January 5, 2000
All Mutual Funds registered with SEBI/ Unit Trust of India
Further to our circular letter dated October 2 1,1999, please find enclosed a copy of the amendments to SEBI (Mutual Funds) Regulations, 1996 published in The Gazette of India dated December 8, 1999 for your information and implementation.
The clarifications pertaining to the notification and additional guidelines as approved by SEBI Board are also being issued under Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996 as follows:
I. Investment restrictions.
1. All investment restrictions shall be applicable at the time of making investment.
2. With reference to the proviso to clause 10 of Seventh Schedule to the SEBI (Mutual Funds) Regulations, 1996, the investments by index funds shall be in accordance with the weightage of the scrips in the specific index as disclosed in the offer document. In case of sector/industry specific scheme, the upper ceiling on investments may be in accordance with the weightage of the scrips in the representative sectoral index/sub index as disclosed in the offer document or 10% of the NAV of the scheme whichever is higher.
3. Clause 11 of the Seventh Schedule to the Regulations pertains to investment in unlisted securities. Necessary gazette notification clarifying the same shall be issued in due course.
II. Responsibilities of Asset Management Companies (AMCs ) and the Trustees :
1. In order to strengthen the compliance mechanism, all information and documents relating to the compliance process shall be authenticated / adopted by the Board of Directors of the AMC. In like manner, Trustees shall review all information and documents received from the AMC as required under the compliance process.
2. All asset management companies shall adopt a management information system for reporting to their trustees. The report shall contain specific comments on all issues related to the operation of the mutual fund as undertaken by the AMC including those mentioned in Annexure I.
3.The half-yearly report on the activities of the mutual fund to be submitted by the trustees to SEBI under Regulation 1 8(23)(a), shall cover all issues relevant to operation of the mutual fund including those given in Annexure II. The Trustees may mention in their report, if they so desire, that they have relied on the reports obtained from the independent auditor or internal/ statutory auditors or the compliance officer as the case may be. However, the report must mention that the trustees have satisfied themselves about the adequacy of compliance systems in the mutual fund.
The AMCs and the trustees may update the reporting formats (Annexure I and II) by including relevant provisions of further amendments to regulations or guidelines/circulars issued by SEBI from time to time (including the notification dated December 8, 1999) and shall specifically comment on their compliance.
4.For effective discharge of responsibilities under the Regulations, the AMC shall provide infrastructure and administrative support to the trustees. The mutual fund may decide to appoint independent auditors and/or may have separate full-fledged administrative set up for the trustees. However, the expenditure incurred in this regard shall be within the limits as specified in Regulation 52(6). AMCs may place correspondence and reports submitted to SEBI before the trustees.
5. For the purpose of reporting transactions in securities by the trustees under Regulation 18 (11), it is clarified that only those transactions are required to be reported which exceed the value of Rs 1 lakh.
Please acknowledge receipt. Yours faithfully,
P. K. NAGPAL
MUTUAL FUNDS DEPARTMENT
Encl. : as above