9911796707
TMI BlogMaster Circular for Mutual FundsX X X X Extracts X X X X X X X X Extracts X X X X ..... n of all the existing/applicable circulars issued by Investment Management Department of SEBI issued to Mutual Funds. Efforts have been made to incorporate certain applicable provisions of existing circulars (as on December 31, 2010) issued by other Department/Division of SEBI relevant to Mutual Funds. INDEX ABBREVIATIONS............................................................................. 5 CHAPTER 1..................................................................................... 6 OFFER DOCUMENT FOR SCHEMES ................................................. 6 CHAPTER 2................................................................................... 16 CONVERSION AND CONSOLIDATION OF SCHEMES AND LAUNCH OF ADDITIONAL PLAN........................................................................ 16 CHAPTER 3................................................................................... 22 NEW PRODUCTS ........................................................................... 22 CHAPTER 4………………………………………………………&hell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efer the attachment ABBREVIATIONS American Depository Receipt ADR Association of Mutual Funds in India AMFI Asset Management Company AMC(s) Bombay Stock Exchange BSE Compliance Test Reports CTR(s) Contingent Deferred Sales Charge CDSC Fixed Maturity Plans FMP(s) Foreign Institutional Investor FII Global Depository Receipt GDR Gold Exchange Traded Fund GETF Hindu Undivided Family HUF Investor Service Center ISC Key Information Memorandum KIM Monthly Cumulative Report MCR National Stock Exchange NSE Net Asset Value NAV New Fund Offer NFO Non Performing Assets NPA(s) Permanent Account Number PAN Regulation Reg. SEBI (Mutual Funds) Regulations 1996 Regulations Securities and Exchange Board of India the Board Scheme Information Document SID Offer Statement of Additional Information SAI Document Systematic Investment Plan SIP Systematic Transfer Plan STP Systematic Withdrawal Plan SWP Trustee(s) Board of Trustee(s)/Trustee Company Uniform Client Code UCC CHAPTER 1 OFFER DOCUMENT FOR SCHEMES 1.1Filing 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MARP/MF/CIR/01/428/97 dated February 28, 1997, SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997. 1.1.3.2 Filing of SAI a. A single SAI (common for all the schemes) can be filed with Board along with first draft of SID or can be filed separately. After incorporating the comments/observations, if any, from the Board, AMC shall file a soft copy of SAI with the Board in PDF format alongwith printed copy of the same SEBI Circular No - SEBI/IMD/CIR No.10/178129/09 dated September 29,2009, upload the SAI on its website and on AMFI website. 1.1.3.3 Filing of Final SID a. Final SID (after incorporating comments of the Board) must reach the Board before it is issued for circulation. Soft copy of the final SID in PDF format along with a printed copy should be filed with Board two 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructure shall be attached to all KIM and SID already in stock till it is updated). 4. A public notice shall be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated. 5. The account statements issued to investors shall indicate the applicable load structure. 1.2.1.3 A copy of all changes made to the scheme shall be filed with Board within 7 days of the change. A soft copy of updated SID shall be filed with Board in PDF Format along with printed copy of the same. AMC shall also submit an undertaking to the Board while filing the soft copy that information contained in the soft copy of SID to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC is fully responsible for the contents of the soft copy of the SID SEBI Circular No - SEBI/IMD/CIR No.10/178129/09 dated September 29,2009. 1.2.2 Updation of SAI 1.2.2.1 A printed copy of SAI shall be made available to the investor(s) on request. SAI shall be updated within 3 months from end of financial year and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. 1.5.2 SEBI may revise the Standard Observations from time to time and in that case the date of revision shall also be mentioned. 1.5.3 While filing the SID and SAI, AMC shall highlight and clearly mention the page number of the SAI and SID on which each standard observation has been incorporated. 1.6 KIM 1.6.1 Application forms for schemes of mutual funds shall be accompanied by the KIM in terms of Regulation 29 (4). KIM shall be printed at least in 7 point font size with proper spacing for easy readability. 1.6.2 Format of KIM 1.6.2.1Mutual Funds shall prepare KIM in the prescribed format For fomat of KIM please refer to the Chapter on Formats. The contents of KIM shall follow the same sequence as prescribed in the format. 1.6.3 Frequency of updation 1.6.3.1 KIM shall be updated at least once a year and shall be filed with SEBI. 1.6.3.2 In case of changes in the SID other than changes in fundamental attribute in terms of Reg 18 (15A), the addendum circulated to all the distributors/brokers/investor Service Centre (ISC) shall be attached to KIM till the KIM is updated. 1.6.3.3 In case any information in SID is amended more than once, the latest applicable adden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bond return index. 1.8.5.4 Money Market funds or liquid plans can be compared against a suitable Money Market Instrument or a combination of such instruments. 1.9 New Fund Offer (NFO) Period SEBI circular no MFD/Cir.No 9/120/2000 dated November 24, 2000. SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010. The provisions mentioned shall be applicable for all NFOs launched on or after July 01, 2010. 1.9.1 In case of open ended and close ended schemes (except ELSS schemes), the NFO should be open for 15 days (from 30 days in case of Open ended schemes and 45 days of close ended scheme). 1.9.2 The NFO period in case of ELSS schemes shall continue to be governed by guidelines issued by Government of India. 1.9.3 Mutual Funds/AMCs shall make investment out of the NFO proceeds only on or after the closure of the NFO period. 1.9.4 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) shall be available for ongoing repurchase/sale/trading within five business days of allotment" 1.10 Discontinuation of the nomenclature - 'Liquid Plus Scheme( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 chapter 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 chapter 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 incorporated therein and final copies of the same have been filed with the Board. 2.1.1.4 Unit holders shall be given at least 30 days to exercise exit option. During this period, the unit holders who opt to redeem their holdings in part or in full shall be allowed to exit at the NAV applicable for the day on which the request is received, without charging exit load. PART II - CONSOLIDATION OF SCHEMES 2.2 Consolidation of Schemes SEBI Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attribute of the surviving scheme if the following conditions are met SEBI Circular No- Cir / IMD / DF / 15/ 2010 dated October 22, 2010: a. Fundamental attributes SEBI Circular No-IIMARP/MF/CIR/01/294/98 dated February 4, 1998 of the surviving scheme do not change. The 'surviving scheme' means the scheme which remains in existence after the merger. b. Mutual Funds are able to demonstrate that the circumstances merit merger or consolidation of schemes and the interest of the unitholders of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 647 /2010 dated March 15, 2010. 