The Securities and Exchange Board of India notified the Securities and Exchange Board of India (Mutual Funds) Regulations, 2026, effective from 1 April 2026, replacing the existing framework with a comprehensive, principle-based regime. The regulations overhaul registration, eligibility, governance, and net worth norms for sponsors, trustees, asset management companies, and custodians, while strengthening trustee oversight, conflict-of-interest controls, disclosures, valuation standards, and investor grievance mechanisms. A new regime for Specialized Investment Funds is introduced with higher risk disclosures and minimum investment thresholds, alongside a differentiated “Mutual Fund Lite” framework tailored for passive products with proportionate compliance. Detailed provisions govern scheme launch, advertisements, listing, winding up, investments, borrowing limits, NAV computation, payouts, stress testing, and market abuse deterrence. The rules also enhance accountability through fit-and-proper criteria, whistleblower mechanisms, independent oversight, and time-bound disclosures. Overall, the regulations aim to modernize mutual fund regulation, improve transparency and risk management, protect unitholders, and support orderly market growth and innovation.
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 14th January, 2026
SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS, 2026
F. No. SEBI/LAD-NRO/GN/2026/294.—In exercise of the powers conferred by section 30, read with clause (c) of sub-section (2) of section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Securities and Exchange Board of India hereby makes the following regulations:-
Chapter I
PRELIMINARY
1. Short title and commencement
(1) These regulations may be called the Securities and Exchange Board of India (Mutual Funds) Regulations, 2026.
(2) These regulations shall come into force with effect from April 1, 2026.
2. Definitions
(1) In these regulations, unless the context otherwise requires: —
(a) “Act” means the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(b) “accredited investor” shall have the same meaning as assigned to it in clause (ab) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012;
(c) “advertisement” shall include any communication issued by or on behalf of the mutual fund or asset management company that may influence the investment decision of any investor or prospective investor;
(d) “associate” includes, —
(i) any person who directly or indirectly, either individually or in combination with relatives, exercises control over the asset management company or the trustee or the sponsor, as the case may be;
(ii) any person, in respect of whom the asset management company or the trustee or the sponsor, directly or indirectly, by itself, or in combination with other persons, exercises control;
(iii) a company whose director, other than an independent director, or officer or employee is also a director, or officer or employee of the asset management company; or
(iv) in respect of a pooled investment vehicle including private equity funds that acts as a sponsor of a mutual fund,
a. an associate or group company of the manager of the pooled investment vehicle;
b. any investee company in which ten percent or more of the shareholding is held by the schemes or funds managed by manager of the pooled investment vehicle; or
c. any investee company in which the pooled investment vehicle holds ten percent or more of the shareholding or where the directors of the pooled investment vehicle or corporate sponsor has representation on the board or right to nominate representatives on the board:
Provided that the above definition of associate shall not be applicable to sponsors that invest in companies on behalf of the beneficiaries of insurance policies or such other schemes specified by the Board;
(e) “asset management company” means a company incorporated under the Companies Act 1956 (1 of 1956) or Companies Act, 2013 (18 of 2013) and approved by the Board under regulation 18;
(f) ‘broad based fund’ shall mean the fund which has at least twenty investors and no single investor holds more than twenty-five percent of corpus of the fund;
(g) “broker” means a stock broker as defined in the Securities and Exchange Board of India (Stock Brokers) Regulations, 2026;
(h) “close-ended scheme” means any scheme of a mutual fund in which the period of maturity of the scheme is specified;
(i) “control” means, —
(ii) in the case of a company any person, either individually or together with persons acting in concert, who directly or indirectly own, control or hold shares carrying not less than 10% of the voting rights of such company; or
(iii) as between two companies, if the same person, either individually or together with persons acting in concert, directly or indirectly, own, control or hold shares carrying not less than 10% of the voting rights of each of the two companies; or
(iv) majority of the directors of any company who are in a position to exercise control over the asset management company;
(j) Corporate Debt Market Development Fund shall have the same meaning assigned to it under clause (ga) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012;
(k) “custodian” means a person who has been granted a certificate of registration to carry on the business of custodian of securities under the Securities and Exchange Board of India (Custodian) Regulations, 1996;
(e) “depository” means a body corporate as defined in the Depositories Act, 1996 (22 of 1996);
(f) “economic offence” means an offence under the Fugitive Economic Offenders Act, 2018 (17 of 2018);
(g) “equity oriented schemes” means a scheme other than an index fund scheme or an exchange traded fund, where, the scheme invests a minimum of sixty-five per cent of its net assets in equity and equity related instruments;
(h) “equity related instruments” include convertible debentures, convertible preference shares, warrants carrying the right to obtain equity shares, equity derivatives, units of Real Estate Investment Trust and such other instrument as may be specified by the Board;
(i) “exchange traded fund” means a mutual fund scheme that invests in securities in the same proportion of an index of securities in the manner specified by the Board and whose units are mandatorily listed and traded on a stock exchange platform;
(j) ‘exit load’ means the charge or fee levied by the mutual fund at the time of redemption or repurchase of units;
(k) “fraud” means a fraud as defined in clause (c) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003;
(l) “free reserve” shall have the same meaning as defined under Companies Act, 2013 (18 of 2013);
(m) “fund of funds scheme” means a mutual fund scheme that invests primarily in other schemes of the same mutual fund or other mutual funds;
(n) “gold exchange traded fund scheme” shall mean a mutual fund scheme that invests primarily in gold or gold related instruments;
(o) “gold related instrument” shall mean such instrument having gold as underlying, as may be specified by the Board;
(p) “goods” means the goods notified by the Central Government under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956 and forming the underlying of any commodity derivative;
(q) “group” means a group as defined in clause (b) of the Explanation to Section 5 of the Competition Act, 2002 (12 of 2003);
(r) “index fund scheme” means a mutual fund scheme that invests in securities in the same proportion of an index of securities in the manner specified by the Board;
(s) “Infrastructure debt fund scheme” means a mutual fund scheme that invests primarily (minimum 90% of scheme assets) in the debt securities or securitized debt instrument of infrastructure companies or infrastructure capital companies or infrastructure projects or special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure or other permissible assets in accordance with these regulations or bank loans in respect of completed and revenue generating projects of infrastructure companies or other projects or special purpose vehicles;
(aa) “SIF Investment Strategy” means a scheme of mutual fund launched under the Specialized Investment Fund;
(bb) “InvIT” or “Infrastructure Investment Trust” shall have the meaning assigned in clause (za) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014;
(cc) “inspecting officer” means any person appointed as such by the Board under Chapter XV;
(dd) “Liquid net worth” means the net worth deployed in liquid assets which are unencumbered and shall include cash, bank deposits with Scheduled Commercial Banks, money market instruments, Government Securities, Treasury bills, Repo on Government securities and any other instruments as specified by the Board;
(ee) “market abuse” includes manipulative, fraudulent and unfair trade practices which may contravene Section 12A of the Act or any of the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 or the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015;
(ff) “money market instruments” includes commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India;
(gg) “mutual fund” means a fund established in the form of a trust granted registration under regulation 3 and which raises monies through the sale of units to the public under one or more schemes for investing in securities, money market instruments, gold or gold related instruments, silver or silver related instruments and such other assets and instruments as may be specified by the Board. Mutual fund schemes investing in exchange traded commodity derivatives can hold the underlying goods in case of physical settlement of such contracts;
(hh) “Mutual fund lite” or “MF Lite” means a mutual fund granted registration under Chapter X of these regulations and has only such index funds, exchange traded funds, fund of funds or other mutual fund schemes as may be specified by the Board;
(ii) “Mutual fund lite asset management company” or “MF Lite asset management company” means an asset management company of a mutual fund lite that has been granted approval under Chapter X;
(jj) “Mutual fund lite scheme” or “MF Lite Scheme” means any scheme launched by a mutual fund lite or any other eligible passive scheme as may be specified by the Board;
(kk) “NAV” or “Net Asset Value” shall mean the value computed in the manner provided in regulation 43 of these regulations;
(ll) “Net worth” means the aggregate of the paid up capital and free reserves after deducting therefrom, miscellaneous expenditure to the extent not written off or adjusted or deferred revenue expenditure, intangible assets, accumulated losses and any loans and advances given by asset management company or MF Lite asset management company to either its sponsor, associates or group company of sponsor and its associates or group company;
(mm) “offer document” means scheme information document and statement of additional information by which a mutual fund invites public for subscription of units of a scheme;
(nn) “open-ended scheme” means a scheme of a mutual fund which offers units for sale without specifying any duration for redemption;
(oo) “private placement” means any offer of units of a mutual fund scheme or invitation to subscribe such units to a select group of persons, by a mutual fund (other than by way of public offer) through issue of a placement memorandum and which is not being calculated to result, directly or indirectly in the units becoming available for subscription or purchase by persons other than those receiving the offer or invitation;
(pp) “REIT” or “Real Estate Investment Trust” shall have the meaning assigned in clause (zm) of sub-regulation 1 of regulation 2 of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014;
(qq) “relative” means a person as defined in section 2(77) of the Companies Act, 2013 (18 of 2013);
(rr) “scheme” means a scheme of a mutual fund launched under Chapter V;
(ss) “schedule” means any of the schedules annexed to these regulations;
(tt) “securities laws” means the Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Depositories Act, 1996 (22 of 1996) and the provision of any other law to the extent it is administered by the Board and the relevant rules and regulations made thereunder;
(uu) “silver exchange traded fund scheme” shall mean a mutual fund scheme that invests primarily in silver or silver related instruments;
(vv) “silver related instrument” shall mean an instrument as may be specified by the Board, which has silver as the underlying product;
(ww) “Specialized Investment Fund” means a mutual fund as defined under clause (gg) of sub-regulation (1) of regulation 2 of these regulations and subject to such other conditions as specified under these regulations;
(xx) “sponsor” means any person who, acting individually or in concert with another body corporate, establishes a mutual fund or a mutual fund lite;
(yy) “statutory levy” means levy imposed by state government and central government;
(zz) “to be listed securities” means equity securities available for purchase or application or investment under anchor investment category or qualified institutional buyer category or public issue in an initial public offer, or debt securities under primary market issuance, till its listing on a recognized stock exchange;
(aaa) “total expense ratio” means the ratio of total of all expenses charged to the investors of the scheme to the total asset under management of the scheme, as may be specified by the Board; (bbb) “trustees” of the mutual fund shall mean the trustee company that holds the property of the mutual fund in trust for the benefit of the unit holders. Further, “trustees” in case of mutual fund Lite shall mean a debenture trustee registered with the Board under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993; in case an existing sponsor transfers its eligible passive schemes from its existing mutual fund to a mutual fund lite in accordance with regulation 58, the MF Lite asset management company may appoint the existing trustee of the mutual fund as the trustee of the mutual fund lite;
Explanation: Wherever the context requires applicability of provisions for individual trustees, the term ‘trustees’ shall be deemed to mean the directors of board of the trustee company;
(ccc) “unit” means the interest of the unit holders in a scheme representing one undivided share in the assets of a scheme; and
(ddd) “unit holder” means a person holding unit in a scheme of a mutual fund.
