Master Circular for Mutual Funds

Master Circular IMD/MC No.3/10554/2012, dated 11-5-2012

For effective regulation of the Mutual Fund Industry, Securities & Exchange Board of India (SEBI) has been issuing various circulars from time to time. In order to enable the industry and other users to have an access to all the applicable circulars at one place, Master Circular for Mutual Funds has been prepared.

This Master Circular is a compilation of all the circulars issued by SEBI on the above subject, which are operational as on date of this circular.

MASTER CIRCULAR FOR MUTUAL FUNDS

 1.  This Master Circular includes circulars issued up to March 31, 2012.

 2.  In case of any inconsistency between the master circular and the applicable circulars, the contents of the relevant circular shall prevail.

 3.  Master Circular is a compilation of all the existing/applicable circulars issued by Investment Management Department of SEBI issued to Mutual Funds. Efforts have been made to incorporate certain applicable provisions of existing circulars (as on March 31, 2012) issued by other Department/Division of SEBI relevant to Mutual Funds.

CHAPTER 1

OFFER DOCUMENT FOR SCHEMES

1.1 Filing of Offer Document with the Board1

1.1.1 The Offer Document shall have two parts i.e. Scheme Information Document (SID) and Statement of Additional Information (SAI). SID shall incorporate all information pertaining to a particular scheme. SAI shall incorporate all statutory information on Mutual Fund.

1.1.2 The Mutual Funds shall prepare SID and SAI in the prescribed formats2. Contents of SID and SAI shall follow the same sequence as prescribed in the format. The Board of the AMC and the Trustee(s) shall exercise necessary due diligence, ensuring that the SID/SAI and the fees paid3 are in conformity with the Mutual Funds Regulations4.

1.1.3 All offer documents (ODs) of Mutual Fund schemes shall be filed with SEBI in terms of the Regulations5.

1.1.3.1 Filing of Draft SID:

 a.  Draft SID of schemes of Mutual Funds filed with the Board shall also be available on SEBI’s website – www.sebi.gov.in for 21 working days from the date of filing.

 b.  AMC shall submit a soft copy of draft SID to the Board in HTML or PDF format. For this purpose, AMC shall be fully responsible for the contents of soft copies of the SID. AMC shall also submit an undertaking to the Board while filing the soft copy of draft SID certifying that the information contained in the soft copy matches exactly with the contents of the hard copy filed with the Board.

 c.  In case of any inaccurate filing, the SID will be returned and refiling will be required. 21 working days6 shall be calculated from the date of refiling;7

 d.  If any changes to the SID are made after filing, the 21 working day(s) period will recommence from the date of submission of the last additional statement(s)8

1.1.3.2 Filing of SAI

 a.  A single SAI (common for all the schemes) can be filed with Board along with first draft of SID or can be filed separately. After incorporating the comments/observations, if any, from the Board, AMC shall file a soft copy of SAI with the Board in PDF format along with printed copy of the same9, upload the SAI on its website and on AMFI website.

1.1.3.3 Filing of Final SID

 a.  Final SID (after incorporating comments of the Board) must reach the Board before it is issued for circulation. Soft copy of the final SID in PDF format along with a printed copy should be filed with Board two working days prior to the launch of the scheme. AMC shall also submit an undertaking to the Board while filing the soft copy that information contained in the soft copy of SID to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC is fully responsible for the contents of the soft copy of SID. The soft copy of SID should also be uploaded on AMFI website two working days prior to launch of the scheme 10. Failure to submit the printed SID to the Board before it is issued for circulation shall invite penalties under the Mutual Funds Regulations11.

 b.  In case of any difference, in nature of material alteration of the suggestions made by the Board12 between the printed SID and the SID filed with the Board, immediate withdrawal of the SID from circulation will be ordered and such withdrawal shall be publicized by the Board13.

1.2 Updation of SID & SAI

1.2.1 Updation of SID

1.2.1.1 For the schemes launched in the first half of a financial year, the SID shall be updated within 3 months from the end of the financial year. However, for the schemes launched in the second half of a financial year, SID shall be updated within 3 months of the end of the subsequent financial year. (For example, for a scheme launched in May, 2008 the SID shall be updated by June 30, 2009 and for a scheme launched in December 2008, the SID shall be updated by June 30, 2010) Thereafter, the SID shall be updated once every year.

1.2.1.2 The procedure to be followed in case of changes to the scheme shall be as under:

 a.  In case of change in fundamental attributes in terms of Regulation14, SID shall be revised and updated immediately after completion of duration of the exit option.

 b.  In case of other changes:

  1.  The AMC shall be required to issue an addendum and display it on its website.

  2.  The addendum shall be circulated to the entire distributors/brokers/Investor Service Centre (ISC) so that the same can be attached to copies of SID already in stock, till the SID is updated.

  3.  In case any information in SID is amended more than once, the latest applicable addendum shall be a part of SID. (For example, in case of changes in load structure the addendum carrying the latest applicable load structure shall be attached to all KIM and SID already in stock till it is updated).