3.1.3Fund of funds mutual fund schemes shall adopt either of the total expense structures laid out in Regulations Regulation 52(6)(a) of SEBI (Mutual Funds) Regulations, 1996, which Asset Management Companies shall clearly indicate in the SIDs. 3.1.4 Fund of Fund schemes existing as on July 29, 2010, Cir/IMD/DF/8/2010 dated August 6, 2010, shall, with the approval of trustees, adopt either of the total expense structures laid out in Regulation Regulation 52 (6)(a) of SEBI (Mutual Funds) Regulations, 1996 and change the total expense structure after giving the unitholders an option to exit in accordance with Regulation Regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996. 3.2 Gold Exchange Traded Fund Scheme SEBI Circular No. SEBI/IMD/CIR. No.4/58422/06 dated January 24, 2006, SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006, SEBI Circular No. SEBI/IMD/CIR No.14/84243/07 dated January 15, 2007. 3.2.2 A Gold Exchange Traded Fund (GETF) Scheme Regulation 2(mb) of the SEBI (Mutual Funds) Regulations, 1996 introduced vide Gazette Notification No. S.O. 38(E) dated January 12, 2006. shall invest primarily in: 3.2.2.1 Gold and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and 38A of the Mutual Funds Regulations introduced vide Gazette Notification No. S.O. 1254(E) dated August 3, 2006. shall disclose that the scheme is "oriented towards protection of capital" and not "with guaranteed returns." It shall also be indicated that the orientation towards protection of capital originates from the portfolio structure of the scheme and not from any bank guarantee, insurance cover etc. 3.3.2 The proposed portfolio structure indicated in the SID and KIM shall be rated by a Credit Rating Agency registered with the Board from the view point of assessing the degree of certainty for achieving the objective of capital protection and the rating shall be reviewed on a quarterly basis. 3.3.3 The Trustees shall continuously monitor the portfolio structure of the scheme and report the same in the Half Yearly Trustee Reports For format of Half Yearly Trustee Report please refer Chapter on Formats to the Board. The AMC(s) shall also report on the same in its bimonthly (CTR(s) For format of bimonthly CTR please refer Chapter 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 ratin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent System: 4.3.2 Identification of observance of each recommendation: 4.3.2.1 Mutual Funds shall identify areas of current adherence as well as non-adherence of various Risk Management practices under each of the aforesaid three categories. They shall examine the areas where development or improvement of systems is required. 4.3.2.2 After identifying the same, Mutual Funds shall review the progress made on implementation of the systems on a monthly basis and place the progress report in periodical meetings of the Board of the AMC and Trustees. 4.3.3 Review of Progress of implementation by Board of AMC and Trustee(s): 4.3.3.1The Board of the AMC and Trustee(s) shall review the progress made by the Mutual Funds with regard to Risk Management practices and the same shall be reported to the Board at the time of sending CTR(s) and Half Yearly Trustee Reports. 4.3.4 Review by Internal Auditors: 4.3.4.1 The review of Risk Management Systems shall be a part of internal audit and the auditors shall check their adequacy on a continuing basis. Their reports shall be placed before the Board of the AMC and Trustee(s) who shall comment on the adequacy of systems in the CTRs and Half ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion For format of Half Yearly Financials, please refer to the formats chapter. 5.3 Abridged Schemewise Annual Report Format SEBI Circular No. IMD/CIR No.8/132968/2008 dated July 24, 2008 5.3.1 The Abridged Schemewise Annual Report For format of abridged schemewise report, please refer the formats chapter may be mailed to the investors' e-mail address if so mandated by the investor and the Scheme wise Annual Report shall be displayed on the website of the mutual fund. These websites should also be linked with AMFI website so that the investors and analyst(s) can access the annual reports 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. 5.4 Disclosure of large unit holdings SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001. 5.4.1 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning with the annual report for the year 2009- 10. 5.9 Brokerage and commission paid to associates SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010 5.9.1 Regulations Regulation 25 (8) of SEBI (Mutual Funds) Regulations, 1996 mandates payment of brokerage or commission if any, to the sponsor or any of its associates, employees or their relatives. 5.9.2 Disclosures on brokerage and commission paid to associates/related parties/group companies of sponsor/Asset Management Company in the unaudited half yearly financial results, the abridged scheme wise annual report and the SAI, shall be made in the format as prescribed Please refer to the chapter on Formats. PART II - REPORTS 5.10 Monthly Cumulative Report (MCR) SEBI circular MFD/CIR/07/206/2001 dated July 19, 2001, SEBI circular No IMD/Cir No.15/87045/2007 dated February 22, 2007, SEBI circular SEBI/IMD/CIR No 3/124444/08 dated April 30, 2008 5.10.1 Date and Mode Of Submission: 5.10.1.1 MCR For format of MCR please refer to Chapter on Formats. shall be submitted to the Board by 3rd of each month by way of an email. Hard copy should also be sent by hand delivery/courier. 5.10.2 Other Guidelines: 5.10.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to incorporate the modifications/additions under the relevant sections of the format, based on amendments to the Regulations/guidelines issued in the future from time to time. 5.13 Annual Statistical Report (ASR) IIMARP/CIR /08/845/97 DATED May 7,1997, MFD/CIR/02/110/02 dated April 26,2002, SEBI Cir No- IMD/CIR No 6/72245/06 dated July 20,2006, 5.13.1 AMC should submit the annual statistical report to SEBI in the prescribed format by 30th of April each year For format of ASR refer the Chapter on Formats Quarterly Movement of Net Assets- SEBI CIR - IIMARP/MF/CIR/05/788/97 dated April 28, 1997 required mutual funds to submit the statement for quarterly movement of net assets. However, SEBI circular MFD/CIR/12/16588/02 dated August 28,2002 stated that such Statement of movement of net assets /portfolios are no more to be submitted. 5.14 Daily Transaction Report SEBI Circular No.MFD/CIR/07/384/99 dated December 17, 1999 and MFD/CIR/08/23026/99 dated December 23, 1999 5.14.1 All Mutual Funds shall submit details of transactions in secondary market on daily basis in the prescribed format For format of daily transaction report, please refer the chapter on formats. Accordingly, Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be noted that Annual Information Returns (AIRs) constitute an important source of information to Income Tax Department and, as such, it is imperative that the data furnished to them is complete and accurate in all respects. It is therefore advised that to re-check the accuracy of the data furnished by your office for the Financial Year 2004-05 and ensure that all the columns are correctly filled-in and submit a 'Supplementary Information Report', if need be, to the Income Tax Department. The AIRs for the financial year 2005-2006 are required to be filed before August 31, 2006. 