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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 ..... ircular shall prevail. 3. Master Circular is a compilation 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 .26 RISK MANAGEMENT SYSTEM................................ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 1996 . 1.1.3.1 Filing of Draft SID: a. Draft SID of schemes of Mutual Funds filed with the Board shall also be available on SEBI s website www.sebi.gov.in for 21 working days from the date of filing. b. AMC shall submit a soft copy of draft SID to the Board in HTML or PDF format. For this purpose, AMC shall be fully responsible for the contents of soft copies of the SID. AMC shall also submit an undertaking to the Board while filing the soft copy of draft SID certifying that the information contained in the soft copy matches exactly with the contents of the hard copy filed with the Board. c. In case of any inaccurate filing, the SID will be returned and refiling will be required. 21 working days Regulation 29(3) of SEBI (Mutual Funds) Regulation 1996 shall be calculated from the date of refiling; SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997. d. If any changes to the SID are made after filing, the 21 working day(s) period will recommence from the date of submission of the last additional statement(s) SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997, SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs of the end of the subsequent financial year. (For example, for a scheme launched in May, 2008 the SID shall be updated by June 30, 2009 and for a scheme launched in December 2008, the SID shall be updated by June 30, 2010) Thereafter, the SID shall be updated once every year. 1.2.1.2 The procedure to be followed in case of changes to the scheme shall be as under: a. In case of change in fundamental attributes in terms of Regulation Regulation 18 (15A) of SEBI (Mutual Funds) Regulation, 1996 , SID shall be revised and updated immediately after completion of duration of the exit option. b. In case of other changes: 1. The AMC shall be required to issue an addendum and display it on its website. 2. The addendum shall be circulated to all the distributors/brokers/Investor Service Centre (ISC) so that the same can be attached to copies of SID already in stock, till the SID is updated. 3. In case any information in SID is amended more than once, the latest applicable addendum shall be a part of SID. (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 til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AMC intends to launch the scheme at a date later than six months, it shall refile the SID with SEBI under Regulation 28 (1) along with filing fees. 1.4 Undertaking from Trustees for new Scheme SEBI Cir No IMD/CIR No.5/70559/06 dated June 30,2006 1.4.1 In the certificate submitted by Trustees with regard to compliance of AMC with Regulations, Regulation 18 (4) of SEBI ( Mutual Funds) Regulations, 1996 . the Trustees are required to certify as follows: The Trustees have ensured that the (name of the scheme/Fund) approved by them is a new product offered by (name of the Mutual Fund) and is not a minor modification of any existing scheme/fund/product. 1.4.2 This certification shall be disclosed in the SID along with the date of approval of the scheme by the Trustees. 1.4.3 This certification is not applicable to close ended schemes except for those close ended schemes which have the option of conversion into open ended schemes on maturity. 1.5 Standard Observations 1.5.1 Standard Observations have been prescribed to ensure minimum level of disclosures in the SID and SAI For Standard Observations, please refer to the Chapter on Formats . 1.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of sector or industry specific schemes, Mutual Funds may select any sectoral indices as published by the Stock Exchanges and other reputed agencies. 1.8.4 These benchmark indices may be decided by the AMC(s) and Trustees. Any change at a later date in the benchmark index shall be recorded and reasonably justified SEBI Circular No. MFD/CIR/16/400/02 dated March 26, 2002. Also please note that for review of scheme performance with benchmark indices please refer to section on governance norms. 1.8.5 Examples of benchmarks are illustrated below SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000 : 1.8.5.1 Growth funds maintaining minimum 65% of their investments in equities shall always be compared against The Bombay Stock Exchange Ltd. (BSE) Sensex or The National Stock Exchange Ltd. (NSE) Nifty or BSE 100 or CRISIL 500 or similar standard indices. 1.8.5.2 Income funds maintaining 65% or more of investments in debt instruments shall be compared with a suitable index that is a representative of the fund s portfolio. 