(2) The words and expressions used and not defined in these regulations but defined in the Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Companies Act, 2013 (18 of 2013), the Depositories Act, 1996 (22 of 1996), the Indian Trusts Act, 1882 or any rules or regulations made thereunder shall have the same meanings respectively assigned to them in those Acts, rules or regulations made thereunder or any statutory modification or re-enactment thereto, as the case may be.
Chapter II
PROCEDURE FOR REGISTRATION OF A MUTUAL FUND
3. Application for registration of mutual fund and fees
The application for registration of a mutual fund shall be made in the following manner:
(a) A sponsor shall submit to the Board an application for mutual fund registration in the format as specified by the Board from time to time, along with a non-refundable fee as specified in the First Schedule.
(b) An application which is incomplete in any respect shall be liable to be rejected. Before rejecting any such application, the applicant shall be given an opportunity to complete such formalities within such time as may be specified by the Board.
(c) The Board may direct the sponsor to provide such additional information or clarifications as it deems requisite.
(d) The Board may, upon receipt of all information, decide on the application.
(e) The Board may register the mutual fund and issue a certificate of registration if it is satisfied that the applicant complies with the eligibility criteria and other requirements provided in these regulation and upon the applicant paying the registration fee as specified in First Schedule.
(f) If the sponsor does not satisfy the eligibility criteria mentioned in regulation 5 or regulation 57 and such other requirements provided in this regulation the application shall be liable to be rejected. If the application is rejected, the same shall be informed to the applicant.
4. Conditions of registration
The registration granted to a mutual fund under regulation 3, shall be subject to the following terms and conditions—
(a) the trustees, the sponsor, the asset management company and the custodian shall adhere to the provisions of these regulations;
(b) the mutual fund shall promptly notify the Board, if any information or particulars previously submitted to the Board prove misleading or false in any material respect;
(c) the mutual fund shall immediately inform the Board, of any material change in previously furnished information or particulars, which have a bearing on the registration granted; and
(d) payment of annual fees as specified in the First Schedule.
Explanation: The annual fees shall be paid before the 15th April each year from the year following the year of registration. In case of delay of payment of annual fees, the Board may, on being satisfied of reasons for delay, accept the fees till the expiry of two months from the commencement of the financial year to which such fee pertains. In case of delay of payment of annual fees beyond the extended period, the Board may take such action as deemed fit including withholding permission for launch of scheme(s).
5. Eligibility Criteria for Registration: For the purpose of granting a certificate of registration, the sponsor shall fulfill the following:
(1)
The sponsor shall have a general reputation of fairness and integrity in all business transactions and shall fulfill the criteria relating to “sound track record” given under one of the following two routes:
| (1) | The sponsor shall have a general reputation of fairness and integrity in all business transactions and shall fulfill the criteria relating to “sound track record” given under one of the following two routes: | |||
| S. no | Particulars | Route 1 | Route 2 | |
| (a) | Experience | Be carrying on business in financial services for minimum five years. | Appoint Chief Executive Officer, Chief Operating | |
| Appoint Chief Executive | Officer, Chief Risk | |||
| Officer, Chief Operating | Officer, Chief | |||
| Officer, Chief Risk Officer, Chief Compliance Officer and | Compliance Officer and Chief Investment | |||
| Chief Investment Officer in the asset management companywith a minimum of 3 years of relevant experience. | Officer in the asset management company with total combined experience in the relevant field of at least thirty years and each of them shall have a minimum of 3 years of relevant experience. | |||
| (b) | Profitability | Net profit in financial services business after providing for depreciation, interest and tax in each of the immediately preceding five years and;Average net annual profit of at least rupees ten crore, after depreciation, interest and tax, from financial services business during the immediately preceding five years. |
No profitability criteria for granting of a certificate of registration under this route. | |
| (a) | Net worth of sponsor | Positive net worth in each of the preceding five years. | Not Applicable | |
| (b) | Positive Liquid Net
worth |
Positive liquid net worth is more than the proposed
capital contribution of the sponsor in the asset |
||
| (c) | Net worth of asset
management company |
The sponsor shall ensure that the net worth of asset management company is at least fifty crores (Rs. 50 Crores) and deployed in assets as may be specified by the Board, at all times.The sponsor shall ensure maintaining the net worth requirement on a continuous basis. |
Net worth of the asset management company shall be at least rupees one hundred fifty crore (Rs. 150 Crores) at the time of registration which shall be infused by the sponsor.However, the asset management company shall maintain net worth of at least one hundred crores deployed in assets as may be specified by the Board, on a continuous basis:Provided that if asset managementcompany has profits for five consecutive years, the net worth of asset management company shall be maintained at least rupees fifty crore.The sponsor shall ensure maintaining the net worth requirement on a continuous basis. |
|
| (f) | Lock-in Requirement | No lock-in requirements for certificate of registration under this route. | The initial shareholding equivalent to capital contributed to the asset management company, to the extent of at least rupees one hundred fifty crore |
|
| (Rs. 150 Crores), shall be locked-in for a period of five years |
||||
| (g) | Change in Control | In case of change in control of an existing asset management company due to acquisition of shares, the positive liquid net worth of the sponsor or funds tied up by the sponsor shall be higher of aggregate par value or market value of the shares proposed to be acquired |
In case of acquisition of existing asset management company, the sponsor shall have minimum positive liquid net worth equal to incremental capitalization required to ensure minimum capitalization of the asset management company and the positive liquid net worth of the sponsor or the funds tied up by the sponsor shall be higher of aggregate par value or market value of the shares proposed to be acquired.In case of acquisition of stake in an existing asset management company, the shareholding of the sponsor(s) equivalent to minimum of rupees one hundred fifty crore shall be locked in for five years. |
|
| (h) | Private Equity fund as a sponsor of mutual fund | Not applicable for certificate of registration under this route. | A pooled investment vehicle including a private equity fund
may sponsor mutual fund by complying with conditions under this route and such other conditions as |
|
| (2) | Fit and proper requirement for sponsor and mutual fund | Applicant and mutual fund shall comply with the fit and proper criteria specified in Schedule II of the Securities
and Exchange Board of India (Intermediaries) Regulations, 2008. |
||
| (3) | Minimum holding of sponsor in an asset management company | The sponsor shall contribute at least 40% to the net worth of the asset management company:
Provided that any person who holds 40% or more of the net worth of an asset management company shall be deemed to be a sponsor and shall be required to fulfill the eligibility criteria specified in this regulation. |
||
| (4) | Fit and proper requirement for sponsor, its directors or the key personnel to be employed by themutual fund and/or asset management company |
The sponsor or any of its directors or the key personnel to be employed by the mutual fund and asset management company should not have been guilty of fraud or been convicted of an offence involving moral turpitude or been found guilty of any economic offence. |
||
| (5) | Appointment of trustees | Appointment of trustees to act as trustees for the mutual fund shall be in accordance with the provisions of the regulations. | ||
| (6) | Appointment of asset management company | Appointment of asset management company to manage the mutual fund and operate the scheme of such funds shall be in accordance with the provisions of these regulations. | ||
| (7) | Appointment of custodian | Appointment of custodian in order to keep custody of
the securities or goods or gold or gold related |
||
| (8) | Other conditions | Other conditions in this regard as may be specified by the Board are complied with. | ||
| (9) | Approval to establish a Specialized Investment Fund | A mutual fund registered under clause (e) of regulation 3 may be granted an approval to establish a Specialized Investment Fund subject to fulfilling such additional eligibility criteria and in the manner as may be specified by the Board. | ||
| (10) | Eligibility criteria for sponsor of mutual fund lite | The eligibility criteria for sponsor of mutual fund lite shall be as specified under Chapter X and the above mentioned eligibility criteria shall not be applicable to application for mutual fund lite. | ||
6. Norms for shareholding and governance in mutual funds
(1) The sponsor of a mutual fund, its associate or group company including the asset management company (through the schemes of the mutual fund or otherwise, individually or collectively), or any shareholder holding 10% or more of the shareholding or voting rights in the asset management company or the trustee company of a mutual fund, shall not, directly or indirectly:
(a) hold ten percent or more of the shareholding or voting rights in the asset management company or the trustee company of any other mutual fund; or
(b) have representation on the board of the asset management company or trustee company of any other mutual fund.
(2) In the event of a merger, acquisition, scheme of arrangement or any other arrangement involving the sponsors of the mutual funds, shareholders of the asset management companies or trustee companies, their associates or group companies, which results in the incidental acquisition of shares, voting rights or representation on the board of another asset management company or trustee company, the acquirer shall comply with sub-regulation (1) within a period of one year of coming into force of such an arrangement.
(3) The restriction on holding shares or voting rights or representation on the Board provided in sub regulation (1) shall not apply to:
(c) an existing sponsor of mutual fund that transfers its eligible passive schemes of mutual fund to a mutual fund lite belonging to a group entity of the same sponsor, subject to conditions as specified by the Board; and
(d) an existing shareholder holding ten per cent or more shareholding or voting rights in an existing asset management company of the mutual fund and holding ten per cent or more shareholding or voting rights in a mutual fund lite asset management company belonging to a group entity of the same sponsor.