5.16.1 Mutual Funds are required to submit the Annual Information Return under section 285 BA in the Income-tax Act. As per this requirement, Trustees of Mutual Funds or such other person managing the affairs of the Mutual Funds (as may be duly authorized by the trustees in this behalf) have to report specified financial transactions in electronic media to Income Tax Department giving PAN of the transacting parties in an Annual Information Return (AIR). 5.16.2. Some common errors in these returns have been pointed out by the Directorate of Income Tax (Systems) as: 5.16.2.1. Not mentioning PAN or men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall review all transactions of the Mutual Fund with the associates as defined below on a regular basis and ensure that Regulations are complied with Regulations 18(6) and 18(7) of SEBI (Mutual Funds), Regulations, 1996 and SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000. 6.3 Role of Independent Director on the Board of the AMC and Independent Trustees SEBI Circular No. MFD/CIR/11/354/2001 dated December 20, 2001, SEBI Circular No. MFD/CIR/13/16799/2002 dated August 29, 2002, SEBI Circular No. MFD/CIR/17/21105/2002 dated October 28, 2002. 6.3.1 An Independent Trustee shall not be associated in any manner with the Sponsor(s) Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996. The independent directors on the Board of the AMC shall not be associate of, or associated in any manner with, the sponsor or any of its subsidiaries or the trustees Regulation 21(d) of the SEBI (Mutual Funds) Regulations, 1996. 6.3.2 An 'associate' shall be defined as: 6.3.2.1 Relatives As defined under Section 6 of the Companies Act 1956. of Sponsor(s) or directors of the Sponsor Company or relatives of Associate Directors of the AMC(s) and Trustee. 6.3.2.2 Persons providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent director. 6.3.6 On appointment of new directors of the AMC or Trustee, their biodata For biodata of directors (AMC and Trustee), please refer to Chapter on Formats shall be filed with the Board for information or approval respectively. 6.4 Investment and/or for / Trading in Securities by the employees of the AMC(s) and Trustee(s) SEBI Circular No. MFD/CIR No.4/216/2001 dated May 8, 2001, SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003. 6.4.1The Board of the AMC and Trustees shall ensure compliance with these Guidelines on a continuous basis and shall report any violations and remedial action taken by them in the periodical reports submitted to the Board Regulation 25(9) & 23(b) of SEBI (MF) Regulations, 1996. 6.4.2 The guidelines enumerated below specify the minimum requirements that have to be followed. The AMC(s) and Trustees are free to set more stringent norms for investment and/or trading in securities by their employees. 6.4.3 Guidelines for Investment and/or Trading in Securities by Employees of AMC(s) and Trustees 6.4.3.1 Applicability a. These Guidelines shall be applicable to all employees of AMC(s) and Trustees and shall form a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o likely conflict between the Mutual Fund's interest and the employees' interest. 3. Investments in government securities, Money Market instruments and Money Market Mutual Fund schemes. 6.4.4.2 No employee shall pass on information to anybody inducing him to buy/sell securities which are being bought and/or sold by the Mutual Fund of which the AMC is the investment manager. 6.4.4.3 Prior approval of personal investment transactions: a. All access persons except Compliance Officer shall apply in the form prescribed by the AMC(s) and/or Trustees to the Compliance Officer for prior approval of transactions for sale or purchase of securities other than those expressly stated to be exempt under these guidelines. The Compliance Officer shall apply to the Head of the AMC(s). The decision of the Compliance Officer shall be final and binding on the employee. b. In these Guidelines, in the case of the Compliance Officer's own transactions for purchase or sale of securities or disclosure or any other related matter, the term "Compliance Officer" wherever it appears, shall be read as "Head of the AMC." c. The Compliance Officer may coordinate with the Fund Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a preferential offer is made to all shareholders and/or debenture holders of such companies. Details of such applications made shall be intimated to the Compliance Officer. c. The employees of the AMC(s) and/or Trustees including access person may apply for any rights offer of any company in which they are already shareholders. Applications for additional rights (over and above the normal rights entitlement) shares may be made by the employees including access person without getting the clearance from the Compliance Officer. An employee including access person may also sell and/or renounce his rights entitlement without getting the clearance from the Compliance Officer. However, if an access person wishes to purchase the "Rights renunciations" he shall get the clearance of the Compliance Officer for the same. Such purchases shall be done only at market prices. Details of any applications made in any rights issue, whether in the normal course, or through purchase of rights renunciations, shall be intimated to the Compliance Officer. 6.4.5.2 Investments through the secondary markets: a. An access person who wishes to make a secondary market transaction shall submit a written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, "Front Running" means any transaction of purchase and/or sale of a security carried by any employee whether for self or for any other person, knowing fully well that the AMC also intends to purchase and/or sell the same security for its Mutual Fund operations. To ascertain that the employee had no prior knowledge of the Mutual Fund's intended transactions, the Compliance Officer may take a declaration in this regard from the employee. Such declaration may be included in the application form itself. g. Any transaction of self dealing by any employee either directly or indirectly, whether alone or in concert with another person is prohibited. For this purpose, "Self Dealing' means trading in the securities based on price sensitive information to which the employee has access by virtue of his office. Declaration to this effect may be taken from the employee while clearing the proposals for investment. h. The employees shall not insist or suggest to the concerned brokers to charge reduced brokerage, or accept any contract with a clause on reduced brokerage charge. 6.4.6 Investments in units of Mutual Fund Schemes 6.4.6.1 Access persons as well as other employees do not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Mutual Fund, to the Compliance Officer: a. Details of each of their transactions for purchase or sale of securities including allotment in public and rights issues within 7 calendar days in tandem with SEBI (Insider Trading) Regulations. b. A statement of holding in securities as on March 31 within 30 calendar days (in tandem with SEBI (Insider Trading) Regulations) from the end of every financial year ending March 31. c. A declaration shall also be included in the reporting form on the lines of clause 6.4.5.2. (f) and 6.4.5.2. (g) regarding Front Running and Self Dealing. 6.4.8 Review by the Board of Directors of AMC and the Trustee(s) 6.4.8.1 The Board of the AMC and the Trustees shall review the compliance of these Guidelines in their periodic meetings. They shall review the existing procedures and recommend changes in procedures based on the AMCs experience, industry practices and/or developments in applicable laws and regulations. They shall report compliance and any violations and remedial action taken by them in their reports submitted to the Board. 