1.8.5.3 Balanced funds with equity investments of 40%-60% shall be compared with a tailored index having 50% of its weight selected from any equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Issue a. Liquidity provisions such as listing, repurchase, redemption. b. Aggregate fees and expenses charged to the scheme. c. Any safety net or guarantee provided. CHAPTER 2 CONVERSION AND CONSOLIDATION OF SCHEMES AND LAUNCH OF ADDITIONAL PLAN PART I - CONVERSION OF SCHEMES 2.1 Conversion of Close Ended Scheme(s) to Open Ended Scheme(s) SEBI Circular No. MFD/CIR No.22/2311/03 dated January 30, 2003. 2.1.1 Although the procedure for conversion of close ended scheme(s) to open ended scheme(s) has been clearly enumerated in the Mutual Funds Regulations Regulation 33(3) of the SEBI (Mutual Funds), Regulations, 1996., following requirements are clarified again in the interests of investors: 2.1.1.1 Since the scheme(s) would reopen for fresh subscriptions, disclosures contained in the SID shall be revised and updated. A copy of the draft SID shall be filed with the Board as required under Regulation 28(1) of the Mutual Funds Regulations along with filing fees prescribed under Regulation 28(2) of the Mutual Funds Regulations. Instructions issued by the Board SEBI Circular No. SEBI/IMD/Cir No 5/126096/08 dated May 23, 2008 for fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the draft SID, requisite fees (if a new scheme emerges after such consolidation or merger) and draft of the letter to be issued to the unit holders of all the concerned schemes. b. The letter addressed to the unit holders, giving them the option to exit at prevailing NAV without charging exit load, shall disclose all relevant information enabling them to take well informed decisions. This information will include, inter alia: 1. Latest portfolio of the concerned schemes Refer format of half yearly portfolio disclosure under chapter on Formats . 2. Details of the financial performance of the concerned schemes since inception in the format prescribed in SID Please refer to SID Format under Chapter on Formats along with comparisons with appropriate benchmarks. 3. Information on the investment objective, asset allocation and the main features of the new consolidated scheme. 4. Basis of allocation of new units by way of a numerical illustration 5. Percentage of total NPAs and percentage of total illiquid assets to net assets of each individual scheme(s) as well the consolidated scheme. 6. Tax impact of the consolidation on the unit holders. 7. Any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me may be launched as additional plans as part of existing schemes by issuing an addendum. Such proposal should be approved by the Board(s) of AMC and Trustees. In this regard please note that: 2.3.2.1 The addendum shall contain information pertaining to salient features like applicable entry/exit loads, expenses or such other details which in the opinion of the AMC/ Trustees is material. The addendum shall be filed with SEBI 21 days in advance of opening of plan(s). 2.3.2.2 AMC(s) shall publish an advertisement or issue a press release at the time of launch of such additional plan(s). 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 shall not enter into any revenue sharing arrangement with the underl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Market or Fair Value of Scheme's investments + Current Assets - Current Liabilities and Provision NAV (in Rs. terms) = ______________________________________________ Number of Units outstanding under Scheme on the Valuation Date 3.2.5 Recurring Expenses SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006. 3.2.5.1The recurring expenses limits applicable to equity schemes Regulation 52(6) of the SEBI (Mutual Funds) Regulations, 1996. shall be applicable to GETF Scheme(s). 3.2.6 Benchmarks for GETF Scheme SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006. 3.2.6.1GETF Scheme(s) shall be benchmarked against the price of gold. 3.2.7 Half yearly report by Trustees SEBI Circular No. Cir/IMD/DF/20/2010 dated December 06, 2010 3.2.7.1. Physical verification of gold underlying the Gold ETF units shall be carried out by statutory auditors of mutual fund schemes and reported to trustees on half yearly basis. 3.2.7.2 The confirmation on physical verification of gold as above shall also form part of half yearly report Please refer to the Chapter on Formats for the disclosures in the Half Yearly Trustee Report w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cewaterhouse Coopers as a part of Indo-US Financial Institutions Reforms and Expansion Project. for Risk Management has been developed to ensure minimum standards of due diligence and Risk Management Systems for all the Mutual Funds in various operational areas (for e.g. Fund Management, Operations, Customer Service, Marketing and Distribution, Disaster Recovery and Business Contingency, etc.) and is enclosed herewith as Annexure 2. 4.2 The Risk Management practices covered in the Operating Manual are under three categories as detailed below: 4.2.1 Existing Industry Practices : 4.2.1.1 Under each head of risk, the Manual covers the exemplary practices followed by some / most of Mutual Funds in India. However, the extent and degree of observance of these practices differs among the Mutual Funds. Mutual Funds shall accordingly develop their systems and follow these practices. 