7. Disassociation of sponsor from asset management company and the mutual fund
(1) A sponsor may disassociate from the asset management company and the mutual fund subject to the approval of the Board and in the manner specified by the Board.
(2) Where the sponsor disassociates under sub-regulation (1),-
(a) the existing asset management company of the mutual fund may act as the sponsor of the mutual fund, subject to compliance with the conditions specified by the Board;
(b) if the existing asset management company fails to act as sponsor as under clause (a), any other entity, including the disassociated sponsor, may become the sponsor of the mutual fund, subject to compliance with the conditions specified by the Board;
(c) the shareholding for any shareholder in the asset management company shall be below ten percent; and
(d) the board of directors of the asset management company shall comprise at least two-third independent directors.
8. Surrender of Certificate of Registration
Upon the winding up of all schemes launched by the asset management company, the sponsor shall apply to the Board for surrender of the certificate of registration granted under these regulations, in such manner and subject to such conditions as may be specified by the Board.
CHAPTER III
ESTABLISHMENT OF TRUST AND ROLE OF TRUSTEES
9. Registration of trust deed
(1) A mutual fund shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, duly registered under the provisions of the Registration Act, 1908 (16 of 1908), executed by the sponsor in favour of the trustee named in such an instrument.
(2) In the event the sponsor disassociates from a mutual fund as provided under regulation 7, the signatory to the trust deed in place of the disassociated sponsor shall be as specified by the Board.
10. Contents of trust deed
(1) The trust deed shall contain such clauses as are mentioned in the Second Schedule and such other additional clauses which are necessary for safeguarding the interests of the unitholders.
(2) Trust deed shall not contain any clause which has the effect of—
(a) limiting or extinguishing the obligations and liabilities of the trustee company in relation to the mutual fund or the unitholders; or
(b) indemnifying the trustee company or the asset management company for loss or damage
caused to the unitholders by their acts of negligence or acts of commission or omission.
11. Appointment of board of directors of the trustee company
(1) The appointment and reappointment of the board of directors of the trustee company of the mutual fund shall be in accordance with these regulations and with prior approval of the Board.
(2) The chairperson of the board of directors of the trustee company shall be an independent director.
(3) The directors of the trustee company of a mutual fund can act as a trustee of any other trust (except mutual fund trust) only if the object of the trust is not in conflict with the object of the mutual fund.
(4) A person shall be eligible to be appointed as a trustee only if that person —
(a) complies with fit and proper person criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;
(b) is not a director (including independent director), officer or employee of an asset management company;
(c) is not trustee of any other mutual fund; and
(d) furnishes all such information as may be sought by the Board.
(5) At least two-thirds of the board of directors of a trustee company shall comprise of independent directors, who are not associates of the sponsor or the asset management company or the trustee company
12. Rights and obligations of the trustees
(1) Appointment and termination of asset management company
(a) The trustee company, with prior approval from the Board, shall appoint an asset management company and shall enter into an investment management agreement with the asset management company.
(b) The investment management agreement shall include the clauses set out in the Third Schedule and any additional clauses necessary for the purpose of investments and fair and transparent functioning of an asset management company.
(c) A copy of the draft investment management agreement shall be enclosed with the trust deed.
(d) The trustees shall ascertain that the asset management company has the necessary expertise, internal control systems and risk management mechanism to invest and mange assets of the mutual fund.
(e) The trustees shall ensure that the asset management company establishes systems and submits reports and information that the trustees may require in discharging their responsibility under these regulations including matters relating to:
(i) prevention and oversight of mis-selling;
(ii) prevention and oversight of undue influence of sponsor;
(iii) ensuring adequate systems are in place to prevent misconduct including market abuse; and
(iv) addressing potential conflict of interest.
(f) Where the trustees have reason to believe that the conduct of business of the asset management company is not in accordance with these regulations, the contraventions by asset management company and remedial action taken by the trustees shall immediately be informed to the Board.
(g) Termination of the assignment of the asset management company by the trustees may be under the below given circumstances and shall be subject to prior approval from the Board:
(i) Trustees own accord if they have reasons to believe that the affairs of the asset management company are being conducted in contravention to the provisions of these regulations; or
(ii) Request by the asset management company.
Explanation: Termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company.
(2) Addressing conflict of interest and broker empanelment:
The trustees shall take all necessary measures as they deem necessary to ensure that any conflict of interest involving the asset management company is effectively addressed and such measures shall include:
(a) conducting a quarterly review of reports submitted by the asset management company on transactions between the mutual fund and the asset management company or its associates;
(b) ensuring that the asset management company does not grant unfair advantage to its associates or engage in transactions that may prejudice the interests of unitholders;
(c) ensuring that the asset management company manages each mutual fund scheme independently of its other business activities, and adopts safeguards to ensure fair and equitable treatment of investors across all schemes, without compromising the interests of one scheme for another or for its other businesses; and
(d) approving broker empanelment policy of the asset management company and ensuring that brokers are empaneled after requisite due diligence, and that broker transactions are monitored to avoid undue concentration of business or unfair advantage to any associate or group entity.
(3) Regulatory compliance and trustee responsibilities
(a) The trustees shall have the right to request for any information from the asset management company that they deem necessary.
(b) The trustees shall ensure that the asset management company complies with the obligations set out under regulation 22, adhere to the Code of Conduct applicable to asset management companies, and observe all other provisions of these regulations.
(c) The transactions under the mutual fund schemes are in accordance with the provisions of these regulations and trust deed, and the asset management company makes investments only in permissible instruments, in compliance with these regulations and in alignment with the stated investment objectives of each scheme.
(d) The trustees shall be accountable for and be the custodian of the funds and property of the respective schemes and shall hold them in trust for the benefit of unitholders in accordance with these regulations and the provisions of trust deed.
(4) Trustee oversight for investor interests
(a) The trustees shall abide by the Code of Conduct as specified in Part – A of the Fourth Schedule.
(b) The trustees shall obtain unitholder consent:
(i) when required by the Board for the benefit of unitholders;
(ii) on the requisition of three-fourths of the unitholders of any scheme; and
(iii) when the majority of trustees decide to wind up a scheme or prematurely redeem units of a closed-ended scheme.
(c) The trustees shall request details of securities transactions by key personnel of the asset management company, whether made in their own name or in the name of the asset management company, and report to the Board when required.
(d) The trustees shall periodically review investor complaints and their resolution by the asset management company.
(e) The trustees shall appoint auditor, who is not in any manner associated with the auditor of the asset management company, for audit of annual statement of accounts of mutual fund schemes.
(f) The trustees shall submit to the Board on a half-yearly basis
(i) a report on the activities of the mutual fund;
(ii) a certificate confirming there have been no instances of self-dealing or front running by trustees, directors, or key personnel of the asset management company; and
(iii) a certificate confirming that the asset management company has managed the schemes independently of other activities, and any conflicts were addressed to protect unitholders’ interests.
(g) The independent trustees, i.e. trustees not associated with the sponsors, shall review and give their comments on the reports received from asset management company on investments in securities of group companies of the sponsor.
(5) Additional trustee oversight
(a) The trustees shall review the asset management company’s net worth quarterly to ensure compliance with clause (e) of sub-regulation (1) of regulation 5.
(b) The trustees shall ensure there is no conflict of interest in how the asset management company deploys its net worth and the interests of unitholders.
(c) The trustees shall periodically review service contracts related to custody arrangements and ensure they serve the unitholders’ interests.
(d) The trustees shall review the details of securities transactions filed by directors of the asset management company on a quarterly basis.
(e) The trustees shall exercise due diligence as under:
General Due Diligence:
(i) The trustees shall be discerning in the appointment of the directors on the Board of the asset management company.
(ii) The trustees shall review the desirability or continuance of the asset management company if substantial irregularities are observed in any of the schemes of the mutual fund, and shall not permit the asset management company to float new schemes until such irregularities are resolved.
(iii) The trustees shall ensure that the trust property is adequately protected, held and administered by persons with necessary expertise and experience, and in a manner that ensures adequate oversight through an appropriate number of such persons.
(iv) The trustees shall ensure that all service providers engaged for mutual fund related services are holding appropriate registrations from the Board or concerned regulatory authority.
(v) The trustees shall arrange for test checks of service contracts relating to key service providers, whose services, functions, operations and access to information or assets is critical to, or could materially influence the protection of investor interests.
(vi) The trustees shall immediately report to the Board of any special developments in the mutual fund.
Specific due diligence:
(vii) The trustees shall obtain internal audit reports at regular intervals from independent auditors appointed by them.
(viii) The trustees shall obtain compliance certificates at regular intervals from the asset management company.
(ix) The trustees shall meet periodically to review reports and functioning of asset management company and ensure compliance with these regulations.
(x) The trustees shall maintain records of the decisions of the Trustees at their meetings and of the minutes of the meetings.
(xi) The trustees shall prescribe the Code of Ethics to be adhered to by the asset management company and its personnel.
(xii) The trustees shall communicate in writing to the asset management company of the deficiencies and review the rectification of such deficiencies.
(f) The independent directors of the trustee company and asset management company shall exercise oversight over:—
(i) the investment management agreement and the compensation paid under the agreement;
(ii) fees and ensure that fees charged in service contracts entered with associates are not higher than those charged by outside contractors for the similar services;
(iii) securities transactions involving associates to the extent such transactions are permitted;
(iv) selecting and nominating individuals to fill independent directors’ vacancies;
(v) ensuing code of ethics designed prevents fraudulent, deceptive or manipulative practices by insiders in connection with personal securities transactions;
(vi) the reasonableness of fees paid to sponsors, asset management company and any others for services provided; and
(vii) any service contract with the associates of the asset management company.
(g) The trustees shall not be held liable for acts done in good faith if they have exercised adequate due diligence.
(6) The trustees shall also exercise due diligence on such matters as may be specified by the Board.
13. Appointment of custodian
(1) The trustees shall appoint a custodian for the mutual fund and enter into a custodian agreement and send intimation to the Board within fifteen calendar days of such appointment.
(2) The trustees shall maintain oversight of the activities of the custodian in relation to the mutual fund.
(3) Custodian appointed shall carry out the custodial services for the schemes of the fund for safekeeping of assets of the scheme.