6.5 Responsibilities of AMC & Trustees MFD/CIR/09/014/2000 dated January 5, 2000 6.5.1 For effective discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he two conditions mentioned above shall also be complied within each subsequent calendar quarter thereafter, on an average basis, as specified by SEBI. 6.7.1.6 The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard. 6.7.2 Applicability for a Close ended scheme/Interval scheme 6.7.2.1 The Scheme(s) and individual Plan(s) under the Scheme(s) 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(s)/Plan(s). 6.7.2.2 These conditions will be complied with immediately after the close of the NFO itself i.e. at the time of allotment. 6.7.2.3 In case of non-fulfillment with the condition of minimum 20 investors, the Scheme(s)/Plan(s) shall be wound up in accordance with Regulation Reg. 39 (2) (c) of SEBI (MF) Regulations, 1996 automatically without any reference from SEBI. 6.7.2.4 In case of non-fulfillment with the condition of 25% holding by a single investor on the date of allotment, the application to the extent of exposure in excess of the stipulated 25% limit would be liable to be rejected and the allotment would be effective only to the extent of 25% of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.10 The systems audit should be comprehensive encompassing audit of systems and processes inter alia related to examination of integration of front office system with the back office system, 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. 6.11 Mutual Funds/ AMCs should get the above systems audit conducted once in two years. 6.12 The Systems Audit Report and compliance status should be placed before the Trustees of the mutual fund. 6.13 The systems audit report/findings alongwith trustee comments should be communicated to SEBI. 6.14 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 6.15 Mutual Funds should play an active role in ensuring better corporate governance of listed companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by SEBI from time to time may be considered 7.3.1 Mutual Funds are not permitted to operate in the securities market without furnishing a valid Unique Client Code (UCC). SEBI Circular No. SMDRP/Policy/Cir-39/2001 dated July 18, 2001. Mutual Funds are required to obtain UCC from the Bombay Stock Exchange Ltd. (BSE) or The National Stock Exchange Ltd. (NSE) whenever a new scheme(s) or plan(s) (wherever the portfolio of the plans is different) is launched SEBI Circular No. SEBI/IMD/CIR No.01/1756/04 dated January 27, 2004. Such UCC should be obtained before commencing the trading on behalf of the scheme(s)/plan(s). At the time of entering an order, the UCC pertaining to the parent Mutual Fund shall be provided and the allocation to individual schemes shall be done in the post closing session. SEBI Circular No. MRD/DoP/SE/Cir-35/2004 dated October 26, 2004. The UCC can be shared with the unit holders to facilitate tax benefits linked to payment of Securities Transaction Tax (STT). 7.4 Trading in Exchange Traded Derivatives Contracts SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005; SEBI Circular No. DNPD/Cir-30/2006 dated January 20, 2006, SEBI Circular No. SEBI/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /158/03 dated June 10, 2003. 7.6 Transactions of mutual funds in Government Securities in dematerialised form SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002 7.6.1 According to Regulation Regulation 44(1A) of SEBI (Mutual Funds) Regulations, 1996, the Mutual Funds having an aggregate of securities worth ₹ 10 crore or more are required to settle their transactions only through dematerialised securities. All Mutual Funds should enter into transactions relating to government securities only in dematerialised form. CHAPTER 8 NET ASSET VALUE Regulation 48(1) of SEBI (Mutual Funds) Regulations, 1996 8.1 Disclosure of Net Asset Value SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997, SEBI Circular No. MFD/CIR No.11/171/01 dated February 9, 2001, SEBI Circular No. MFD/CIR/13/087/2001 dated March 28, 2001; SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006, SEBI Circular No. SEBI/IMD/CIR No.5/96576/2007 dated June 25, 2007, SEBI Cir No. SEBI/IMD/Cir No.12/147132/08 dated December 11,2008 8.1.1 The NAV of schemes shall be published on a daily basis by the Mutual Funds at least in two daily newspapers Regulation 48(2) of SEBI (Mutual Funds) Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Mutual Funds should follow the Guidelines enumerated below with respect to uniform Cut -off Timings: 8.3.2 Definitions: 8.3.2.1 In these Guidelines, unless the context otherwise requires: a. 'Cut-off Timing', in relation to an investor making an application to a Mutual Fund for purchase or sale of units, shall mean, the outer limit of timing within a particular day which is relevant for determination of the NAV applicable for his transaction; b. 'International scheme' means a Mutual Fund scheme having substantial investments in foreign securities valued as per time zones other than Indian Standard Time zone; c. 'Liquid fund schemes and plans' shall mean the schemes and plans of a Mutual Fund as specified in the guidelines Please refer to the Section on liquid schemes issued by SEBI in this regard SEBI Circular No.SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009. 8.3.3 Applicability 8.3.3.1 The Guidelines on Cut off Timings for applicability of Net Asset Value of Mutual Fund scheme(s) and/ or plan(s) shall be applicable to all schemes and plans of Mutual Funds except: a. International schemes and b. Transactions in Mutual Fund units undertaken on a recognized Sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of units in respect of switch-in to liquid schemes from other schemes, it shall be ensured that: a. Application for switch-in is received before the applicable cut-off time. b. Funds for the entire amount of subscription/purchase as per the switch-in request are credited to the bank account of the respective switch-in liquid schemes before the cut-off time. c. The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective switch-in schemes. 8.3.5.4 The following Cut-off Timings shall be observed by Mutual Funds with respect to repurchase of units in liquid fund schemes and plans and the following NAVs shall be applied for such repurchase: a. Where the application is received up to 3.00 pm - the closing NAV of day immediately preceding the next business day; and b. Where the application is received after 3.00 pm - the closing NAV of the next business day. 8.3.5.5 Mutual Funds shall calculate NAV for each calendar day for their liquid fund schemes and plans. a. Explanation: "Business Day" does not include a day on which the Money Markets are closed or otherwise not accessible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... witch-in request are credited to the bank account of the respective switch-in income/debt oriented mutual fund schemes/plans before the cut-off time. iii. The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective switch-in income/debt oriented mutual fund schemes/plans. 8.3.6.4 The following Cut-off Timings shall be observed by Mutual Funds in respect of repurchase of units in its other schemes and their plans, and the following NAVs shall be applied for such repurchase: a. Where the application is received up to 3.00 pm - closing NAV of the day on which the application is received; and b. An application received after 3.00 pm - closing NAV of the next business day. 8.3.7 Switch and Sweep Transactions 8.3.7.1 Paragraphs 8.3.5 and 8.3.6 shall apply to 'switch in' transactions as if they were purchase transactions and to 'switch out' transactions as if they were repurchase transactions. 