4.2.2 Practices to be followed on Mandatory Basis : 4.2.2.1 Mutual Funds shall follow the practices which have been indicated as mandatory in the operating manual. These are Risk Management function that shall be assigned to Compliance Officer or Internal Risk Management Committee or to an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertisement Regulation 59A of the Mutual Funds Regulations SEBI Circular No. MFD/CIR No.010/024/00 dated January 17, 2000. 5.1.2 The Scheme Portfolio(s) For format of half yearly portfolio, please refer to the formats chapter 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. 5.1.3 Disclosure of derivatives in Half Yearly Portfolios SEBI Circular Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010. 5.1.3.1 A format For formats on disclosure of derivatives, please refer to the chapter 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. 5.1.3.2 Further, while listing net assets, the margin amounts paid should be reported separately under cash or bank balances. 5.2 Unaudited Half Yearly Financials SEBI Circular MFD/CIR/1/200/2001 dated April 20, 2001 SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made on or before 3rd working day of succeeding month. For example, portfolio as of March 31, 2009 shall be disclosed by April 04, 2009 - April 3, 2009 being a non working day. 5.6 Annual report of the AMC MFD/CIR/9/120/2000 dated November 24, 2000 5.6.1 Annual report containing accounts of the asset management companies should be displayed on the website of the mutual funds. It should also be mentioned in the annual report of the mutual fund schemes that the unitholders, if they so desire, may request for a copy of the annual report of the asset management company. 5.7 Submission of bio data of key personnel IIMARP/CIR /08/845/97 DATED May 7,1997,IIMARP/MF/CIR/05/788/97 dated April 28,1997 5.7.1 AMCs are required to submit the bio data of all key personnel to Trustees and the Board. For this purpose, key personnel would be the Chief Executive Officer (CEO), fund manager(s), dealer(s) heads of other departments of the AMC For format of bio-data of key personnel, please refer the Chapter on Formats . 5.8 Disclosure of investor complaints with respect to Mutual Funds SEBI Circular No. Cir /IMD/DF/2/2010 dated May 13, 2010 5.8.1 Mutual Funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities and overseas exchange traded funds (ETFs) shall also be provided as per the prescribed format. For format please refer to the chapter on formats. 5.10.2.3 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. 5.11 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, 5.11.1 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 Chapter on Formats. 5.12 Bi monthly Compliance Test Reports SEBI Circular No. SEBI/IMD/CIR NO 6/98057/07 dated July 5, 2007, SEBI Circular No MFD/CIR/11/36222/2005 dated March 16,2005,SEBI Circular No IIMARP/MF/CIR/10/1076/97 dated June 05,1997 SEBI Circular No.MFD/CIR/5/360/2000 dated July 4, 2000, 5.12.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 5.15.1 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. 5.15.2 The Trustee(s) shall also review all information and documents received from the AMC(s) as required under the compliance process. 5.15.3 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 chapter for format for reporting by AMC to Trustees . 5.15.4 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 relevant to the operation of the Mutual Fund For format ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.16.2.4 Incorrect district and state codes. 5.16.2.5 Incorrect transaction codes. 5.16.2.6 Wrongly showing transaction as of Govt. party. 5.16.3 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 valuation of securities. 6.2 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 6.3.3.1 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. For example, an employee of the Sponsor(s) or their associate companies or AMC(s) or Trustees resigns on December 1, 2001 then he cannot be appointed as an Independent Director till December 1, 2004. During this intervening period, he can be appointed only as Associate Director. However, if he is taken as an Associate Director, say on December 2, 2001, then he cannot be considered as Independent from December 2, 2004. There must be a cooling off period of 3 years from the date he ceases to be an Associate Director. 6.3.4 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 (Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curities made in the employees name, either individually or jointly, and in the name of the employees spouse and/or dependent children and transactions as a member of HUF. 6.4.3.2 The objectives and principles of these Guidelines are : a. To ensure that all securities transactions made by employees in their personal capacity are conducted in consonance with these Guidelines and in such manner as to avoid any actual or potential conflict of interest or any abuse of an individual s position of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the access person shall not be valid for more than seven calendar days from the date of approval SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003. 