(4) A custodian in which fifty per cent or more of the directors represent the interest of the mutual fund sponsor or its associates shall not be appointed as custodian for a mutual fund constituted by the same sponsor, or any of its associates or any of its subsidiaries.
(5) Custodian in which the sponsor or its associates hold fifty per cent or more of the voting rights of the share capital of the custodian shall act as custodian for a mutual fund constituted by the same sponsor or any of its associates or subsidiary company only if:
(a) the sponsor has a net worth of at least twenty thousand crore rupees at all points of time;
(b) fifty per cent or more of the directors of the custodian are those who do not represent the interest of the sponsor or its associates;
(c) the custodian and the asset management company of a mutual fund are not subsidiaries of each other;
(d) no person is a director of both the custodian and the asset management company of a mutual fund; and
(e) the custodian and the asset management company of a mutual fund sign an undertaking that they will act independently of each other in their dealings with the scheme.
14. Agreement with custodian
The mutual fund, upon approval of the trustees on the service contract and terms of appointment of the custodian, shall enter into a custodian agreement with the custodian, which shall contain the clauses which are necessary for the efficient and orderly conduct of the affairs of the custodian.
CHAPTER IV
CONSTITUTION AND MANAGEMENT OF ASSET MANAGEMENT
COMPANY
15. Application for approval of asset management company
(1) The application for the approval of the asset management company shall be made in the format specified by the Board.
(2) An application, which is not complete in all respects shall be liable to be rejected. Before rejecting any such application, the applicant shall be given an opportunity to complete such formalities within such time as may be specified by the Board.
(3) The Board may require the applicant or the asset management company to furnish such further information or clarification as may be required by it.
(4) The Board may on receipt of all information decide the application.
16. Eligibility criteria for asset management company
(1) Track record and reputation
(a) If the applicant is an existing asset management company, it shall have a general reputation for fairness in transactions, demonstrable integrity and shall comply with the profitability and networth requirements specified under sub-regulation (1) of regulation 5 and sub-regulation (1) of regulation 57.
(b) The asset management company shall comply with fit and proper person criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
(2) Director and key personnel qualifications
(a) The directors of the asset management company must be individuals possessing adequate professional experience in finance and financial services related fields.
(b) The persons so appointed as director and/ or key personnel shall also be fit and proper persons in accordance with the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
(c) The board of directors of asset management company must comprise at least fifty per cent directors, who are not associates of the sponsor, or any of its subsidiaries, or the trustees.
(d) The directors of the asset management company (including Chairman) shall not simultaneously serve on the board of a trustee company of any mutual fund.
(3) Net worth requirements
(a) The sponsor shall be responsible for ensuring that the asset management company complies with the minimum net worth requirement at all times.
(b) The minimum net worth of the asset management company as required under clause (e) sub-regulation (1) of regulation 5 shall be deployed in assets as may be specified by the Board and shall be maintained on a continuous basis.
(4) The Board may, after considering an application with reference to the matters specified in sub-regulations (1), (2) and (3), grant approval to the asset management company.
17. Additional criteria to be complied by the asset management companies on a continuous basis
The approval granted under sub-regulation (4) of regulation 16 shall be subject to the following additional conditions:
(a) Director appointment and cross-directorship:
(i)A person shall not simultaneously hold the office of director in more than one asset management company.
(ii) The restriction provided in sub-clause (i) shall not be applicable to independent director appointed as per clause (c) of sub-regulation (2) of regulation 16, and the approval of the board of the asset management company in which such person is an independent director has been duly obtained.
(iii) A director of an asset management company shall be appointed only with prior approval of the trustees.
(b) Compliance and information disclosure:
(ii) An asset management company shall undertake to comply with all the provisions of these regulations.
(ii) An asset management company shall forthwith inform the Board of any material change in the information or particulars previously furnished, directly impacts the approval granted by it.
(iii) An asset management company shall provide the trustees with such information and documents as they may require.
(c) Change in Control of the Asset Management Company:
A change in the control of the asset management company shall not be effected unless:
(i) prior approval of the trustees and the Board has been obtained;
(ii) written communication (including digital modes such as email/sms etc.) regarding the proposed change is dispatched to unitholders;
(iii) details specified by the Board in this regard are appropriately displayed on the website of asset management company; and
(iv) the unitholders are given an option to exit from the schemes of the mutual fund managed by the asset management company at the prevailing Net Asset Value without incurring any exit load.
18. Appointment of an asset management company
The sponsor, or the trustee if so authorised by the trust deed, shall appoint an asset management company approved by the Board under regulation 16(4).
19. Termination of an asset management company
(1) The appointment of an asset management company may be terminated,-
(a) by the trustee company with the approval of majority of its board of directors;
(b) on request of the asset management company;
(c) on the directions of the Board; or
(d) by a resolution passed by at least seventy-five per cent of the unit holders.
(2) Any change in the appointment of the asset management company including termination of appointment of existing asset management company and appointment of new asset management company shall require prior approval from the Board.
20. Procedure where approval is not granted
Where an application made under regulation 15 for grant of approval does not satisfy the eligibility criteria laid down in regulation 16, the Board may reject the application.
21. Other permissible business activities of the asset management company
The asset management company shall, –
(a) not act as a trustee of a mutual fund; and
(b) not undertake any business activities other than in the nature of management and advisory services provided to pooled assets including offshore funds, insurance funds, pension funds, provident funds, or such categories of foreign portfolio investor subject to such conditions, as maybe specified by the Board, from time to time, if any of such activities are not in conflict with the activities of the mutual fund:
Provided that the asset management company may itself or through its subsidiaries undertake such activities, as permitted under clause (b), if, –
(i) it satisfies the Board that bank and securities accounts are segregated activity wise;
(ii) it meets with the capital adequacy requirements, if any, separately for each such activity and obtain separate approval, if necessary under the relevant regulations;
(iii) it ensures that there is no material conflict of interest across different activities;
(iv) the absence of conflict of interest shall be disclosed to the trustees and unit holders in scheme information document and statement of additional information;
(v) there are unavoidable conflict of interest situations, it shall satisfy itself that disclosures are made of source of conflict, potential ‘material risk or damage’ to investor interests and detailed parameters for the same;
(vi) it appoints separate fund manager for each separate fund managed by it unless the investment objectives and asset allocation are same and the portfolio is replicated across all the funds managed by the fund manager:
Provided that the requirements of this clause shall not apply if the funds managed are of such categories of foreign portfolio investor subject to such conditions, as maybe specified by the Board from time to time.
(vii) it ensures fair treatment of investors across different products that shall include, but not limited to, simultaneous buy and sell in the same equity security only through market mechanism and a written trade order management system; and
(viii) it ensures independence to key personnel handling the relevant conflict of interest is provided through removal of direct link between remuneration to relevant asset management company personnel and revenues generated by that activity:
Provided further that the asset management company may, itself or through its subsidiaries, undertake portfolio management services and advisory services for other than broad based fund till further directions, as may be specified by the Board, subject to compliance with the following additional conditions:-
(i) it satisfies the Board that key personnel of the asset management company, the system, back office, bank and securities accounts are segregated activity wise and there exist system to prohibit access to inside information of various activities; and
(ii) it meets with the capital adequacy requirements, if any, separately for each of such activities and obtain separate approval, if necessary under the relevant regulations:
Provided further that an asset management company may become a proprietary trading member for carrying out trades in the debt segment of the recognised stock exchanges, on behalf of its mutual fund schemes and may also become a self-clearing member of the recognised clearing corporations to clear and settle trades in the debt segment on behalf of its mutual fund schemes.
22. Obligations of asset management company and its employees
(1) Investment and operational due diligence
(a) The asset management company shall ensure that all activities of the asset management company adhere to these regulations including taking all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any mutual fund scheme is not contrary to the provisions of these regulations, circulars/ and guidelines issued thereunder and the trust deed.
(b) The asset management company shall exercise due diligence and reasonable care in all investment decisions consistent with the standards of other entities engaged in the same business.
(2) Operational systems and personnel:
Before launching any scheme, the board of directors of the asset management company shall ensure that asset management company has:
(i) established systems for its back office, dealing room and accounting;
(ii) appointed all key personnel specified by the Board, including fund managers for the scheme(s) and submitted their bio-data (including educational qualifications and securities market experience) to the trustees within 15 calendar days of their appointment;
(iii) appointed auditors for audit of its accounts;
(iv) appointed a compliance officer responsible for monitoring compliance with the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the Board or the Central Government and for addressing investors grievances;
(v) appointed a registrar to an issue and share transfer agent registered under the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 2025 and established parameters for their supervision;
(vi) prepared a compliance manual and designed internal control mechanisms including internal audit systems;
(vii) specified norms for the empanelment of brokers and marketing agents; and
(viii) obtained, where required by these regulations, prior in-principle approval from the recognized stock exchange(s) where units are proposed to be listed, in the manner specified by such exchange(s).
(3) Remuneration and Investment
(a) The asset management company shall invest such amounts in such schemes of the mutual
fund, based on the risks associated with the schemes, as may be specified by the Board.
(b) The asset management company shall invest a percentage of the remuneration of employees in units of mutual fund schemes based on the designation or roles, as specified by the Board.
(c) The asset management company shall not invest in any of its scheme other than as provided in clause (a) unless full disclosure of its intention to invest has been made in the offer documents.
(d) The asset management company shall not charge any fees on its own investments in a scheme of a mutual fund managed by it.
(4) Responsibility of key personnel and employees:
(a) The Chief Executive Officer (whatever be the designation) of the asset management company shall ensure that:
(i) the mutual fund complies with all the provisions of these regulations and related guidelines and circulars;
(ii) investments made by the fund managers are in the interest of the unit holders;
(iii) the overall risk management function of the mutual fund is comprehensively managed; and
(iv) the asset management company has adequate systems in place to ensure adherence to the Code of Conduct for Fund Managers and Dealers (specified in PART – B of the Fourth Schedule of these regulations) and any breach of this Code of Conduct shall be immediately brought to the attention of the Board of Directors of the asset management company and trustees.