8.3.7.2 Paragraphs 8.3.5 and 8.3.6 shall apply to 'sweep' transactions as if they were purchase transactions and to 'reverse sweep' transactions as if they were repurchase transactions. 8.3.7.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of and on the investor's acknowledgment copy (or twice on the application if no acknowledgment is issued) indicating the date and time of receipt and running serial number. 8.4.4 Different applications shall not be bunched together with the same serial number. 8.4.5 Blank papers shall not be time stamped. Genuine errors, if any, shall be recorded with reasons and the corresponding applications requests shall also be preserved. 8.4.6 The time stamping machine shall have a tamper proof seal and the ability to open the seal for maintenance or repairs must be limited to vendors or nominated persons of the mutual fund, to be entered in a proper record. 8.4.7 Breakage of seal and/or breakdown of the time stamping process shall be duly recorded and reported to the Trustees. 8.4.8 Every effort should be made to ensure uninterrupted functioning of the time stamping machine. In case of breakdown, the Mutual Funds shall take prompt action to rectify the situation. During the breakdown period, Mutual Funds shall adopt an alternative time stamping 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 accu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curity and valued accordingly. b. In order to determine whether a security is thinly traded or not, the volumes traded in all recognized Stock Exchanges in India may be taken into account. c. For example, if the volume of trade is 1,00,000 and value is ₹ 4,00,000, the shares do not qualify as thinly traded. Also if the volume traded is 40,000, but the value of trades is ₹ 6, 00,000, the shares do not qualify as thinly traded. d. Where a Stock Exchange identifies the thinly traded securities by applying the above parameters for the preceding calendar month and publishes or provides the required information along with the daily quotations, the same can be used by the Mutual Funds. e. If the shares are not listed on the Stock Exchanges which provide such information, then Mutual Funds shall make their own analysis in line with the above criteria to check whether such securities are thinly traded or not and then value them accordingly. 9.1.3 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair value per share. d. In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalised earning. e. In case where the latest Balance Sheet of the company is not available within nine months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero. f. In case an individual security accounts for more than 5 per cent. of the total assets of the scheme, an independent valuer shall be appointed for the valuation of the said security. To determine if a security accounts for more than 5 per cent. of the total assets of the scheme, it shall be valued by the procedure above and the proportion which it bears to the total net assets of the scheme to which it belongs will be compared on the date of valuation SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001. g. In case trading in an equity security is suspended 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 document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Yields so arrived are used to price the portfolio 9.3. Methodology: 9.3.1 Construction of Risk Free Benchmark SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. 9.3.1.1 Using Government of India dated securities; the Benchmark shall be constructed as below: a. Government of India dated securities will be grouped into various duration buckets such as 0.25- 0.5 yrs SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010 , .5-1 year, 1-2 years, 2-3 years, 4-5 years, 5-6 years and 6 years and the volume weighted yield would be computed for each bucket. These duration buckets may be changed to reflect the market value more closely by any agency 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/8/9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the agency recommended by AMFI. Submission of data would help in daily matrix generation, would improve uniformity and accuracy of valuation in the Mutual Funds industry SEBI Circular No. MFD/CIR.No 23 / 066 /2003 dated March 7,2003. 9.3.3 Mark-up/Mark-down Yield 9.3.3.1 The Yields calculated would be marked-up/marked-down to account for the illiquidity risk, promoter background, finance company risk and the issuer class risk. As the level of illiquidity risk would be higher for non rated securities the marking process for rated and non rated securities would be differentiated as follows: a. Adjustments for Securities rated by external rating agencies SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. Category Discretionary mark up/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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uniformity in calculation of NAVs SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002. 9.6. Illiquid Securities SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000. 1. Provided that in case any scheme has illiquid securities in excess of 15% of total assets 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 illiqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 30.06.2000 has not been received. Further, no accrual will take place from 01.10.2000 onwards. Full provision will be made for interest accrued and outstanding as on 30.06.2000. 9.7.4 Provision for NPAs - Debt Securities 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. 86 Master Circular for Mutual Funds b. 20 percent of the book value of the asset should be provided for after 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be written back at the end of 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. i. 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PAs 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 up Shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer 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 chapter on formats. and Half Yearly Reports For Half Yearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified 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 The following expenses cannot be charged to the schemes of Mutual Funds: 10.1.2.1 Penalties and fines for infraction of laws. 10.1.2.2 Interest on delayed payment to the unit holders. 10.1.2.3 Legal, marketing, publication and other general expenses not attributable to any scheme(s). 10.1.2.4 Fund Accounting Fees. 10.1.2.5 Expenses on investment management/general management. 10.1.2.6 Expenses on general administration, corporate advertising and infrastructure costs. 10.1.2.7 Depreciation on fixed assets and software development expenses. 10.1.2.8 Such other costs as may be prohibited by the Board. 10.1.3 The expenditure and/or fee payable by Mutual Funds to the Depositories may either be capitali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted through any distributor or agent or broker. This waiver was applicable to both additional purchases under the same folio and 'switch in' to a scheme from other schemes also done directly by the investor. AMCs shall follow the provisions pertaining to informing the unitholders upon a change in load structure as per clause 3(d) of standard observations. for all Mutual Fund schemes. 