130 SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009 . e. If a transaction approved by Compliance Officer has not been effected within seven130 calendar days from the date of its approval, the access person shall be required to obtain approval once again 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 market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bentures and/or bonds and/or warrants and/or derivatives that the access person wishes to buy/sell. b. The Compliance Officer shall clear these requests if the following conditions are met: 1. If the shares and/or debentures and/or bonds and/or warrants of the company or derivatives specified by the access person are not held by any scheme of the Mutual Fund of which the AMC is the investment manager; 2. If such shares and/or debentures and/or bonds 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be reported by them to the Compliance Officer within 7 calendar days from the date of transaction. 6.4.6.2 In case of investments in SIP of any Mutual Fund scheme, the employees may report only at the time of making the first installment of the SIP. 6.4.6.3 Notwithstanding anything mentioned earlier, in the following cases employees of AMC Trustees shall not purchase or sell /or repurchase or redeem units of any scheme, including Money Market Mutual Fund scheme 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point independent auditors and/or may have separate full fledged administrative set up for the Trustees. However, the expenditure incurred in this regard shall be within the limits as specified in Regulation 52(6) of the Mutual Funds Regulations. AMC(s) shall place correspondence and reports submitted to SEBI before the Trustees. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und Offer. 6.7.2.5 For interval scheme the aforesaid provision will be applicable at the end of NFO and specified transaction period. 6.7.2.6 Requisite disclosure in this regard shall be made in the SID. 6.7.3 Determination of breach : 6.7.3.1 The average shall be calculated, at the end of each quarter, on the basis 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11. 6.17 AMCs are required to disclose on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11, the actual exercise of their proxy votes in the AGMs/EGMs of the investee companies in respect of the following matters. 6.17.1. Corporate governance matters, including changes in the state of incorporation, merger and other corporate restructuring, and anti takeover provisions. 6.17.2.Changes to capital structure, including increases and decreases of capital and preferred stock issuances. 6.17.3.Stock option plans and other management compensation issues; 6.17.4. Social and corporate responsibility issues. 6.17.5. Appointment and Removal of Directors. 6.17.6. Any other issue that may affect the interest of the shareholders in general and interest of the unit-holders in particular. 6.18 The format For disclosure of voting by mutual funds in general meetings of listed companies, please refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular No. SEBI/DNPD/Cir-31/2006 dated September 22, 2006. 7.4.1 For trading in Exchange Traded Derivatives Contracts, following should be observed: 7.4.1.1. Mutual Fund schemes can participate in derivatives market as per the guidelines issued by SEBI in this regard from time to time. SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005. 7.4.1.2 The Mutual Funds shall be treated at par with a registered FII in respect of position limits in index futures, index options, stock options and stock futures contracts. The Mutual Funds will 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Mutual Funds at least in two daily newspapers Regulation 48(2) of SEBI (Mutual Funds) Regulations, 1996 . 8.1.2 NAV and sale/repurchase price of all Mutual Fund schemes except for Fund of 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 chapter 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 Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Stock Exchange. 8.3.4 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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: a. 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; b. 