(b) The fund managers (whatever be the designation including chief investment officer) shall ensure:
(i) that scheme funds are invested to achieve scheme objectives, in the interest of unit holders and in compliance with the provisions of these regulations and related guidelines and circulars; and
(ii) adherence to the Code of Conduct for Fund Managers and Dealers (specified in PART – B of the Fourth Schedule and submit a quarterly self-certification to the trustees confirming complied or listing exceptions, if any.
(c) The Dealers (whatever be the designation) shall:
(i) ensure that orders are executed on the best available terms and in the best interest of all unit holders; and
(ii) abide by the Code of Conduct for Fund Managers and Dealers (specified in PART – B of the Fourth Schedule and submit a quarterly self-certification to the trustees confirming complied or listing exceptions, if any.
(d) The compliance officer appointed under clause (iv) of sub-regulation (2) of regulation 22
shall independently and immediately report any observed non-compliance to the Board.
(e) Employees of asset management company shall not render, directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice:
Provided that in case of rendering investment advice, he/she shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.
(5) Financial transactions and disclosures:
(a) Brokerage transactions
(i) The asset management company shall ensure that the purchase or sale of securities through any stock broker that is an associate of the sponsor does not, on average, exceed five percent of the aggregate value of securities purchased or sold by the mutual fund across all its schemes.
(ii) The asset management company may undertake purchase or sale of securities through a stock broker which is not an associate of the sponsor in excess of five percent of the aggregate value of securities transacted by the mutual fund across all its schemes, provided that the justification for exceeding the limit is recorded in writing and reported to the trustees on a quarterly basis.
Explanation: The limits specified in clauses (i) and (ii) shall apply for each block of three months and shall exclude transactions relating to the sale and distribution of units issued by the mutual fund.
(b) Transactions with associates/sponsor:
(i) Where an asset management company proposes to utilise the services of the sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction, distribution and sale of securities, the proposed engagement of such persons shall be disclosed to the unitholders and the brokerage or commission paid shall be disclosed in the half-yearly and annual accounts of the mutual fund.
(ii) The half-yearly and yearly annual accounts disclosure shall include:
d. subscription by the schemes in the issues lead managed by associate companies; and
e. subscription to any equity or debt issue on a private placement basis where the sponsor or its associate companies acted as arranger or manager.
(iii) If the asset management company enters into any securities transactions with any of its associates, a report to that effect shall be placed before the trustees at their next meeting.
(6) Investment concentration disclosure:
If the investment made by any company in a scheme exceeds five per cent of the net asset value of the scheme, the investment made by that scheme or by any other scheme of the same mutual fund in that company or its subsidiaries shall be brought to the notice of the trustees by the asset management company and be disclosed in the half-yearly and annual accounts of the respective schemes, with justification for such investment, where the cross investment is made within a period of one year before or after the initial investment.
(7) Reporting and oversight
(a) Quarterly reports to trustees:
(i) The asset management company shall submit to the trustees quarterly reports on its activities and the compliance with these regulations.
(ii) The board of directors shall ensure that there has been exercise of due diligence on the reports submitted by the asset management company to the trustees.
(b) Director and Key Personnel Disclosures:
(i) The asset management company shall file with the trustees and the Board:
a. detailed bio-data of all its directors, along with their interest in other companies, within 15 calendar days of their appointment;
b. a half yearly report regarding any change in the interest of directors; and
c. a quarterly report to the trustees providing details and adequate justification about the purchase and sale of securities of the group companies of the sponsor or the asset management company by the mutual fund during that quarter.
(ii) Each director of the asset management company shall file with the trustees the details of their securities transactions on a quarterly basis, in the manner specified by the Board.
(iii) The asset management company shall file with trustees the details of transactions in securities by its key personnel in their own name or in the name of the asset management company, and shall report to the Board, as required.
(c) Board of Directors’ Oversight:
The board of directors of the asset management company shall ensure that –
a. the asset management company has been diligent in empaneling brokers, monitoring securities transactions with brokers, and avoiding undue concentration of business with specific brokers;
b. the asset management company has not given any undue or unfair advantage to any associate or dealt with any associate in any manner detrimental to the interest of unit holders;
c. the transactions entered into by the asset management company align with these regulations, investment objective and asset allocation of the respective schemes;
d. mutual fund transactions align with the provisions of the trust deed;
e. the net worth of the asset management company is reviewed quarterly to ensure continuous compliance with the threshold provided in clause (e) of sub-regulation (1) of regulation 5;
f. all service contracts, including custody arrangements for assets and transfer agency of securities, are executed in the interest of unit holders and test checks of service contracts are arranged;
g. there is no conflict of interest between the deployment of the asset management company’s net worth and the interest of unit holders;
h. investor complaints are periodically reviewed and redressed;
l. all service providers hold appropriate registrations with the Board or relevant regulatory authority;
i. any special developments in the mutual fund are immediately reported to the trustees; and
j. due diligence is exercised on such matters as specified by the Board.
(8) Ethical Conduct and Investor Protection
(a) Prevention of misconduct:
(i) The asset management company shall be responsible for acts of commission or omission by its employees or persons whose services have been procured by the asset management company, where such act or omission is committed in the course of carrying out functions under these regulations, and involves negligence, breach of duty, or failure to comply with applicable law.
(ii) The asset management company shall abide by the Code of Conduct specified in PART-A of the Fourth Schedule.
(b) Market abuse deterrence:
(i) The asset management company shall establish, implement and maintain an institutional mechanism (as specified by the Board), for identifying and deterring potential market abuse, including front-running and fraudulent transactions in securities.
(ii) The Chief Executive Officer or Managing Director (or equivalent or analogous rank) and Chief Compliance Officer of the asset management company shall be responsible and accountable for implementing institutional mechanism for deterring potential market abuse, including front-running and fraudulent securities transactions.
(c) Whistleblower policy:
The asset management company shall establish, implement and maintain a documented whistle blower policy that:
a. provides a confidential channel for employees, directors, trustees, and other stakeholders to raise concerns about suspected fraudulent, unfair or unethical practices, violations of regulatory or legal requirements or governance vulnerability; and
b. establishes procedure to ensure adequate protection of whistle blowers.
(d) Investor grievance and protection:
(i) The asset management company shall constitute a Unit Holder Protection Committee in the form and manner and with a mandate as specified by the Board.
(ii) Asset management company shall ensure compliance with the Investor Charter specified by the Board.
(9) Scheme management and valuation:
(a) Registrars and share transfer agents
(i) Registrars and share transfer agents appointed by the asset management company shall be registered with the Board.
(ii) If the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme and for rates higher than the competitive market rates, prior approval of the trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts.
(b) Valuation and Disclosure
(i) The asset management company shall compute and carry out valuation of investments made by its scheme(s) in accordance with the investment valuation norms specified in the Seventh Schedule, and shall publish the same.
(ii) The asset management company and the sponsor of the mutual fund shall be liable to compensate affected investors and/or the scheme for any unfair treatment to an investor resulting from inappropriate valuation.
(iii) The asset management company shall report and disclose all transactions in debt and money market securities, including inter scheme transfers, as specified by the Board.
(c) Changes to scheme attribute:
The asset management company shall ensure that no change in the fundamental attributes of any scheme, fees and expenses payable or any other change that would modify the scheme and affect the interest of unit holders, shall be carried out unless, —
a. written communication (including digital modes such as email/sms etc.) about the proposed change is sent to each unit holder;
b. details, as specified by the Board, are appropriately displayed on the website of asset management company; and
c. unit holders are given an option to exit at the prevailing Net Asset Value without any exit load.
(d) Income calculation:
The asset management company shall be responsible for calculating any income due to be paid to the mutual fund and also any income received in the mutual fund for the unit holders of any scheme, in accordance with these regulations and the trust deed.
(e) Stress testing:
The asset management company shall conduct stress testing for such schemes as specified by the Board and disclose the results in the form and manner specified by the Board.
(f) Geographic scope:
The asset management company shall not carry out its fund management operations or execution of transactions relating to mutual funds, outside the territory of India, except for execution of trades for investment in overseas securities.
(10) Termination and Liability
(a) Termination of assignment of asset management company:
The asset management company may request trustees for termination of the assignment of the asset management company at any time:
Provided that such termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company.
(b) Continuing Liability
Notwithstanding any contract, agreement or termination, the asset management company or its directors or other officers shall not be absolved of liability to the mutual fund for their acts of commission or omission, while holding such position or office.
23. Meeting of the board of directors of the trustee company and the board of directors of the asset management company
The board of directors of the trustee company and the asset management company, including their respective committees, shall hold meetings at least as often as specified by the Board, and may hold additional meetings as necessary.
CHAPTER V
SCHEMES OF MUTUAL FUND
24. Filing of offer document
(1) An asset management company may launch a scheme:
(i) after approval of the trustees; and
(ii) on receipt of Board’s final observations on the offer document filed with the Board.
(2) The Board may issue observations, if any, within 21 working days from the date of filing of the offer document.
(3) While filing the offer document under sub-regulation (1), the mutual fund shall pay to the Board the minimum filing fee specified in the First Schedule.
(4) The mutual fund shall pay to the Board the balance filing fee calculated in accordance with the First Schedule within such time as may be specified by the Board from time to time.
25. Disclosures in the offer document
(1) The offer document shall contain disclosures which are adequate to enable investors to make an informed investment decision, including the disclosures:
(a) on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor; and
(b) regarding the prior in principle approval obtained from the recognized stock exchange(s) on which units are proposed to be listed in accordance with these regulations.
(2) The Board may, in the interest of investors, require the asset management company to carry out such modifications in the offer document as the Board deems fit.
(3) The offer document shall not contain any disclosure or statement or opinion that is false, misleading, or incorrect.
(4) The offer document shall contain such other disclosures as may be specified by the Board from time to time.
26. Application for subscription to mutual fund units
Every physical application form for subscription to units of a mutual fund shall be accompanied by a Key Information Memorandum containing such information as may be specified by the Board from time to time.
27. Nomination
(1) The asset management company shall provide to every unitholder an option, in such manner as may be specified by the Board from time to time, to nominate person(s):
(a) who shall be authorized to conduct transactions on behalf of the unitholder in the event of the incapacitation of the unitholder; and
(b) with whom the units held by the unitholder shall vest, as trustee on behalf of the legal heir, in the event of the death of the unitholder.