10.4.1.2 The scheme application forms shall carry a suitable disclosure to the effect that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor. 10.4.1.3 Of the exit load or CDSC charged to the investor, a maximum of 1% of the redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately. 10.4.1.4 The distributors should disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various Mutual Funds from amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROCEDURE SEBI Circular No. SEBI/IMD/CIR No.1/64057/06 dated April 4, 2006., For details on advertisement on dividend please refer to Chapter on 'Advertisements' 11.1 Regulations Regulation 53(a) of the SEBI (Mutual Funds) Regulations, 1996 permit Mutual Funds to distribute returns including dividend. To introduce uniform practices in dividend distribution, the following guidelines should be followed: 11.2 These guidelines are applicable to all Mutual Fund schemes/plans which intend to declare the dividend irrespective of their dates of launch. SEBI Circular No SEBI/IMD/CIR No. 3/65370/06 dated April 21,2006 11.2.1 Unlisted Scheme(s)/ Plan(s) 11.1.1.1 The Trustees shall decide the quantum of dividend and the record date in their meeting Clause 20 of Third Schedule of SEBI (Mutual Funds) Regulations, 1996. Dividend so decided, shall be paid, subject to availability of distributable surplus. 11.2.1.2 Record date shall be the date which will be considered for the purpose of determining the eligibility of investors whose names appear on the register of unit holders for receiving dividends. The NAV shall be adjusted to the extent of dividend distribution and statutory levy, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same shall not be utilized for the determination of distributable surplus. 11.3.2.2. When units of an open-ended scheme are sold, and sale price is less than face value of the unit, the difference between the sale price and face value shall be debited to distributable reserves and the dividend can be declared only when distributable reserves become positive after adjusting the amount debited to reserves as per Regulations Paragraph 2(a) (ix) of Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996. CHAPTER 12 INVESTMENT BY SCHEMES Investments in Money Market instruments (MMIs) In case of the existing schemes ( i.e. existing on date of issue of SEBI Circular No - SEBI / IMD / CIR No.3 / 166386 / 2009 dated June 15, 2009) where the investments in money market instruments of an issuer are not in compliance with the Gazette Notification No. LAD - NRO/GN/2009-10/07/165404 dated June 5, 2009, AMC shall ensure compliance within a period of 3 months from the date of notification. 12.1 Investments by Index Funds: SEBI Circular No - MFD/CIR/09/014/2000 dated January 5, 2000 12.1.1 Investments by index funds shall be in accordance with the weightage of the scrips in the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 12.4.2 Disclosure Requirements 12.4.2.1 The following information shall be disclosed in the SID to enable the investors and unit holders to take an informed decision: a. Intention to lend securities belonging to a particular Mutual Fund scheme in accordance with the guidelines on securities lending and borrowing scheme issued by SEBI from time to time. SEBI Circular No - SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009 b. Exposure limit with regard to securities lending, both for the scheme as well as for a single intermediary. c. Risks factors such as loss, bankruptcy etc. associated with such transactions. 12.4.3 Reporting Requirement 12.4.3.1 The AMC(s) shall report to the Trustees on a quarterly basis about the level of lending, in terms of value, volume and intermediaries and also earnings and/or losses, value of collateral security etc. 12.4.3.2 The Trustees shall periodically review the securities lending contract and take reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Government securities issued by Central and/or State Government or on its behalf, by the RBI are however exempt from these limits. 12.8 Investment Restrictions for Securitised Debt SEBI Circular No. SEBI/IMD/CIR No.6/63715/06 dated March 29, 2006. 12.8.1 For investments made in Securitised Debt (mortgage backed securities and asset backed securities), restrictions as per Clause 1 of Seventh Schedule Clause I of Schedule VII of SEBI (Mutual Fund), Regulations, 1996 shall not apply at the originator level. 12.9 Investments in Short Term Deposits of Scheduled Commercial Banks SEBI Circulars No. SEBI/IMD/CIR No.9/20306/03 dated November 12, 2003, SEBI Circular No. SEBI/IMD/Cir No.1/91171/07 dated April 16, 2007, SEBI and Clause 8 of Seventh Schedule of Mutual Funds Regulations, 1996. 12.9.1 The guidelines for deployment of funds in short term deposits of commercial banks for schemes are as under: 12.9.1.1 "Short Term" for parking of funds by Mutual Funds shall be treated as a period not exceeding 91 days. SEBI Circular No. SEBI/IMD/Cir No.1/91171/07 dated April 16, 2007. 12.9.1.2 Such deposits shall be held in the name of the concerned scheme. 12.9.1.3 Mutual Funds shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI 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 securities transparent, a monthly reconciliation system has been introduced between RBI and Mutual Funds maintaining SGL/CSGL accounts with respect to Government Securities on an ongoing basis. 12.10.2 Mutual Funds shall reconcile the balances reported in the monthly statements furnished by RBI with the transactions undertaken by them. 12.10.3 The reconciliation procedure shall be made part of internal audit and the auditors shall on a continuous basis, check the status of reconciliation and submit a report to the Audit Committee. These reports shall be placed in the meetings of the Board of the AMC and Trustees. Mutual Funds shall submit, on a quarterly basis to the RBI, a certificate confirming compliance with these requirements and any other guidelines issued by the RBI from time to time in this regard. Compliance shall also be reported to the Board in the CTRs of AMC(s) and Half Yearly Trustee Reports. 12.11 Overseas Investment SEBI Circular No. SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007 & SEBI Circular No. SEBI/IMD/CIR No.2/122 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board of the AMC and Trustees shall exercise due diligence in making investment decisions and record the same. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000. They shall make a detailed analysis of risks and returns of overseas investment and how these investments would be in the 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. 12.11.3.4 Mandatory Disclosure Requirements for Mutual Fund schemes proposing oversea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of overseas investments b. Amount invested in various schemes and any breach of the exposure limit laid down in the SID. 12.11.3.7 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. 12.11.3.8 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. 12.11.3.9 Prudential Investment Norms: a. Investment restrictions specified in Schedule Seven of the Mutual Funds Regulations are applicable to overseas investments stipulated under paragraph 12.11.2.1- 12.11.2.9 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the first time shall 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. 12.14.2 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. 