8.3 Due Diligence 9.8.3.1 Mutual Funds shall not make Investment in unlisted equity shares at a price higher than the price obtained by using the aforesaid methodology. However, this restriction is not applicable for investment made in the Initial Public Offers (IPOs) of the companies or firm allotment in public issues where all the regulatory requirements and formalities pertaining to public issues have been complied with by the companies and where the Mutual Funds are required to pay just before the date of public issue. 9.8.3.2 The Board of the AMC and Board of Trustees shall lay down the parameters for investing in unlisted equity shares. They shall pay specific attention as to whether due diligence was exercised while making such investments and shall review the performance of such investments in their periodical meetings SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.. 9.8.4 Reporting of Compliance 9.8.4.1 Comments on compliance of these Guidelines shall be indicated by the AMCs and Trustees in their CTRs For CTR format 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 ..... HARGES AND EXPENSES 10.1 Limits on fees and expenses charged to schemes SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997, SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998, SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000. 10.1.1 Mutual Funds may charge certain expenses to a scheme, as specified under Regulations. Regulation 52(4) of the Mutual Funds Regulations,1996 Apart from the these expenses, any other expense as may be approved by SEBI under clause (xiii) of Sub Regulation 52(4) can also be charged to the Mutual Fund schemes. Other expenses directly attributable to a scheme may be charged with the approval of trustees within the overall limits as provided in the Regulation 52(6). SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000. 10.1.2 Additional TER SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012. can be charged up to 30 basis points on daily net assets of the scheme as per Regulation 52 Regulation 52 of the Mutual Funds Regulations,1996, if the new inflows from beyond top 15 cities are at least (a) 30% of gross new inflows in the scheme or (b) 15% of the average assets unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be suitably disclosed SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016. 10.1.7 Investor Education and Awareness SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012 : 10.1.7.1 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. 10.1.8 The following expenses cannot be charged to the schemes of Mutual Funds: 10.1.8.1 Penalties and fines for infraction of laws. 10.1.8.2 Interest on delayed payment to the unit holders. 10.1.8.3 Legal, marketing, publication and other general expenses not attributable to any scheme(s). 10.1.8.4 Fund Accounting Fees. 10.1.8.5 Expenses on investment management/general management. 10.1.8.6 Expenses on general administration, corporate advertising and infrastructure costs. 10.1.8.7 Depreciation on fixed assets and software development expenses. 10.1.8.8 Such other cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.3.4 Service tax on exit load, if any, shall be paid out of the exit load proceeds and exit load net of service tax, if any, shall be credited to the scheme. 10.3.5 Service tax on brokerage and transaction cost SEBI Circular No. CIR/ IMD/ DF/ 24/2012 dated November 19, 2012 paid for execution of trade, if any, shall be within the limit prescribed under regulation 52 of the Regulations. 10.4 Empowering investors through transparency in payment of commission and load structure SEBI Circular No SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009 10.4.1 In order to empower investors in deciding the commission paid to distributors in accordance with the level of service received, it has been mandated that: 10.4.1.1 There shall be no entry load Waiver of load for direct applications - Vide SEBI Circular No. SEBI/IMD/CIR No.10/112153/07 dated December 31, 2007,SEBI mandated w.e.f January 4,2009 no entry load shall be charged for applications received directly by the AMC(s) through internet or submitted directly to the AMC(s) or Collection Center/Investor Service Centre and not routed through any distributor or agent or broker. This waiver was applicable to both add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r after August 1, 2009 10.4.2.4 Systematic Investment Plans (SIP) registered on or after August 1, 2009 SEBI Circular No.MFD/CIR/04/430/2002 dated June 19, 2002, SEBI Circular No. CIR/IMD/df/21/2012 dated September 13, 2012. 10.4.3 The AMCs are required to bring the contents of these guidelines to the notice of their distributors and monitor compliance. 