(2) Where the units are held jointly by more than one unitholder, the joint unitholders may together nominate person(s) with whom all the rights in the units shall vest, as trustee on behalf of the legal heir, in the event of death of all the joint unitholders.
(3) An asset management company or its registrar to an issue and share transfer agent shall not be liable for any action taken in good faith, on the basis of nomination made by the unitholder in accordance with these regulations.
28. Advertisement material
The advertisements by the asset management company shall be in conformity with the Advertisement Code as specified in the Fifth Schedule.
29. Listing and delisting of mutual fund schemes
(1) Prior to the listing of units of any scheme of mutual fund on the recognised stock exchange(s), the asset management company of such mutual fund shall enter into an agreement with such exchange(s).
(2) Every scheme wherein daily investment and redemptions from the scheme is not available, and such other schemes as specified by the Board, shall be listed on a recognised stock exchange in the manner as may be specified by the Board from time to time.
(3) Every exchange traded fund shall be listed on a recognised stock exchange.
(4) The units of mutual fund schemes that have ceased to exist shall be delisted from recognised stock exchange(s) in accordance with the guidelines as may be specified by the Board from time to time.
30. Repurchase of units of close ended schemes
(1) The units of a close ended scheme launched on or after the commencement of the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2009 shall not be repurchased before the expiry of maturity period of such scheme.
(2) The close ended scheme may be converted into open-ended scheme where:
(a) the offer document of such scheme discloses the option for such conversion and the time period of such conversion; and
(b) the unitholders are provided with an option to redeem their units in full.
(3) A close ended scheme shall be fully redeemed at the end of its maturity period subject to the provisions of sub-regulation (4).
(4) A close-ended scheme may be rolled over for those unitholders who express their consent in writing, after following the process of filing of the offer document, and the units of unitholders who have not given such written consent shall be redeemed in full at net asset value based price prevailing on the maturity date.
31. Offering period
Mutual fund schemes, other than equity linked savings schemes, shall be open for initial subscription for such time as may be specified by the Board.
32. Allotment of units and refunds of moneys
(1) The asset management company shall specify in the offer document the minimum and, wherever applicable, the maximum subscription amount to be raised under the scheme.
(2) In the event of over subscription, the allotment of units to unitholders shall be made on a pro-rata basis.
(3) The mutual fund and asset management company shall be liable to refund the application money to the applicants within the period specified by the Board, —
(a) where the mutual fund fails to receive the minimum subscription amount referred to in sub-regulation (1);
(b) where the money received from the applicants for units exceeds the maximum subscription amount referred to in sub-regulation (1); or
(c) where the application is rejected for any other reason.
(4) The scheme shall deploy the funds received under the new fund offer within such time period as may be specified by the Board from time to time.
33. Holding of mutual fund units
(1) An applicant under a scheme whose application has been accepted shall have the option to receive units either in the statement of accounts mode or in the dematerialized mode.
(2) The asset management company shall, in the mode of holding specified by the investor, credit the mutual fund units to investor’s account immediately upon allotment of units.
(3) Upon receipt of a request from a unitholder for change in the mode of holding of mutual fund units, the asset management company shall credit mutual fund units to unit holders’ account, in the mode of holding specified by investor, within such period as may be specified by the Board from time to time.
34. Consolidated account statement
(1) The asset management company shall ensure that the consolidated account statement is issued for each calendar month, as per the timeline specified by the Board from time to time, detailing all the transactions and holding at the end of the month, including distribution commission paid to its distributor, across all schemes of all mutual funds, to every investor in whose folio any transaction has taken place during that month.
(2) In respect of investors in whose folios no transaction has taken place during the preceding six-month period ending in September or March, a consolidated account statement shall be issued on half yearly basis as per the timeline specified by the Board from time to time.
(3) The asset management company shall identify common investor across mutual funds by their Permanent Account Number for the purposes of issuing the consolidated account statement.
Explanation: For the purpose of this regulation, the expression “transaction” shall include purchase, redemption, switch, Income Distribution cum Capital Withdrawal payout, Income Distribution cum Capital Withdrawal reinvestment, systematic investment plan, systematic withdrawal plan and systematic transfer plan.
35. Transfer of units
(1) Unless otherwise restricted or prohibited under the scheme, a unit shall be freely transferable.
(2) A unitholder who desires to trade in units listed on a recognized stock exchange shall hold such units in dematerialised form.
(3) The asset management company shall allow transfer of mutual fund units in the manner as may be specified by the Board from time to time.
(4) Where units are held in dematerialized form with the depository, such units will be transferable in accordance with the provisions of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018.
CHAPTER VI
WINDING UP OF MUTUAL FUND SCHEMES
36. Winding up of mutual fund schemes
(1) A close-ended scheme shall be wound up by redemption of the units on the expiry of duration fixed in the scheme, unless the scheme is rolled over for a further period as specified under sub-regulation (4) of regulation 30.
(2) A scheme of a mutual fund, including a close ended scheme proposed to be wound up before the expiry of its fixed duration, shall be wound up:
(a) on the occurrence of any event which, in the opinion of the trustees, requires the scheme to be wound up;
(b) if seventy-five per cent of the unit holders of a scheme pass a resolution for its winding up; or
(c) if the Board so directs in the interest of the unitholders.
(3) Where a scheme is required to be wound up under sub-regulation (2), the trustees shall, within one day, give notice disclosing the circumstances leading to the winding up of the scheme, –
(a) to the Board; and
(b) in two daily newspapers having nationwide circulation and in one vernacular newspaper circulating at the place where the mutual fund is formed.
(4) Where a scheme is required to be wound up under clause (a) of sub-regulation (2), the trustees shall obtain consent of the unit holders, by simple majority of unitholders participating in the voting on the basis of one vote per unit, and shall publish the results of such voting within forty-five calendar days from the date of publication of notice under sub-regulation (3).
(5) Where the trustees fail to obtain the consent of the unitholders under sub-regulation (4), the scheme shall be reopened for business activities with effect from the second business day following the publication of results of the voting.
37. Effect of winding up
On and from the date of the publication of notice under clause (b) of sub-regulation (3) of regulation 36, the trustees or the asset management company, as the case may be, shall:
(a) cease to carry on any business activities in respect of the scheme being wound up;
(b) cease to create or cancel units of the scheme;
(c) cease to issue or redeem units of the scheme; and
(d) list the units of mutual fund scheme under winding up on a recognised stock exchange.
38. Procedure and manner of winding up of schemes
(1) Winding up of a scheme under sub-regulation (2) of regulation 36, after compliance with sub-regulation (3) of regulation 36 and sub-regulation (4) of regulation 36, shall be carried out in accordance with the following:
(a) the trustees shall call a meeting of the unitholders to seek approval with simple majority of the unitholders authorizing the trustees or any other person to take steps for winding up of the scheme under clauses (a) and (b) of sub-regulation (2) of regulation 36;
(b) the trustees or any other person shall proceed with the winding up as directed by the Board or in the manner otherwise specified by the Board for winding up of the scheme under clause (c) of sub-regulation (2) of regulation 36;
(c) the trustees or the person so authorised under clause (a) or clause (b) shall dispose of the assets of the scheme in the best interest of the unitholders;
(d) the proceeds realized from the sale of assets under clause (c), shall be:
(i) first, utilised towards discharging all liabilities that are due and payable under the scheme; and
(ii) thereafter, after making appropriate provision for expenses connected with the winding up, paid to the unitholders in proportion to their respective interest in the assets of the scheme as on the date on which the decision for winding up was taken;
Explanation: For the purpose of this clause:
i. The costs related to custodian fees, audit fees and investor communication are unavoidable till the schemes are wound-up and therefore the said costs can be considered as winding up costs for terminating a fund or a scheme; and
ii. investment and advisory fees and distribution commission shall not be considered as winding up costs for terminating a fund or a scheme;
(e) upon completion of the winding up, the trustee shall submit to the Board and to the unitholders a report on the winding up containing particulars such as:
(i) the circumstances leading to the winding up;
(ii) the steps taken for disposal of assets of the fund before winding up;
(iii) the expenses incurred in connection with the winding up;
(iv) the net assets available for distribution to the unit holders; and
(v) a certificate from the auditors of the fund;
(f) the provisions of these regulations in respect of disclosures of half-yearly and annual reports shall continue to be applicable until winding up is completed or the scheme ceases to exist.
(2) Upon receipt of the report referred to in clause (e) of sub-regulation (1), and upon being satisfied that all measures for winding up of the scheme have been complied with, the Board shall record and communicate to trustees that the scheme ceases to exist.
CHAPTER VII
INVESTMENT BY MUTUAL FUND SCHEMES AND ASSET MANAGEMENT
COMPANIES
39. Investment by Mutual Fund Schemes
(1) Subject to the investment objective of the relevant mutual fund scheme and provisions of these regulations, the asset management company shall invest funds of a mutual fund scheme only in the following:
(a) securities;
(b) money market instruments;
(c) privately placed debentures;
(d) securitised debt instruments, which are either asset backed or mortgage backed securities;
(e) gold or gold-related instruments;
(f) silver or silver-related instruments; and
(g) any other asset or instrument as may be specified by the Board from time to time.
(2) The Board may specify conditions for investment of the funds collected under mutual fund schemes or Specialized Investment Fund.
40. Investment by mutual fund and asset management companies in Corporate Debt Market Development Fund
(1) The mutual fund shall invest such percentage of net assets of such categories of mutual fund schemes as may be specified by the Board in the units of the Corporate Debt Market Development Fund.
(2) The asset management company of the mutual funds shall invest such percentage of assets under management as may be specified by the Board in the units of Corporate Debt Market Development Fund.
41. Investment restrictions
(1) Any investment to be made under regulation 39, other than investments made by gold exchange traded fund schemes and silver exchange traded fund schemes, shall be subject to the investment restriction specified in Sixth Schedule and with any other restrictions as may be specified by the Board from time to time.
(2) A gold exchange traded fund scheme and silver exchange traded fund scheme may invest in exchange traded commodity derivatives subject to such restrictions as may be specified by the Board from time to time.