12.14.3 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 chapter 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. 12.15 Norms for investment and disclosure by Mutual Funds in derivatives SEBI Circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010 12.15.1 Exposure Limits 12.15.1.1. The cumulative gross exposu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts Option bought Option Premium Paid * Lot Size * Number of Contracts. 12.15.1.9 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. 12.16 Interval Schemes/Plans SEBI Circular No. CIR/IMD/DF /19/2010 dated November 26, 2010 12.16.1 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'. 12.16.2 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. Schemes for which observations (final) under Regulation 29 of SEBI (Mutual Funds) Regulations, 1996 have been issued but are yet to be launched would be required to carry out the changes in Scheme Inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formance of the schemes and disclosure of their portfolios or to influence the opinion or behavior of those who receive such communication. It includes leaflets, newsletters, brochures, mailers, performance reports or summaries, circulars, seminars/workshop materials, SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000. fund fact sheets, research reports, telemarketing scripts, press releases and reprints or excerpts of any other advertisements or published article, etc. SEBI Circular No. SEBI/MFD/CIR No.6/12357/03 dated June 26, 2003. but will not include motivational letters written to marketing intermediaries and agents. 13.2.4.Advertisements or distribution of Sales Literature must be accompanied or preceded by issue of a SID and SAI, unless stated otherwise SEBI Circular No. SEBI/IMD/CIR No 14/187175/2009 dated December 15, 2009 and shall be substantiated with the disclosures made in the SID and SAI. 13.3 Standards of Communications SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000. 13.3.1 The following standards of communication shall be followed. These shall also be followed in case of activities organized to promote Mutual Funds, the AMC(s) or their schemes: 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any forum used by Mutual Funds to market or convey the performance of their schemes. However these guidelines will not be applicable for communications that carry general messages or public speaking that is a general discourse on Mutual Funds with no references to a fund scheme or performance. 13.6 Forms of Advertisement SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000. 13.6.1 Tombstone Advertisement SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009 13.6.1.1 This form of advertisement can only give basic information about a: a. Mutual fund registered with SEBI whose Statement of Additional Information is filed with SEBI or b. Scheme which is already launched and is in existence and whose Scheme information document is available. 13.6.1.2 These advertisements must contain the following minimum information: a. Name of the Mutual Fund and the Asset Management Company (AMC). b. Scheme name and classification (i.e. income/growth etc.) indicating investment objectives of the scheme. c. Logo or trademark or corporate symbol, if any. d. General services offered i.e. frequency of Net Asset Value (NAV) disclosure, liquidity etc. e. Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in the Product Launch advertisement should be substantiated with the SID & SAI, 13.6.3 Performance Advertisement: 13.6.3.1 If Mutual Funds use performance figures in their advertisements and/ or sales literature or issue exclusive performance advertisements, such advertisements shall adhere to the following Guidelines: a. Such advertisements shall identify the nature of the scheme and its basic investment objective. b. The dividends declared or paid shall also be mentioned in Rupees per unit along with the face value of each unit of that scheme and the prevailing NAV at the time of declaration of the dividend. c. Only compounded annualized yield shall be advertised, calculated using the procedure detailed in the Standard Format of the SID For SID format please refer Chapter on Formats, if the scheme has been in existence for more than 1 year. All performance calculations shall be based only on NAV and payouts to the unit holders. The calculation of returns shall assume that all payouts during the period have been reinvested in the scheme at the then prevailing NAV and this shall be clarified in the advertisements. The type of plan or option of the scheme for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy (if applicable). SEBI Circular No. SEBI/IMD/CIR No.1/64057/06 dated April 4, 2006. 13.7 Advertisements through Hoardings and/or Posters SEBI Circular No. SEBI/MFD/CIR No.6/12357/03 dated June 26, 2003. 13.7.1 It is essential for the investors to read the SID and SAI and risk factors before investing in Mutual Fund schemes to arrive at a well informed investment decision. Considering that investors get very little time to read the advertisements through hoardings or posters etc. while passing by, it is clarified that such advertisements shall carry only the following statement besides the copy of advertisement: "Mutual Fund investments are subject to market risks, read the Offer Document carefully before investing." 13.7.2 The above statement shall be displayed in black letters of at least 8 inches height or covering 10% of the display area, on a white background. The Compliance Officers of the Mutual Funds/ AMC shall ensure that the statements appearing in such advertisements are in legible font. 13.8 Advertisements through Audio-Visual Media SEBI Circular No. SEBI/MFD/CIR No.6/12357/03 dated June 26, 2003. 13.8.1 In audio-visual media based advertisements, the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of AMC(s)/Mutual Funds in the category, the name of the category and that the ranking is based upon category created \ by the AMC/ MF, and the time period on which the ranking is based (i.e., the length of the period and the ending date; or, the first day of the period and the ending date), shall appear in close proximity to any headline or other prominent statement that refers to a ranking. 13.10.3.2 All advertisements and Sales Literature containing an AMC(s)/Mutual Fund ranking must disclose, with respect to the ranking: a. The name of the category (e.g. income/growth). b. The number of AMC(s)/Mutual Funds in the category. c. The name of the Ranking Entity. d. The length of the period and the ending date, or the first day of the period and the ending date. e. Criteria on which the ranking is based. f. For schemes assessing front-end sales loads, whether the ranking takes into account sales charge. g. In case the ranking is for a period where fees/expenses have been waived and the waiver or advancement had a material effect on the yield for that period, the same should be disclosed in the advertisement. SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory has been created by the AMC/Mutual Fund. 2. The number of schemes in the category. 3. The basis for selecting the category and 4. The name of the Ranking Entity that has developed and/or prescribed the criteria on which the ranking is based. 13.10.5.3 When the ranking is based on a subcategory, the advertisements and/ or Sales Literature shall disclose the name of the main category, the ranking and the number of schemes in the main category. This requirement does not apply if: a. The subcategory is based solely on the investment objectives of the schemes included and b. The subcategory is created by a Ranking Entity. This disclosure may be included in a footnote. 