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 c. Where the application is received with an outstation cheque or demand draft which is not payable on par at the place where it is receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 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 chapter on formats of the AMC(s) and the Half Yearly Trustee Reports For Trustee report, please refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, 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 St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 91 days : 1. All money market and debt securities, including floating rate securities, with residual maturity of upto 91 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hmark 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 matrix with the GOI securities matrix. Accordingly: a. All traded pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. To value an un-rated security, the fund manager shall assign an internal credit rating, which will be used for valuation. Since un-rated 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 discount of upto +50 bps over and above mandatory discount of +50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 unlisted equity shares, shall not exceed 15 per cent of the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments, 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 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 classificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t provided for in the books 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter on Formats. 9.7.9.2 The total amount of provisions made against 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AMCs and with the approval of the Trustees, unlisted equity shares may be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 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 softw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153/07 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23, 2008 (clause 16 of the standard observations) 10.7.2 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/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, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales 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 unrealised gains shall be credited to a separate account (Unit Premium Reserve) and shall be treated at par with unit capital and 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 instrum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from these requirements shall be viewed as violation of investment restrictions. 12.3 Investments by close ended debt schemes: 12.3.1 Close 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 Stock Lending Scheme SEBI Circular No MFD/CIR/01/047/99 dated February 10, 1999. 12.4.1 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. 12.4.2 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imits for Government guaranteed debt securities SEBI Circular No. SEBI/IMD/CIR No.8/18944/03 dated October 6, 2003. 12.7.1Prudential 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. 12.8 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .9/20306/03 dated November 12, 2003. 12.9.1.10Except 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 . 12.10 Reconciliation Procedure for Investment in Government Securities SEBI Circular No. MFD/CIR/19/22474/2002 dated November 20, 2002. 12.10.1 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulators and investing in a. Aforesaid Securities b. Real Estate Investment Trusts listed on recognized Stock Exchanges overseas or c. Unlisted overseas securities, not exceeding 10% of their net assets 12.11.3 Other Conditions: 12.11.3.1 Apart from the Mutual Funds Regulations and guidelines issued from time to time, Mutual Funds shall adhere to the following specific guidelines while making overseas investments: 12.11.3.2 Appointment of a Dedicated Fund Manager : a. A dedicated fund manager shall be appointed for making the above overseas investments stipulated under clause 12.11.2.1 to 12.11.2.9. 12.11.3.3 Due Diligence : a. The Board of the AMC and Trustees shall exercise due diligence in making investment decisions and record the same. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000. They shall make a detailed analysis of risks and returns of overseas investment and how these investments would be in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, the scheme, if it so desires, may make such investments in accordance with these Guidelines, provided that prior to the overseas investments for the first time, the AMC shall ensure that a written communication about the proposed investment is sent to each unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated. The communication to unit holders shall also disclose the risk factors associated with such investments. 12.11.3.6 Detailed periodic reporting to Trustees by AMC(s) shall include : a. Performance of overseas investments b. Amount invested in various schemes and any breach of the exposure limit laid down in the SID. 12.11.3.7 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Investment Decisions SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000. 