10.5 Transaction Charges SEBI Circular no. CIR/IMD/DF/13/2011 dated August 22, 2011 10.5.1 A transaction charge per subscription of ₹ 10,000/- and above be allowed to be paid to the distributors of the Mutual Fund products. However, there shall be no transaction charges on direct investments. The transaction charge shall be subject to the following: 10.5.1.1 For existing investors in a Mutual Fund, the distributor may be paid ₹ 100/- as transaction charge per subscription of ₹ 10,000/- and above. 10.5.1.2 As an incentive to attract new investors, the distributor may be paid ₹ 150/- as transaction charge for a first time investor in Mutual Funds. 10.5.1.3 The terms and conditions relating to transaction charge shall be part of the application form in bold print. 10.5.1.4 The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Fees) (Amendment) Regulations, 2014 dated 23 May, 2014 as per the SEBI (Payment of Fees) Amendment Regulations 2014 would be applicable to those scheme(s) whose SID has been filed with SEBI on or after May 23, 2014. 10.8 Exit load parity 10.8.1 While charging exit loads, no distinction among unit holders should be made based on the amount of subscription SEBI Circular No. SEBI / IMD / CIR No. 6 /172445/ 2009 dated August 7,2009 All Mutual Funds shall ensure compliance with this circular on or before August 24, 2009 . While complying with the same, Mutual Funds should ensure that any imposition or enhancement in the load shall be applicable on prospective investments only. SEBI Circular No - SEBI / IMD / CIR No. 7 /173650 / 2009 dated August 17,2009 and SEBI circular No. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 (clause 16 of the standard observations) 10.8.2 Further, the parity among all classes of unit holders in terms of charging exit load shall be made applicable at the portfolio level. SEBI Circular No - SEBI / IMD / CIR No. 7 /173650 / 2009 dated August 17,2009 CHAPTER 11 DIVIDEND DISTRIBUTION PROCEDURE SEBI Circular No. SEBI/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onthly distribution if requisite disclosures in this regard are made in the SID. 11.2.3 Listed Schemes/Plans 11.2.3.1 Listed scheme(s)/ plan(s) shall follow the requirements stipulated in the Listing Agreement for dividend declaration and distribution. 11.3 Non availability of Unit Premium Reserve for dividend distribution SEBI circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010 11.3.1 Regulations Ninth and Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996 provide the accounting policies to be followed for determining distributable surplus and accounting the sale and repurchase of units in the books of the Mutual Fund. The format for Scheme Balance Sheet (including Abridged) provides for disclosure of Unit Premium Reserve. 11.3.2 Unit Premium Reserve, which is part of the sales price of units that is not attributable to realized gains, cannot be used to pay dividend. Therefore: 11.3.2.1 When units of an open-ended scheme are sold, and sale price is higher than face value of the unit, part of sale proceeds that represents unrealized gains shall be credited to a separate account (Unit Premium Reserve) and shall be treated at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-se scheme transfers also. 12.2.1.1 Explanation: a. In case of securities where the principal is to be repaid in a single payout the maturity of the securities shall mean residual maturity. In case the principal is to be repaid in more than one payout then the maturity of the securities shall be calculated on the basis of weighted average maturity of security. b. In case of securities with put and call options (daily or otherwise) the residual maturity of the securities shall not be greater than 91 days w.e.f May 01, 2009. c. In case the maturity of the security falls on a non-business day then settlement of securities will take place on the next business day. 12.2.2 The above requirements shall be disclosed in the SID and shall form part of the investment allocation pattern. Any deviation from these requirements shall be viewed as violation of investment restrictions. 12.3 Investments by close ended debt schemes: 12.3.1Close ended debt schemes shall invest only in such securities which mature on or before the date of the maturity of the scheme SEBI Circular No IMD/CIR No 12/147132/08 dated December 11, 2008. 12.4 Prudential limits and dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport starting from the half-year ending March 31, 2016. 12.4.5 The revised investment restrictions at issuer level, sector level and group level shall be applicable to all new schemes and fresh investments by existing schemes from the date of this circular (i.e. February 15, 2016). 12.4.6 Existing mutual fund schemes shall comply with the revised investment restrictions at issuer level, sector level and group level within a period of one year from the date of issue of this circular (i.e. February 15, 2016). Existing close ended schemes shall not be required to sell their investments to comply with the restrictions. However, if existing close ended schemes sell their investments then their fresh investments shall be subject to the restrictions. 