(3) The mutual fund shall settle their transactions only in dematerialised securities except for such instruments as may be specified by the Board from time to time.
(4) A gold exchange traded fund scheme and silver exchange traded fund scheme shall be subject to the following investment restrictions:
(a) the funds of any such scheme shall be invested only in gold or gold related instruments or silver or silver related instruments, as the case may be, in accordance with its investment objective, except to the extent necessary to meet the liquidity requirements for honouring redemptions requests, as disclosed in the offer document; and
(b) pending deployment of funds in accordance with clause (a), the mutual fund may invest such funds in short-term deposits of scheduled commercial banks.
(5) The funds of mutual fund scheme shall not in any manner be used in carry forward transactions except as provided in sub-regulation (6).
(6) The mutual fund may enter into derivatives transactions on a recognized stock exchange, subject to the framework specified by the Board from time to time.
(7) Any short selling transaction for the mutual fund schemes shall be executed on a recognized stock exchange and shall be subject to the framework for short selling and securities lending and borrowing specified by the Board from time to time.
(8) Any transfers of investments between schemes within the same mutual fund shall be permitted subject to such conditions as specified by the Board from time to time.
42. Borrowing and Lending by Mutual Funds
(1) The mutual fund shall not borrow except to meet temporary liquidity needs for the purpose of repurchase or redemption of units or payment of interest or Income Distribution cum Capital Withdrawal payout to the unitholders or for settlement of trades by equity oriented index funds and equity oriented exchange traded funds on account of under execution of sell trades on the stock exchange in the manner as may be specified by the board from time to time. The borrowing specified above shall be subject to –
(a) such borrowing not exceeding twenty per cent of the net assets of the scheme; and
(b) duration of such borrowing not exceeding a period of six months.
(2) The limit specified at clause (a) of sub-regulation (1) shall not be applicable for intraday borrowing subject to such conditions as may be specified by the board.
(3) Save as otherwise expressly provided under these regulations, the mutual fund shall not advance any loans for any purpose.
(4) The mutual fund may lend and borrow securities in accordance with the framework relating to short selling and securities lending and borrowing specified by the Board.
CHAPTER VIII
NET ASSET VALUE AND TIMELINES FOR ALLOTMENT OF MUTUAL FUND UNITS
AND PAYMENT OF INVESTMENT PROCEEDS
43. Computation of net asset value
Every asset management company shall compute the Net Asset Value of each scheme, on a daily basis, by dividing the net assets of the scheme, computed in terms of valuation norms specified by the Board, by the number of units outstanding on the date of valuation.
44. Subscription and redemption value of mutual fund units
(1) The subscription or sale price and the redemption or repurchase price of mutual fund units shall be disclosed to the investors by the asset management company in the manner specified by the Board from time to time.
(2) The asset management company shall disclose the methodology of computation of the subscription or sale price and the redemption or repurchase price of mutual fund units in the manner specified by the Board from time to time.
(3) Any exit load charged to the investors shall be credited to the respective scheme.
(4) The exit load of an open-ended mutual fund scheme shall not exceed three per cent of the Net Asset Value of the scheme.
45. Income Distribution cum Capital Withdrawal
The asset management company may declare Income Distribution cum Capital Withdrawal for mutual fund schemes in accordance with the offer document and subject to such guidelines as may be specified by the Board from time to time.
46. Credit of mutual fund units, redemption or Income Distribution cum Capital Withdrawal payouts
(1) Every asset management company shall transfer to the unitholders, as the case may be:
(i) the Income Distribution cum Capital Withdrawal payments; and
(ii) redemption proceeds (also known as repurchase proceeds) and the application money, if the application is rejected due to undersubscription, oversubscription or for any other reason, within such period as may be specified by the Board from time to time.
(2) In the event of failure to transfer the redemption proceeds or Income Distribution cum Capital Withdrawal payments or application money, as referred under sub-regulation (1), within the specified period, the asset management company shall be liable to pay interest to the unitholder, as the case may be, at the rate of fifteen per cent per annum for the period of such delay.
(3) In addition to the refund with interest as referred under sub-regulation (2), asset management company may be liable for action by the Board as deemed fit, for failure to comply with the sub-regulation (1).
(4) The physical dispatch of redemption or repurchase proceeds or Income Distribution cum Capital Withdrawal payments or application money shall be carried out only in exceptional circumstances and the asset management companies shall be required to maintain records along with reasons for all such physical dispatches.
CHAPTER IX
SPECIALIZED INVESTMENT FUND
47. Applicability
(1) The provisions of this chapter shall apply to a Specialized Investment Fund.
(2) Unless the context otherwise requires, all other provisions of these regulations and the guidelines and circulars issued thereunder shall apply to a Specialized Investment Fund, its investment strategies, trustees and asset management companies in relation to such investment strategies, except where specific provisions are made in relation thereto under this Chapter.
48. Approval requirements
(1) A mutual fund registered under clause (e) of regulation 3 may be granted an approval to launch a Specialized Investment Fund, subject to fulfilling such eligibility criteria and in the manner as may be specified by the Board from time to time.
(2) A mutual fund registered under clause (e) of regulation 3 shall not be required to establish a separate trust for launching any investment strategy under the Specialized Investment Fund.
49. Conditions for Specialized Investment Fund
(1) A Specialized Investment Fund shall not accept an investment amount of less than ten lakh rupees from any investor except an accredited investor, across all its investment strategies in the manner as may be specified by the Board.
(2) The fund manager of Specialized Investment Funds shall have the relevant NISM certification as may be specified by the Board from time to time.
(3) All provisions applicable to the schemes of a mutual fund under these regulations shall also apply to the Investment Strategies launched under the Specialized Investment Fund, unless otherwise specified.
50. Procedure for launching of investment strategies
(1) The investment strategies under the Specialized Investment Fund shall be launched in accordance with the procedure applicable to the mutual fund schemes under regulation 24 and in the manner as may be specified by the Board from time to time.
(2) An investment strategy under the Specialized Investment Fund shall be launched as an open-ended or close-ended or interval investment strategy, with the subscription and redemption frequency clearly disclosed in the offer document.
(3) The fees and expenses for the investment strategies launched under the Specialized Investment Fund shall be in accordance with Chapter IX.
51. Permissible investments
(1) The Specialized Investment Fund may invest monies collected under any of its investment strategies in instruments permitted under regulation 39 for mutual funds schemes.
(2) The Board may specify the manner of investment by a Specialized Investment Fund.
52. Restrictions on investments
Any investment under sub-regulation (1) of regulation 51 shall be subject to investment restrictions applicable to mutual fund schemes as specified in the Sixth Schedule.
53. Duties of Asset Management Company
(1) The asset management company shall ensure that the Specialized Investment Fund has distinct identification, separate from that of the mutual fund, to maintain a clear differentiation between the offerings of the Specialized Investment Fund and that of a mutual fund.
(2) The asset management company shall comply with the provisions relating to branding, advertising, standard disclaimers, guidelines on usage of sponsor or asset management company or mutual fund’s brand name and maintenance of a separate website, as may be specified by the Board from time to time.
54. Duties of trustees
The trustees shall ensure that:
(a) the asset management company has the necessary expertise, internal control systems and risk management mechanism to invest in and manage investments;
(b) the asset management company complies with such other requirements related to risk management, investor protection, disclosures and reporting, as may be specified by the Board from time to time; and
(c) all activities of the Specialized Investment Fund are in accordance with the provisions of these regulations.
55. Disclosures in offer document and other disclosures
(1) The offer documents of the Specialized Investment Fund shall contain adequate disclosures for investors to make informed investment decisions, highlighting the high-risk nature of the product, in such manner as may be specified by the Board from time to time.
(2) The portfolio disclosures in respect of a Specialized Investment Fund shall be made in the manner as may be specified by the Board from time to time.
CHAPTER X
MUTUAL FUNDS LITE
56. Applicability
(1) The provisions of this Chapter shall be applicable to mutual funds lite and mutual fund lite schemes.
(2) All other provisions of these regulations except the following provisions and the guidelines and circulars issued thereunder, unless the context otherwise requires, or is repugnant to the provisions of this Chapter, shall apply to a Mutual Fund Lite, Mutual Fund Lite schemes, and trustees and asset management companies in relation to such mutual funds and schemes:
(a) Regulation 5,
(b) Regulation 9;
(c) Regulation 10;
(d) Regulation 11;
(e) Regulation 12;
(f) Clause (b) of sub-regulation (3) of Regulation 16;
(g) Clause (a)(iii) of Regulation 17;
(s) Regulation 21;
(h) Regulation 22;
(i) Regulation 23;
(j) Regulation 24(1);
(k) Regulation 40;
(l) Regulation 70(2);
(m) Chapter IX;
(n) Second Schedule; and
(o) Third Schedule.
57. Eligibility Criteria: For the purpose of granting a certificate of registration as a mutual fund lite, the applicant shall fulfill the following:
| (1) | All the criteria relating to “sound track record” given under one of the following two routes and shall have a general reputation of fairness and integrity in all business transactions: | |||
| Sr. No | Particulars | Route 1 | Route 2 | |
| (a) | Experience | No experience criteria for
granting a certificate of |
The combined experience of Chief Executive Officer, Chief
Operating Officer, Chief minimum of 3 years of |
|
| (b) | Profitability | Net profit from the financial
business operations after providing for depreciation, interest and tax in three out of immediately preceding five Average net annual profit from the financial business operations after depreciation, interest and tax during the immediately preceding five |
No profitability criteria for
granting a certificate of |
|
| (c) | Net worth of sponsor | Positive net worth in each of the preceding five years | Not applicable | |
| (d) | Liquid Net
worth of sponsor |
Positive liquid net worth is more than the proposed capital contribution of the sponsor in the MF Lite asset management company | ||
| (e) | Net worth of MF Lite Asset Management Company | The sponsor shall ensure that the net worth of MF Lite AMC
shall be at least thirty-five Provided that if MF Lite AMC has profits for five twenty-five crore (Rs. 25 If the total assets under management of the MF Lite asset management company management company shall abide by the net worth requirements specified under The sponsor shall ensure maintaining the net worth |
The net worth of MF Lite AMC, infused by the sponsor, at the time of registration shall be rupees seventy-five crores.