12.14.1 AMC(s) shall exercise due diligence and care in all investment decisions as would be exercised by other persons engaged in the same business. Regulation 25(2) of the SEBI (Mutual Funds) Regulations, 1996. Further AMC(s) shall maintain records in support of each investment decision which will indicate data, facts and opinion leading to that decision. While broad parameters for investments can be prescribed by the Board of Directors of the AMC, the basis for taking individual scrip wise investment decision in equity and debt securities shall be recorded. A detailed research report analyzing various factors for each investment decision taken 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 secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 10% of the net assets of the scheme. 12.15.1.7 Exposure due to derivative positions taken for hedging purposes in excess of the underlying position against which the hedging position has been taken, shall be treated under the limits mentioned in point 12.15.1.1. Definition of Exposure in case of Derivative Positions 12.15.1.8 Each position taken in derivatives shall have an associated exposure as defined under. Exposure is the maximum possible loss that may occur on a position. However, certain derivative positions may theoretically have unlimited possible loss. Exposure in derivative positions shall be computed as follows: Position Exposure Long Future Futures Price * Lot Size * Number of Contracts Short Future Futures Price * Lot Size * Number ofContracts 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes all advertisements through any media, sales literature, TV interview public speaking, presentation at seminars, freelance writing and websites. 13.2.2 Advertisement shall have the same meaning as defined under Regulations Regulation 2(b) of the SEBI (Mutual Funds) Regulations, 1996 and would include any material published or designed to be published, in which a Mutual Fund has no control over the audience and which is broadly distributed. The purpose of such communication shall be either to sell Mutual Fund units or to convey the performance of the schemes or to influence the opinion or behavior of those who receive such communication. All material contained in such advertisements must be verified or substantiated with the disclosures made in the Scheme Information Document (SID). 13.2.3 Sales Literature means any written communication not amounting to advertisement and distributed to sell or induce sale of units of a mutual fund scheme or convey periodic performance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Sales Literature or Communication SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000. 13.4.1 An Advertisement or Sales Literature or Communication is misleading if it: 13.4.1.1 Contains an untrue statement. 13.4.1.2 Omits a fact, material to an investor s decision to buy/hold/sell units 13.4.1.3 Does not contain appropriate explanation or limitations to make the statements made therein clear. 13.4.1.4 Portrays part incomes, returns, growth in NAV unless such incomes, returns or growth are computed according to these Guidelines. 13.4.1.5 Contains forecasts of growth in NAVs or promises returns that is not backed by adequate reserve funds or sponsors or third party guarantees. 13.4.1.6 Contains unwarranted or unexplained comparisons. 13.4.1.7 Contains claims about management capability where such capability is not supported by a track record of minimum 3 years. 13.5 Applicability 13.5.1 These guidelines apply to T.V. interviews, public speaking, presentations in seminars and workshops, and any forum used by Mutual Funds to market or convey the performance of their schemes. However these guidelines will not be applicable for communications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure etc. f. In case of assured return schemes, the resources that back such assurances. g. Logo or trademark or corporate symbol, if any. h. Risk factors as stated in the SID with a font equal to that of the text of the highlights. i. Applicable load structure j. Contact information of person from whom a copy of SID and SAI and Key Information Memorandum along with an application form may be obtained. k. The statement that an investor should read the SID and SAI before investing in the scheme l. In addition, any other information as may be required by the Advertisement Code or voluntarily disclosed by the Mutual Fund as long as such information is not specifically prohibited by these Guidelines. . 13.6.2.2 The following information is prohibited in this form of advertisement: a. Declaration of NAV and performance figures of any of the previous schemes unless such performance statements conform to these Guidelines. b. Comparisons with other Mutual Funds or schemes. c. Ranking by any ranking entity as defined under these Guidelines. 