12.5 Stock Lending Scheme SEBI Circular No MFD/CIR/01/047/99 dated February 10, 1999. 12.5.1 The following guidelines are issued to facilitate lending of securities by Mutual Funds through intermediaries approved by the Board in accordance with the Stock Lending Borrowing Scheme. Regulation 44(4) of the SEBI (Mutual Funds) Regulations, 1996. 12.5.2 Disclosure Requirements 12.5.2.1 The following information sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the prescribed parameters. 12.7 Investments in Units of Venture Capital Funds SEBI Circular No. MFD/CIR/9/230/2001 dated August 14, 2001. 12.7.1 Mutual Fund schemes can invest in listed or unlisted securities or units of Venture Capital Funds within the prescribed investment limits as applicable. Clauses 10 and 11, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996. 12.8 Investment limits for Government guaranteed debt securities SEBI Circular No. SEBI/IMD/CIR No.8/18944/03 dated October 6, 2003. 12.8.1 Prudential investment norms as per Regulations stipulating limits for investments in debt securities Clauses 1 and 1A, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996. issued by a single issuer are applicable to all debt securities issued by public bodies or institutions such as electricity boards, municipal corporations, state transport corporations etc. guaranteed by either State / Central Government. Government securities issued by Central and/or State Government or on its behalf, by the RBI are however exempt from these limits. 12.9 Investment Restrictions for Securitised Debt SEBI Circular No. SEBI/IMD/CIR No.6/63715/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in its CTR(s). 12.10.1.9 Investments made in short term deposits pending deployment of funds Clause 8, Schedule Seven, SEBI (Mutual Funds), Regulations, 1996. shall be recorded SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000. and reported to the Trustees including the reasons for the investment especially comparisons with interest rates offered by other scheduled commercial banks. SEBI Circular No. SEBI/IMD/CIR No.9/20306/03 dated November 12, 2003. 12.10.1.10 Except for clause (12.9.1.7) the above guidelines shall not apply to term deposits placed as margins for trading in cash and derivatives market SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008. However, duration of such term deposits shall be disclosed in the Half Yearly Portfolio SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008. 12.11 Reconciliation Procedure for Investment in Government Securities SEBI Circular No. MFD/CIR/19/22474/2002 dated November 20, 2002. 12.11.1 According to the RBI guidelines RBI Circular No. P.D.O.SGL.CIRR/1945/2002-2003 dated November 1, 2002. issued to all SGL account holders, to make transactions in government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Mutual funds shall ensure compliance with the Seventh Schedule of the Mutual Funds Regulations about restrictions on investments, wherever applicable, with respect to repo transactions in corporate debt securities. 12.12.1.7 The details of repo transactions of the schemes in corporate debt securities, including details of counterparties, amount involved and percentage of NAV shall be disclosed to investors in the half yearly portfolio statements and to SEBI in the half yearly trustee report. 12.12.1.8 To enable the investors in the mutual fund schemes to take an informed decision, the concerned Scheme Information Document shall disclose the following: a. The intention to participate in repo transactions in corporate debt securities in accordance with directions issued by RBI and SEBI from time to time; b. The exposure limit for the scheme; and c. The risk factors associated with repo transactions in corporate bonds 12.13 Overseas Investment SEBI Circular No. SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007 SEBI Circular No. SEBI/IMD/CIR No.2/122577/08 dated April 8, 2008. 12.13.1 Applicable limits : 12.13.1.1 Aggregate ceiling for overseas inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interest of investors. Investment shall be made in liquid actively traded securities /instruments. b. The Board of the AMC and Trustees may prescribe detailed parameters for making such investments which may include identification of countries, country rating, country limits etc. They shall satisfy themselves that the AMC has experienced key personnel, research facilities and infrastructure for making such investments. Other specialized agencies and service providers associated with such investments e.g. custodian, bank, advisors etc. shall also have adequate expertise and infrastructure facilities. Their past track record of performance and regulatory compliance record, if they are registered with foreign regulators, should also be considered. Necessary agreements may be entered into with them as required. 