SEBI vide its notification dated 06th March, 2020 amends the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. These amendments in Mutual Funds regulations have come into force from March 6, 2020.

Mutual funds are regulated by the SEBI (Mutual Fund) Regulations, 1996.

What is mutual Fund?

Different investment avenues are available to investors, one of them being Mutual Fund. Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

SEBI (Mutual Fund) Regulations, 1996, define mutual fund as a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities including money market instruments or gold or gold related instruments or real estate assets.

Mutual Funds

What is amendment?

♦ The amendment has been brought in regulation 26 regarding the appointment of a custodian. Earlier, in case of a gold exchange-traded fund scheme, the assets of the scheme being gold or gold-related instruments where to be kept in custody of a bank that is registered as a custodian with the Board. The new regulation eases this by notifying that these assets can be kept in the custody of a custodian registered with the Board.

♦ Another important amendment comes in regulation 28 (4) that the sponsor or asset management company shall invest not less than one percent of the amount which would be raised in the new fund offer or fifty lakh rupees, whichever is less and such investment shall not be redeemed unless the scheme is wound up. This investment, in such an option of the scheme, shall now be specified by the Board according to the new amendment.

S.No. Pre- Amendment Post-Amendment

[Amendment by SEBI (Mutual Funds) (Amendment) Regulations, 2020]

1. Provided that in case of a gold exchange traded fund scheme, the assets of the scheme being gold or gold related instruments may be kept in custody of a bank which is registered as a custodian with the Board. in regulation 26,-

first proviso to sub-regulation (1)shall be substituted by the following clause, namely,-

“Provided that in case of a gold exchange traded fund scheme, the assets of the scheme being gold or gold related instruments may be kept in the custody of a custodian registered with the Board”.

2. The sponsor or asset management company shall invest not less than one percent of the amount which would  be  raised  in  the  new  fund  offer  or  fifty  lakh  rupees,  whichever  is less, in the  growth  option  of the scheme and such investment shall not be redeemed unless the scheme is wound up:

Provided that this
sub-regulation shall not apply to close ended schemes.

in regulation 28, –

sub-regulation (4) shall be substituted by the following clause, namely,-

“28(4). The sponsor or asset management company shall invest not less  than  one  percent  of  the  amount  which  would  be  raised  in  the new  fund  offer  or  fifty  lakh rupees,  whichever  is  less, and  such investment shall not be redeemed unless the scheme is wound up.

Provided  that  the investment  by the sponsor  or  asset  management company  shall  be made in  such  option  of  the  scheme,  as  may  be specified by the Board.”

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Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.

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