13.6.2.3 All that is stated in the Product Launch advertisement should be substantiated with the SID SAI, 13.6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances (e.g. rise or fall in interest rates etc.), the same shall be clarified in the advertisement. g. All performance data contained in the advertisement must be of most recent practicable date depending upon the type of communication. In any case, the data used must not be older than the most recent calender quarter ended prior to the release of the advertisement. h. Appropriate benchmark(s) and identical time periods shall be used for comparisons. For examples of benchmarks and other details refer Chapter on Scheme Information Document. i. Impact of Distribution Taxes: While advertising returns by assuming reinvestment of dividends, if distribution taxes are excluded while calculating the returns, this fact shall also be disclosed. SEBI Circular No. SEBI/MFD/CIR No.6/12357/03 dated June 26, 2003. j. Pay out of Dividend: While advertising pay out of dividends, all advertisements shall disclose, immediately below the dividend figure (in percentage or in absolute terms) and in the same font size that the NAV of the scheme, pursuant to payment of dividend would fall to the extent of payout and statutory levy (if applicable). SEBI Circular No. SEBI/IMD/CIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation on performance of schemes must adhere to the performance advertisement guidelines. 13.10 Use of Rankings in Advertisements and Sales Literature SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000. 13.10.1 Definition of Ranking Entity : 13.10.1.1 For purposes of these Guidelines, the term Ranking Entity refers to an entity that: a. Provides general information about AMC(s) or Mutual Funds to the public; and b. Is independent of the AMC(s) or Mutual Fund and its affiliates, and c. Whose services have not been procured by the AMC(s) or Mutual Fund or any of its affiliates to assign a ranking to the AMC(s) or Mutual Fund. 13.10.2 No AMC(s) or Mutual Fund shall use rankings except those developed and produced by entities meeting the Ranking Entity criteria detailed above and which conform to these guidelines. 13.10.3 Required Disclosures : 13.10.3.1 Headlines/Prominent Statements: a. A headline or other prominent statement must not state or imply that an AMC(s) and/or Mutual Fund is the best performer in a category unless it is actually ranked first in the category. b. Prominent disclosure of the AMC(s)/Mutual Fund s ranking, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rankings supplied by the same Ranking Entity, relating to the same category and the same time period and based on returns for 1. One year period for scheme in existence for at least one year; 2. One and five year periods for schemes in existence for at least five years, and 3. One, five and ten year periods for scheme in existence for at least ten years. provided that, if rankings for such one, five and ten year time periods are not published by the Ranking Entity, then rankings representing short, medium and long term performance must be provided in place of rankings for the required time periods. 13.10.5 Categories : 13.10.5.1 The choice of category (including a subcategory) on which the rankings are based must be such that it provides a sound basis for evaluating the performance of the Mutual Fund. 13.10.5.2 Subject to the standards mentioned below, a ranking must be based only on a. Published category or subcategory created by a Ranking Entity; or b. Category or subcategory created by AMC(s)/ Mutual Fund which is based on the performance measurements prescribed by a Ranking Entity. In such cases, the advertisement and/ or Sales Literature shall promin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny advertisement which discloses only the latest NAV, sale and/or repurchase price without any reference to the corresponding past figures may not disclose all the risk factors. However, it shall include a statement that investors are advised to read the offer document before investing in the scheme . 13.12.1.4 Disclosures as stated in Clauses 10, 13 and 14 of Schedule VI of SEBI (Mutual Funds) Regulations, 1996 on Advertisement Code shall be printed in bold SEBI Circular SEBI/IMD/CIR No.15/191378 /2010 dated January 18, 2010 . 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. Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, June, September and December within 10 working days of the end of the respective quarter. The first Statement of Accounts shall however be issued within 10 working days of the initial transaction. b. Mutual funds shall also provide Statement of Accounts to unit holders within 5 working days, without any charges, if specific requests are received from the investors. Further, if so mandated, a soft copy of the Statement of Accounts shall be emailed to the unit holders on a monthly basis. 14.3.3 Dormant Accountholders 14.3.3.1 Mutual Funds shall also provide Statement of Accounts to those unit holders who have not transacted during the last six months prior to the date of generation of the Statement of Accounts. In such cases, the Statement of Accounts may be issued along with the scheme s Portfolio Statement or Annual Report and should reflect the last closing balance and value of the units prior to the date of generation of the Statement of Accounts. Further, if so mandated, a soft copy of the Statement of Accounts shall be emailed to the unit holders instead of a physical statement. 