12.13.3.3 Mandatory Disclosure Requirements for Mutual Fund schemes proposing overseas investments : a. Intention to invest in foreign securities and/or ETF(s) shall be disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disclosed in the SID. 12.13.3.7 Reporting to the Board: a. The Trustees shall offer their comments on the compliance of these guidelines in the Half Yearly Reports filed with the Board. 12.13.3.8 Prudential Investment Norms : a. Investment restrictions specified in Schedule Seven of the Mutual Funds Regulations are applicable to overseas investments stipulated under paragraph 12.13.2.1- 12.13.2.10 b. However, Clause 4 of the Seventh Schedule of the Mutual Funds Regulations that restricts investments in Mutual Fund units up to 5% of net assets and prohibits charging of fees, shall not be applicable to investments in Mutual Funds in foreign countries made in accordance with these Guidelines. c. Management fees and other expenses charged by the Mutual Funds in foreign countries along with the management fee and recurring expenses charged to the domestic Mutual Fund scheme shall not exceed the total limits on expenses as prescribed under Regulation 52(6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be maintained and the reasons for subsequent purchase and sales in the same scrip shall also be recorded. The contents of the research reports may be decided by the AMC(s) and the Trustees. 12.16.2 The Board of the AMC shall develop a mechanism to verify that due diligence is being exercised while making investment decisions especially in cases of investment in unlisted and privately placed securities, unrated debt securities, NPAs, transactions where associates are involved and instances where the performance of the scheme(s) is poor. 12.16.3 AMC(s) shall report compliance with these requirements in their periodical reports to the Trustees and the Trustees shall report the same to the Board in the Half Yearly Trustee Reports For Half Yearly Trustee Report please refer to the section on Formats . Trustees shall also check compliance with these Guidelines through independent auditors or internal and/or statutory auditors or other systems developed by them. 12.17 Norms for investment and disclosure by Mutual Funds in derivatives SEBI Circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010 12.17.1 Exposure Limits 12.17.1.1 The cumulative gross exposure thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e * Number of Contracts Short Future Futures Price * Lot Size * Number of Contracts Option bought Option Premium Paid * Lot Size * Number of Contracts. 12.17.1.9 The provisions shall be applicable for all new schemes launched post the issue of the aforementioned guidelines. For all existing schemes, compliance with the guidelines shall be effective from October 01, 2010. 12.18 Interval Schemes/Plans SEBI Circular No. CIR/IMD/DF /19/2010 dated November 26, 2010 12.18.1 Certain SIDs provide that the subscription to the scheme can be made during a specific period (known as specified transaction period) and the repurchase of units is permitted on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged). These schemes are generally referred to as interval schemes . 12.18.2 For all interval schemes/plans Applicability: The AMC shall ensure compliance with the requirements mentioned in Clause 12.16.2 from the date of next specified transaction period or April 1, 2011 whichever is later. Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ositions shall not exceed 100% of the net assets of the scheme. e. The total exposure related to premium paid for all derivative positions, including CDS, shall not exceed 20% of the net assets of the scheme. f. Before undertaking CDS transactions, mutual funds shall put in place a written policy on participation in CDS approved by the Board of the Asset Management Company and the Trustees as per the guidelines specified by RBI and Securities and Exchange Board of India (SEBI). The policy shall be reviewed by mutual funds, at least once a year. g. To enable the investors in the mutual funds schemes to take an informed decision, the concerned Scheme Information Document (SID) shall disclose the intention to participate in CDS transaction in corporate debt securities in accordance with directions issued by RBI and SEBI from time to time, and related information as appropriate in this regard. h. Mutual funds shall also disclose the details of CDS transactions of the scheme in corporate debt securities in the monthly portfolio statements as well as in the half yearly trustee report, as per the format Please refer to section on Formats for requisite formats . Further, mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertisement, along with benchmark index performance for the same periods. 13.3.2 Where scheme has been in existence for more than one year but less than three years, performance advertisement of scheme(s) shall be provided for as many as twelve month periods as possible, such periods being counted from the last day of the calendar quarter preceding the date of advertisement, alongwith benchmark index performance for the same periods. 