13.10.5.4 The advertisements and/or Sales Literature must not use any category or subcategory that is based upon the asset size of the AMC or Mutual Fund, whether created by the Ranking Entity or not. 13.10.6 Multiple class or Two-Tier Funds: 13.10.6.1 Rankings for more than one class of AMC(s)/Mutual Fund schemes with the same portfolio must be accompanied by prominent disclosure of the fact that the scheme or class of schemes have a common portfolio. 13.11 Indicative portfolios and yields in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispatch of repurchase or redemption and/or dividend is added to the proceeds when such payments are made to the investors. Such interest shall be borne by the AMC(s). 14.1.3 Details of such payments shall be sent to the Board along with the CTR(s). For CTR format please refer to Chapter on Formats Investors shall also be informed about the rate and amount of interest paid to them. Non compliance with these directions may invite action under the Mutual Funds Regulations. 14.2 Unclaimed Redemption Amount SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000 14.2.1 Unclaimed redemption and dividend amounts may be deployed by Mutual Funds in Call Money Market or Money Market instruments, as may be permitted by RBI from time to time. 14.2.2 Investors claiming these amounts within three years from the due date shall be paid at the prevailing NAV. At the end of three years, the amount can be transferred to a pool account and investors can claim the amount at the NAV prevailing at the end of the third year. 14.2.3 Income earned on such funds can be used for the purpose of investor education. 14.2.4 The AMC shall make a continuous effort to remind the investors through le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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. 14.5.1 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 informing his d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all provide space in applications and redemption request forms. PART III- INVESTOR EDUCATION 14.9 SEBI Investors Education Programme - Investments in Mutual Funds SEBI Cir No. MFD/CIR NO -13/370/02 dated January 16,2002 14.9.1 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. 14.9.2 AMCs are advised to circulate copies of the brochure among their distributors and agents (including brokers, banks, post offices) and the investors. 14.9.3 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 14.9.4 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. 14.9.5 Board may be kept informed about the steps taken by the AMCs in this regard from time to time. CHAPTER 15 CERTIFICATION AND REGISTRATION ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for details on Code of Conduct. All intermediaries shall follow the Code of Conduct strictly and not indulge in any practice contravening it directly or indirectly. 15.4.3 Non compliance with the Code of Conduct shall be reported by the Mutual Funds to the Board and AMFI. Further, no Mutual Fund shall deal with intermediaries contravening the prescribed Code of Conduct. 15.5 Empanellment of Intermediaries by Mutual Funds 15.5.1 Empanelment of intermediaries by Mutual Funds, payment of commissions, brokerage and/or sub-brokerage etc. shall be in accordance with parameters and guidelines specified by the Board and AMFI from time to time. Mutual Funds shall monitor the compliance of these guidelines and Code of Conduct by their intermediaries in terms of business done across all Mutual Funds. In case of non-compliance, Mutual Funds shall suspend further business and payment of commissions, etc. until full compliance by the empanelled intermediary. 15.6 Certification Programme for sale and/ or distribution of mutual fund products SEBI Circular No. Cir/IMD/DF/5/2010 dated June 24, 2010 15.6.1 With effect from June 01, 2010, the certification examination for distributors, agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements specified by Board in respect of "Anti Money Laundering (AML) Standards/Combating Financing of Terrorism (CFT) / Obligations of Securities Market Intermediaries under Prevention of Money Laundering Act, 2002 and Rules framed thereunder" SEBI Circular No ISD/AML/CIR-1/2008 dated December 19, 2008, maintenance of all documentation pertaining to the unitholders/ investors is the responsibility of the AMC. 16.1.2 Accordingly, vide SEBI Circular No - SEBI/IMD/CIR No.12 /186868 /2009 dated December 11, 2009, AMCs were advised to confirm whether all the investor related documents were maintained/ available with the AMC. If not, and to the extent of and relating to such investor accounts/folios where investor related documentation was incomplete/inadequate/not available or was stated to be maintained by the distributors, then the Trustees were advised to ensure the following: 16.1.2.1 No further payment of any commissions, fees and / or payments in any other mode should be made to such distributors till full compliance/ completion of the steps enumerated herein. 16.1.2.2 Take immediate steps to obtain all investor/ unit holders documents in terms of the AML/ CFT, including KYC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing guidelines to facilitate the same. 16.2.4 In this regard, Mutual Funds/AMC are advised that: 16.2.4.1 Empanelment and monitoring of Code of Conduct for brokers acting as mutual fund intermediaries a. The stock brokers intending to extend the transaction in Mutual Funds through stock exchange mechanism shall be required to comply with the requirements of passing the AMFI certification examination Please refer Chapter 15 on Certification and Registration of Mutual Funds intermediaries.All such stock brokers would then be considered as empanelled distributors with mutual fund/AMC. b. These stock brokers shall also comply with Code of Conduct For Code of Conduct, please refer to Annexure I for intermediaries of Mutual Funds, and applicable SEBI guidelines Please refer Chapter 15 on Certification and Regiatration of Mutual Funds intermediaries, applicable to intermediaries engaged in selling and marketing of mutual fund units. c. It is clarified that, stock exchanges shall monitor the compliance of the code of conduct specified regarding empanelment of intermediaries by mutual funds Please refer Chapter 15 on Certification and Regiatration of Mutual Funds intermediaries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds units through stock brokers and clearing members: a. Investors shall receive redemption amount (if units are redeemed) and units (if units are purchased) through broker/clearing member's pool account. Mutual Funds(MF)/ Asset management Companies(AMC) would pay proceeds to the broker/clearing member (in case of redemption) and broker/clearing member in turn to the respective investor and similarly units shall be credited by MF/AMC into broker/clearing member's pool account (in case of purchase) and broker/clearing member in turn to the respective investor. b. Payment of redemption proceeds to the broker/clearing members by MF/AMC shall discharge MF/AMC of its obligation of payment to individual investor. Similarly, in case of purchase of units, crediting units into broker/clearing member pool account shall discharge MF/AMC of its obligation to allot units to individual investor. 16.2.4.10 The following may be noted in this regard: a. Clearing members 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, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