However, MF Lite AMC net worth shall be maintained at more than rupees fifty crores (Rs. 50 Crores) deployed in assets as may be specified by the Board, on a continuous basis. Provided that if MF Lite AMC has profits for five consecutive years, the net worth of MF Lite AMC shall be maintained at more than rupees twenty-five crore (Rs. 25 crores). If the total assets under management of the MF Lite asset management company exceeds the thresholds Lite asset management The sponsor shall ensure maintaining the net worth requirement on a continuous basis. |
|
| (f) | Lock-in | No lock-in requirements for | The initial Shareholding | |
| Requirement | certificate of registration under this route. | equivalent to capital
contributed to the MF Lite asset management company, to the extent of at least rupees seventy-five crore (Rs. 75 |
||
| Crores), shall be locked-in for a period of three years | ||||
| (a) | Change in | In case of change in control of | In case of acquisition of | |
| Control | an existing MF Lite asset management company due to acquisition of shares, the positive liquid net worth of the sponsor or funds tied up by the sponsor shall be higher of aggregate par value or marketvalue of the shares proposed to be acquired |
existing MF Lite asset management company, the sponsor shall have minimum positive liquid net worth equal to incremental capitalization required to ensure minimum capitalization of the MF Lite asset management company and the positive liquid net worth of the sponsor or the funds tied up by the sponsor shall be higher of aggregate par value or market value of the shares proposed to be acquired.In case of acquisition of stake in an existing MF Lite asset management company, the shareholding of the sponsor(s) equivalent to minimum of rupees seventy-five crore (Rs. 75 Crores) shall be locked in for three years |
||
| (h) | Private Equity
fund as a sponsor of mutual fund lite |
Not applicable for certificate of registration under this route. | A pooled investment vehicle including a private equity fund may sponsor MF Lite by
complying with conditions |
|
| (2) | Fit and proper | Applicant, mutual fund lite and trustees shall comply with the fit and proper criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. | ||
| (1) | Minimum holding of
sponsor in an MF Lite Asset Management |
The sponsor shall contribute at least 40% to the net worth of the MF Lite asset management company:
Provided that any person who holds 40% or more of the net worth of an asset management company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in these regulations. |
||
| (2) | Fit and proper
requirement for sponsor, its directors or the key personnel to be employed by the mutual fund lite and/or mutual fund lite asset management |
The sponsor or any of its directors or the key personnel to be employed by the mutual fund lite and mutual fund lite asset management company should not have been guilty of fraud or been convicted of an offence involving moral turpitude or found guilty of any economic offence; | ||
| (3) | Appointment of trustees | Appointment of debenture trustees to act as trustees for the MF Lite shall be in accordance with the provisions of the regulations; | ||
| (6) | Appointment of MF Lite
asset management |
Appointment of MF Lite asset management company to manage the MF Lite and operate the scheme of such funds in accordance with the provisions of these regulations; | ||
| (1) | Appointment of custodian | Appointment of custodian in order to keep custody of the securities or goods or gold or gold related instruments or silver or silver related instruments or other assets of the mutual fund lite held in terms of these regulations, and provide such other custodial services as may be authorised by the trustees. | ||
| (2) | Other conditions | Other conditions in this regard as may be specified by the Board from time to time are adhered to | ||
58. Transfer of passive schemes of mutual fund to mutual fund lite
(1) A sponsor shall be permitted to obtain a registration as a mutual fund under chapter II of these regulations and a separate registration as a mutual fund lite under this chapter subject to conditions specified by the Board from time to time.
(2) An existing sponsor of the mutual fund can transfer its passive schemes which are eligible as mutual fund lite schemes from an existing mutual fund to a mutual fund lite belonging to a group entity of the same sponsor subject to conditions as specified by the Board from time to time.
(3) If an existing sponsor transfers its passive schemes from its existing mutual fund to a mutual fund lite, the existing mutual fund shall not launch any passive schemes that are eligible as mutual fund lite schemes after such transfer.
59. Migrating mutual fund registration to mutual fund lite registration
An existing mutual fund that intends to only launch mutual fund lite schemes may surrender its existing registration and migrate as a mutual fund lite under this Chapter subject to the conditions and the manner specified by the Board.
60. Registration of trust deed
A mutual fund lite shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, as specified by the Board, duly registered under the provisions of the Registration Act, 1908 (16 of 1908), executed by the mutual fund lite asset management company in favor of the trustees named in such an instrument.
61. Appointment of trustee
(1) A debenture trustee may be appointed as a trustee of more than one mutual fund lite.
(2) The trustee of a mutual fund lite shall be an independent entity and not an associate of the sponsor or manager of the concerned mutual fund lite asset management company.
(3) No debenture trustee shall be eligible to be appointed as a trustee under this Chapter unless it meets the criteria for a fit and proper person specified under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993.
(4) The trustee shall have satisfactory wherewithal with respect to infrastructure, personnel, systems etc. as may be required for the proper discharge of its duties under these regulations.
62. Rights and obligations of the trustees
(1) Appointment and termination of asset management company
a. The trustees, with prior approval from the Board, shall appoint MF Lite asset management company and shall enter into an investment management agreement with the MF Lite asset management company.
(b) The investment management agreement shall contain such clauses as may be specified by the Board and such other clauses as are necessary for the purpose of making investments and fair and transparent functioning of an MF Lite asset management company.
(c) Where the trustees have reason to believe that the conduct of the business of the MF Lite Asset management company is not in accordance with these regulations or detrimental to the interest of the unitholders, they shall forthwith take such remedial steps, as are necessary except for termination of the asset management company and shall immediately inform the Board of such conduct and the action taken by them.
(d) Termination of the asset management company by the trustees may be under the below given circumstances and shall be under the specific event and shall only be with the prior approval of the Board:
(i) trustees own accord if they have reasons to believe that the affairs of the asset management company are being conducted in contravention to the provisions of these regulations; or
(ii) request by the asset management company.
Explanation: Termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company.
(2) Addressing conflict of interest:
The trustees shall take all necessary measures as they deem necessary to ensure that any conflict of interest involving the asset management company is effectively addressed and such measures shall include:
(a) ensuring that mutual fund lite asset management company does not give any undue or unfair advantage to its associates or engages in transactions that may prejudice the interest of unitholders;
(b) conducting a quarterly review of reports submitted by the mutual fund lite asset management company on transactions between the mutual fund lite and mutual fund lite asset management company or its associates; and
(c) the trustees shall review and give their comments on the reports received from the mutual fund lite asset management company on investments by the mutual fund lite in securities of group companies of the sponsor.
(3) Regulatory compliance and trustee responsibilities
(a) The trustees shall have the right to request for any information from the mutual fund lite asset management company that they deem necessary.
(b) The trustees shall be accountable for and be the custodian of the funds and property of the respective mutual fund lite schemes and shall hold the same in trust for the benefit of unitholders in accordance with this chapter and the provisions of trust deed.
(4) Trustee oversight for investor interests
(a) The trustees shall abide by the Code of Conduct as specified in PART-A of the Fourth Schedule.
(b) The trustees shall obtain unitholder consent:
(i) when required by the Board in the interest of the unitholders;
(ii) on the requisition of three-fourths of the unitholders of any mutual fund lite scheme; or
(iii) when the majority of the trustees decide to wind up a scheme in terms of clause (a) of sub-regulation (2) of regulation 36 or prematurely redeem the units of a close ended scheme.
(c) The trustees shall request details of securities transactions by key personnel of the mutual fund lite asset management company, whether made in their own name or in the name of the mutual fund lite asset management company, and report to the Board, when required.
(d) The trustees shall periodically review investor complaints and their resolution by the mutual fund lite asset management company.
(5) Trustee oversight responsibilities
(a) The trustee shall oversee activities of the mutual fund lite asset management company in the interest of the unitholders and obtain periodic reports on its activities and status of compliance with applicable regulations in the manner as may be specified by the Board.
(b) The trustee shall ensure that the trust property is properly protected, held and administered by proper persons and by a proper number of such persons.
(c) The trustees shall ensure that there is no conflict of interest between the manner of deployment of its net worth by the mutual fund lite asset management company and the interest of the unit- holders.
(d) The trustees shall take steps to ensure that the transactions of the mutual fund lite are in accordance with the provisions of the trust deed.
(e) The trustee shall provide consent in case of change in control of the mutual fund lite asset management company.
(f) The trustees shall also exercise due diligence on such matters as may be specified by the Board from time to time.
(6) The trustees shall not be held liable for acts done in good faith if they have exercised adequate due diligence and acted as per the terms of the trust deed.
63. Obligations of mutual fund lite asset management company and its employees
(1) Appointment of directors
The directors of a mutual fund lite asset management company shall be appointed by the sponsor and the sponsor shall exercise diligence while making such appointments.
(2) Investment and operational due diligence
(a)The mutual fund lite asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any mutual fund lite scheme is not contrary to the provisions of these regulations and the trust deed.
(b) The board of directors of the mutual fund lite asset management company shall ensure that all the activities of the mutual fund lite asset management company are in accordance with the provisions of these regulations.
(3) Operational systems and personnel
The board of directors of the mutual fund lite asset management company shall ensure before the launch of any scheme that the mutual fund lite asset management company has-
(i) established systems for its back office, dealing room and accounting;
(ii) appointed all key personnel specified by the Board, including fund manager(s) for the scheme(s) and submitted their bio-data which shall contain the educational qualifications and securities market experience to the trustees, within fifteen calendar days of their appointment;
(iii) appointed auditors to audit its accounts;
(iv) appointed a compliance officer who shall be responsible for monitoring compliance with the Act, rules, regulations, notifications, guidelines, instructions, etc., issued by the Board or the Central Government and for addressing investors grievances;
(v) appointed a registrar to an issue and share transfer agent registered under the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 2025 and established parameters for their supervision;
(vi) prepared a compliance manual and designed internal control mechanisms including internal audit systems;
(vii) specified norms for empanelment of brokers and marketing agents; and
(viii) obtained, wherever required under these regulations, prior in-principle approval from the recognized stock exchange(s) where units are proposed to be listed, in the manner specified by such exchange(s).
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