13.3.3 Where the scheme has been in existence for less than one year, past performance shall not be provided. 13.3.4 In case of Money Market schemes or cash and liquid schemes SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012, wherein investors have very short investment horizon, the performance can be advertised by simple annualisation of yields if a performance figure is available for at least 7 days, 15 days and 30 days provided it does not reflect an unrealistic or misleading picture of the performance or future performance of the scheme. 13.3.5 For the sake of standardization, a similar return in INR and by way of CAGR must be shown for the following apart from the scheme benchmarks: Scheme Type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CDs, Treasury bills etc 13.4.2.4 MFs shall disclose the floors and ceilings within a range of 5% of the intended allocation (in %) against each sub asset class/credit rating. For example, it may be disclosed that x-y % would be in AAA rated bank CD as per the sample matrix below: 13.4.2.5 After the closure of NFO, the AMCs will report in the next meeting of AMCs and Trustees the publicized percentage allocation and the final portfolio. Variations between indicative portfolio allocation and final portfolio will not be permissible. CHAPTER 14 INVESTOR RIGHTS OBLIGATIONS PART I INVESTOR RIGHTS 14.1 Payment of interest for delay in dispatch of redemption and/or repurchase proceeds and/or dividend SEBI Circular No. SEBI/MFD/CIR/2/266/2000 dated May 19, 2000. 14.1.1 In the event of failure to dispatch: a. Redemption or repurchase proceeds within 10 working days from the date of receipt of such requests and/ or b. Dividend within the stipulated 30 day period SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009, 14.1.2 The AMC(s) shall be liable to pay interest @ 15 per cent per annum to the unit holders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are unclaimed amounts. b. AMFI shall also provide on its website, the consolidated list of investors across Mutual Fund industry, in whose folios there are unclaimed amounts. The information provided herein shall contain name of investor, address of investor and name of Mutual Fund/s with whom unclaimed amount lies. c. Information at point (a) (b) above may be obtained by investor only upon providing his proper credentials (like PAN, date of birth, etc.) along-with adequate security control measures being put in place by Mutual Fund / AMFI. d. The website of Mutual Funds and AMFI shall also provide information on the process of claiming the unclaimed amount and the necessary forms / documents required for the same. e. Further, the information on unclaimed amount alongwith its prevailing value (based on income earned on deployment of such unclaimed amount), shall be separately disclosed to investors through the periodic statement of accounts / Consolidated Account Statement sent to the investors. 14.2.7 Disclosures on above provisions shall be made in the SAI /SID. Disclosure on the unclaimed amounts and the number of such investors for each scheme shall be made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding), the AMCs/ MFRTAs shall continue to send the CAS to their unit holders as is being done presently in compliance with the Regulation 36(4) of the SEBI (Mutual Funds) Regulations. 14.3.2.5 In case investors have multiple accounts across the two depositories, the depository having the demat account which has been opened earlier shall be the default depository which will consolidate details across depositories and MF investments and dispatch the CAS to the investor. However, option shall be given to the demat account holder by the default depository to choose the depository through which the investor wishes to receive the CAS. 14.3.2.6 The CAS shall be generated on a monthly basis. The AMCs /MFRTAs shall provide the data with respect to the common PANs to the depositories within three days from the month end. The depositories shall then consolidate and dispatch the CAS within ten days from the month end. 14.3.2.7 Where statements are presently being dispatched by email either by the Mutual Funds or by the Depositories, CAS shall be sent through email. However, where an investor does not wish to receive CAS through email, option shall be given to the investor to receive t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding statement dispatched by the DPs to their BOs with respect to the dormant demat accounts with balances shall also be dispatched half-yearly in partial modification of clauses 5(b) and 6(c) of the circular no. CIR/MRD/DP/22/2012 dated August 27, 2012. 14.3.2.15 The dispatch of CAS by the depositories to BOs would constitute compliance by the Depository Participants with requirement under Regulation 43 of SEBI (Depositories and Participants) Regulations, to provide statements of account to the BOs as also compliance by the MFs with the requirement under Regulation 36(4) of SEBI (Mutual Funds) Regulations. 