14.4 AMC s Annual Reports for unitholders SEBI Circular No. MFD/CIR/9/120/2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are made by Registrar and Transfer Agents for the implementation of ASBA. Mutual Funds/AMCs shall make all relevant disclosures in this regard in the SAI. 14.7.4SEBI circulars SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008, SEBI/CFD/DIL/2008/25/09 dated September 25, 2008, SEBI/CFD/DIL/MB/IS/5/2009/05/08 dated August 5, 2009 and SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009 and CIR/CFD/DIL/7/2010 dated July 13, 2010 related to ASBA shall be followed to the extent applicable. 14.7.5 The Mutual Funds/AMCs have to compulsorily provide ASBA facility to the investors for all NFOs launched on or after October 1, 2010. PART II INVESTOR S OBLIGATIONS 14.7 Mandatory mentioning of PAN Number SEBI Circular No. MRD/DoP/Cir-05/2007 dated April 27, 2007, SEBI Circular No. MRD/DoP/Cir-08/2007 dated June 25, 2007, SEBI Circular No. MRD/DoP/MF/Cir- 08/2008 dated April 3, 2008. 14.7.1 For, the requirement of mentioning PAN Number by investors of mutual fund schemes, the applicable SEBI guidelines may be referred SEBI Circular No. MRD/DoP/MF/Cir-08/2008 dated April 3, 2008. 14.8 Mandatory mentioning of Bank Account by Investors SEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, sub brokers or called by any other name, whether individuals or belonging to any other organization structure) in relation to selling and marketing of Mutual Fund units unless they have cleared the certification examination. 15.2 No Mutual Fund shall engage/employ employee(s) interacting with investors (i.e. those working in investors relations, call centers, employees engaged in sales and marketing etc) unless they have cleared the certification examination. 15.3 Further, such intermediaries and employees shall also adhere to the Guidelines specified by the Board and AMFI. SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No. MFD/CIR/20/23230/2002 dated November 28, 2002. 15.4 Code of Conduct: 15.4.1 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 to Mutual Funds especially guidelines on advertisements and/ or sales literature and/or Code of Conduct shall be reported in the periodic meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15.6.3 The Certification Regulations require the persons referred to in paragraph 15.6.1 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. 15.6.4. An associated person holding a valid AMFI/NISM certification whose validity expires anytime after December 31, 2010, would be required to comply with the CPE requirements as laid down by NISM under the relevant clauses of the Certification Regulations, prior to the expiry of the validity of the certificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess was completed to their satisfaction. 16.1.5 All mutual funds/ AMCs are directed that SEBI 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 investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anism a. Stock exchanges shall provide for investor grievance handling mechanism to the extent they relate to disputes between brokers and their client. 16.2.4.5 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. 16.2.4.6 Know your client (KYC). a. Where investor desires to hold units in dematerialised form, the KYC performed by DP in terms of SEBI requirements SEBI Circular No - MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004 would be considered compliance with applicable requirements specified in this regard SEBI Circular No - ISD/AML/CIR-1/2008 dated December 19, 2008 by Mutual Funds/AMCs. 16.2.4.7 Stock exchanges and mutual funds/AMCs, based on the experience gained may improve the mechanism in the interest of investors. 16.2.4.8 In addition to the existing facilities of purchasing and redeeming directly with the Mutual Funds and Stock Brokers, the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 level. 16.2.4.12 Transferability of Mutual Fund units SEBI Circular No - CIR/IMD/DF/10/2010 dated August 18, 2010 a. Regulations Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996 states that a unit unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law. The spirit and intention of this regulation is not to prohibit transferability of units as a general rule or practice. b. All AMCs shall clarify by way of an addendum that units of all mutual fund schemes held in demat form shall be freely transferable from the date of the issue of said addendum which shall be not later than October 1, 2010. However, restrictions on transfer of units of ELSS schemes during the lock-in period shall continue to be applicable as per the ELSS Guidelines. 16.2.5 Stock exchanges and mutual funds/AMCs, based on the experience gained may further improve the mechanism in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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