14.3.2.16 Further, in order to increase transparency of information to investors, it has been decided that SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016: a) Each CAS issued to the investors shall also provide the total purchase value / cost of investment in each scheme. b) Further, CAS issued for the half-year (September/ March) shall also provide. i. The amount of actual commission paid by AMCs/Mutual Funds (MFs) to distributors (in absolute terms) during the half-year period against the concerned investor s total investments in eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mutual Funds schemes that the unitholders, if they so desire may request for the Annual Report of the AMC. 14.5 Distribution of Proceeds realized from illiquid securities/ NPAs SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002. Some of the investments made by Mutual Funds may become nonperforming assets (NPAs) or illiquid at the time of maturity/winding up of the scheme(s). In due course of time i.e. after the maturity/ winding up of the scheme(s), these NPAs and illiquid securities may be realized by the Mutual Funds. Mutual Funds shall distribute such amounts to the old investors if such amounts are substantial and realized within two years. If the amounts realized are not substantial or are realized after two years, the same may be transferred to the Investor Education Fund maintained by each Mutual Fund. The decision as to the determination of substantial amount shall be taken by the trustees of mutual funds after considering the relevant factors. 14.6 Change of Mutual Fund Distributor 14.6.1 Incase an investor wishes to change his distributor or wishes to go direct, Mutual Funds/AMC s shall ensure compliance with the instruction of the investor in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions/request for redemption. For this purposes Mutual Funds shall provide space in applications and redemption request forms. PART III INVESTOR EDUCATION 14.10 SEBI Investors Education Programme Investments in Mutual Funds SEBI Cir No. MFD/CIR NO -13/370/02 dated January 16,2002 14.10.1 Board has prepared a brochure in question-answer format explaining the fundamental issues pertaining to mutual funds. The same is enclosed at Annexure 5. The same is also available at our website www.sebi.gov.in under the Mutual Funds section. 14.10.2 AMCs are advised to circulate copies of the brochure among their distributors and agents (including brokers, banks, post offices) and the investors. 14.10.3 AMCs may publish the same as small booklets. In such a case, while the booklets must bear SEBI name and logo, AMC may give their name as publisher. This may also be displayed prominently on their web sites 14.10.4 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. 14.10.5 Board may be kept informed about the steps taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002. 15.4 Distributors of Mutual Fund products SEBI Circular No. CIR/IMD/DF/13/2011 dated August 22, 2011. 15.4.1 The AMCs shall regulate the distributors by putting in place a due diligence process as follows: 15.4.1.1 The due diligence of distributors is solely the responsibility of mutual funds/AMCs. This responsibility shall not be delegated to any agency. However, mutual funds/AMCs may take assistance of an agency of repute while carrying out due diligence process of distributors. SEBI Circular No. Cir/IMD/DF/7/2012 dated February 28, 2012 15.4.1.2 The due diligence process shall be initially applicable for distributors satisfying one or more of the following criteria: a. Multiple point presence (More than 20 locations) b. AUM raised over ₹ 100 Crore across industry in the non-institutional category but including high networth individuals (HNIs) c. Commission received of over ₹ 1 Crore p.a. across industry d. Commission received of over ₹ 50 Lakh from a single Mutual Fund 15.4.1.3 At the time of empanelling distributors and during the period i.e. review process, Mutual Funds/AMCs shall undertake a due diligence process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e used in review of products and the periodicity of such review. b. The factors to be included in determining the risk appetite of the customer and the investment categorization and periodicity of such review. c. Review of transactions, exceptions identification, escalation and resolution process by internal audit. d. Recruitment, training, certification and performance review of all personnel engaged in this business. e. Customer on boarding and relationship management process, servicing standards, enquiry / grievance handling mechanism. f. Internal/ external audit processes, their comments / observations as it relates to MF distribution business. g. Findings of ongoing review from sample survey of investors. 15.4.1.6 Mutual Funds/AMCs may implement additional measures as deemed appropriate to help achieve greater investor protection. 15.5 Code of Conduct: 15.5.1 Mutual Funds are required to monitor the activities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of fifty years or who have at least ten years experience in the securities markets in the sale and/ or distribution of mutual fund products as on May 31, 2010, will be given the option of obtaining the certification either by passing the NISM certification examination or qualifying for Continuing Professional Education (CPE) by obtaining such classroom credits as may be specified by NISM from time to time. 15.7.3 The Certification Regulations require the persons referred to in paragraph 15.7.1 above to comply with the requirements for CPE as specified by NISM within the validity period of the certificate obtained by passing the certification examination. However, to facilitate the transition process from AMFI to NISM, it has been decided that a person holding a valid AMFI certification whose validity expires between June 01, 2010 and 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, by December 31, 2010. 15.7.3 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SU banks to distribute Mutual Fund products through them. Such active support would also encourage PSU banks to distribute products of all Mutual Funds. b. Online distribution: Online distribution not only increases customer convenience, but also significantly improves distributor economics. The online phenomenon is increasing rapidly and it is observed that more and more people especially younger generation prefers online transactions. Therefore, it has been decided that all Mutual Funds should enhance the online investment facility and tap the internet savvy users to invest in Mutual Funds by providing an online investment facility on their websites. Mutual Funds also need to tap the burgeoning mobile-only internet users for direct distribution of Mutual Fund products. 15.10 Unique Identity Number 15.10.1 AMFI shall create a unique identity number of the employee/ relationship manager/ sales person of the distributor interacting with the investor for the sale of mutual fund products, in addition to the AMFI Registration Number (ARN) of the distributor. 15.10.2 The application form for mutual fund schemes shall have provision for disclosing the unique identity number o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI Circular No Cir /IMD/DF/9 / 2010 dated August 12, 2010: 16.1.5.1 All new folios/ accounts shall be opened only after ensuring that all investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature are available with AMCs/RTAs and not just with the distributor. 16.1.5.2 For existing folios, AMCs shall be responsible for updation of the investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature by November 15, 2010. 16.1.5.3 The trustees shall submit a confirmation after they receive certification from an Independent auditor on completion of the said process latest by November 22, 2010. 16.2 Facilitating transactions in Mutual Fund schemes through the Stock Exchange infrastructure SEBI Circular No - SEBI /IMD / CIR No.11/183204/ 2009 dated November 13,2009 16.2.1 Stock Exchange terminals can be used for facilitating transactions in mutual fund schemes. The Stock Exchange mechanism would also extend the present convenience available to secondary market investors to mutual fund investors. 16.2.2 Units of mutual fund schemes may be permitted to be transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent they relate to disputes between brokers and their client. 16.2.4.6 Dematerialization of existing units held by investors a. In case investors desire to convert their existing physical units (represented by statement of account) into dematerialized form, mutual funds / AMCs shall take such steps in coordination with Registrar and Transfer Agents, Depositories and Depository participants (DPs) to facilitate the same. 16.2.4.7 Option to hold units in demat form SEBI circular no.CIR/IMD/DF/9/2011, dated May 19, 2011 a. Mutual Funds/AMCs are advised to invariably provide an option to the investors to mention demat account details in the subscription form, in case they desire to hold units in demat form while subscribing to any scheme (open ended/close ended/Interval). b. Mutual Funds/AMCs shall ensure that above mentioned option is provided to the investors in all their schemes (existing and new). c. Mutual Funds/AMCs are advised to obtain ISIN for each option of the scheme and quote the respective ISIN along with the name of the scheme, in all Statement of Account/Common Account Statement (CAS) issued to the investors. 16.2.4.8 Know your cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and Depository participants 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 and conditions stipulated SEBI Circular dated November 13, 2009 for stock brokers Viz. AMFI /NISM certification, code of conduct prescribed by SEBI for Intermediaries of Mutual Fund, shall be applicable for such Clearing members and Depository participants as well. b. Stock exchanges and Depositories shall provide investor grievance handling mechanism to the extent they relate to disputes between their respective regulated entity and their client and shall also monitor the compliance of code of conduct specified SEBI Circulars MFD/CIR/20/23230/02 dated November 28, 2002 and SEBI/IMD/08/174648/2009 dated August 27, 2009 regarding empanelment and code of conduct for intermediaries of Mutual Funds. 16.2.4.13 The respective stock exchanges and Depositories would provide detailed operating guidelines to facilitate the above and ensure that timelines prescribed SEBI (Mutual Funds) Regulations, 1996 shall be adhered to with regard to allotment of units and receipt of redemption proceeds at the investor s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in demat account through a SEBI registered depository participant (DP). 17.1.1.2 Indirect route- Holding MF units via Unit Confirmation Receipt (UCR). 17.1.2 The investment through the above mentioned routes shall be subject to the following conditions: 17.1.2.1 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 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 shall carry the same meaning as in the Income Tax Act, 1961 (3) resident in a country, other than India, shall mean resident as per the direct tax laws of that country. 17.1.2.2 MF shall ensure that only QFIs who comply with para 17.1.2.1 are allowed to invest under these routes. 17.1.2.3 MF shall ensure that QFIs meet the KY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OU of IOSCO. 17.1.2.10 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 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. 17.1.2.11 MF shall ensure that Systematic Investments/ transfer/ withdrawals and switches are not available to the QFIs. QFIs can only subscribe or redeem. 17.1.2.12 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. 17.1.2.13 MF shall comply with all the requirements as per the PMLA, FATF standards and SEBI circulars issued in this regard on an ongoing basis. 17.1.2.14 MF shall ensure that all the investor related documents/ records of the QFIs are available with them. 17.1.2.15 MF shall ensure compliance with laws (rules and regulations) of the jurisdictions where the QFIs are based and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 1.11.3.14. However, MF shall comply with PMLA, FATF standards and SEBI circulars issued in this regard from time to time on an ongoing basis. 17.1.3.6 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. 17.1.3.7 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 to MF scheme account by next business day. c. If for any reasons, the DP is not able to remit the money to the MF scheme account within the stipulated timeframe as mentioned in para-b, the DP shall immediately return the money to the designated overs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... global depository receipts/global custody agency b. The entity is registered with an overseas securities market/ banking regulator. 17.1.4.6 MF shall seek no objection from SEBI before appointing any UCR issuer and furnish the details and information sought by SEBI about the UCR issuer. SEBI reserves the right to seek additional information / clarification and direct action, including non appointment/ revocation of appointment of that UCR Issuing Agent. 17.1.4.7 MF shall comply with all the requirements as per the PMLA, FATF standards and SEBI circulars issued in this regard on an ongoing basis. 17.1.4.8 Custodians appointed by the MF shall comply with the SEBI (Custodian of Securities) Regulations, 1996, circulars and guidelines issued by SEBI. 17.1.4.9 The rupee denominated units of the MF would be held as underlying by the custodian in India in demat mode against which the UCR issuer would issue UCR to be held by QFIs. 17.1.4.10 MF shall ensure that for every UCR issued by UCR issuer, Custodian in India shall hold corresponding number of units against it i.e., there shall be one unit of MF scheme for every unit of UCR. 17.1.4.11 MF shall receive money from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case of dividend payout, the MF shall remit the dividend amount proceeds to the UCR issuer which in turn shall remit the dividend amount to the designated bank account of the QFIs. 17.1.5 The investment by the QFIs in MF equity and debt schemes under this scheme shall also be subject to the relevant and extant FEMA regulations and guidelines issued by the Reserve Bank of India under FEMA, 1999 from time to time. 17.2 Clarification SEBI Circular No.Cir/IMD/DF/7/2012 dated February 28, 2012 to Regulation 24 Of SEBI (Mutual Funds) Regulations, 1996 17.2.1 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. 17.2.2 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. 17.2.3 Wherein ..... 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