 4.  A public notice shall be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated.

 5.  The account statements issued to investors shall indicate the applicable load structure.

1.2.1.3 A copy of all changes made to the scheme shall be filed with Board within 7 days of the change. A soft copy of updated SID shall be filed with Board in PDF Format along with printed copy of the same. AMC shall also submit an undertaking to the Board while filing the soft copy that information contained in the soft copy of SID to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC is fully responsible for the contents of the soft copy of the SID15.

1.2.2 Updation of SAI

1.2.2.1 A printed copy of SAI shall be made available to the investor(s) on request. SAI shall be updated within 3 months from end of financial year and filed with SEBI.

1.2.2.2 Any material changes in the SAI shall be made on an ongoing basis by way of updation on the Mutual Fund and AMFI website. SEBI shall be intimated of the changes made in the SAI within 7 days. The effective date for such changes shall be mentioned in the updated SAI.

1.2.2.3 A soft copy of updated SAI shall be filed with SEBI in PDF format along with printed copy of the same. AMC shall also submit an undertaking to SEBI while filing the soft copy that information contained in the soft copy of SAI to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC shall be fully responsible for the contents of soft copy of SAI16.

1.3 Validity of SEBI Observations on SID

1.3.1 The AMCs shall file their replies to the modifications suggested by SEBI on SID as required under Regulation 29 (2), if any, within six months from the date of the letter. In case of lapse of six-month period, the AMC shall be required to refile the SID alongwith filing fees.

1.3.2 The scheme shall be launched within six months from the date of the issuance of final observations from SEBI. If the AMC intends to launch the scheme at a date later than six months, it shall refile the SID with SEBI under Regulation 28 (1) along with filing fees.

1.4 Undertaking from Trustees for new Scheme17

1.4.1 In the certificate submitted by Trustees with regard to compliance of AMC with Regulations,18 the Trustees are required to certify as follows:

“The Trustees have ensured that the (name of the scheme/Fund) approved by them is a new product offered by (name of the Mutual Fund) and is not a minor modification of any existing scheme/fund/product.”

1.4.2 This certification shall be disclosed in the SID along with the date of approval of the scheme by the Trustees.

1.4.3 This certification is not applicable to close ended schemes except for those close ended schemes which have the option of conversion into open ended schemes on maturity.

1.5 Standard Observations

1.5.1 Standard Observations have been prescribed to ensure minimum level of disclosures in the SID and SAI19.

1.5.2 SEBI may revise the Standard Observations from time to time and in that case the date of revision shall also be mentioned.

1.5.3 While filing the SID and SAI, AMC shall highlight and clearly mention the page number of the SAI and SID on which each standard observation has been incorporated.

1.6 KIM

1.6.1 Application forms for schemes of mutual funds shall be accompanied by the KIM in terms of Regulation 29 (4). KIM shall be printed at least in 7 point font size with proper spacing for easy readability.

1.6.2 Format of KIM

1.6.2.1 Mutual Funds shall prepare KIM in the prescribed format20. The contents of KIM shall follow the same sequence as prescribed in the format.

1.6.3 Frequency of updation

1.6.3.1 KIM shall be updated at least once a year and shall be filed with SEBI.

1.6.3.2 In case of changes in the SID other than changes in fundamental attribute in terms of Reg 18 (15A), the addendum circulated to all the distributors/brokers/investor Service Centre (ISC) shall be attached to KIM till the KIM is updated.

1.6.3.3 In case any information in SID is amended more than once, the latest applicable addendum shall be a part of KIM (For example, in case of changes in load structure the addendum carrying the latest applicable load structure shall be attached to all KIM and SID already in stock till it is updated).

1.7 Easy Availability of Offer Document

1.7.1 Trustees and AMCs shall ensure that the SID of the schemes and SAI are readily available with all the distributors/ISCs and confirm the same to SEBI in the half yearly trustee report.

1.8 Selection of Benchmarks21

1.8.1 In case of equity oriented schemes, mutual funds may appropriately select any of the indices available, (e.g. BSE (Sensitive) Index, S&P CNX Nifty, BSE 100, BSE 200 or S&P CNX 500 etc.) as a benchmark index depending on the investment objective and portfolio.

1.8.2 Benchmarks for debt oriented and balanced fund schemes22 developed by research and rating agencies recommended by the AMFI on a regular basis shall be used by the Mutual Funds.

1.8.3 In case of sector or industry specific schemes, Mutual Funds may select any sectoral indices as published by the Stock Exchanges and other reputed agencies.

1.8.4 These benchmark indices may be decided by the AMC(s) and Trustees. Any change at a later date in the benchmark index shall be recorded and reasonably justified23.

1.8.5 Examples of benchmarks are illustrated below24:

1.8.5.1 Growth funds maintaining minimum 65% of their investments in equities shall always be compared against The Bombay Stock Exchange Ltd. (BSE) Sensex or The National Stock Exchange Ltd. (NSE) Nifty or BSE 100 or CRISIL 500 or similar standard indices.

1.8.5.2 Income funds maintaining 65% or more of investments in debt instruments shall be compared with a suitable index that is a representative of the fund’s portfolio.

1.8.5.3 Balanced funds with equity investments of 40%-60% shall be compared with a tailored index having 50% of its weight selected from any equity index as above and the other 50% from an appropriate bond return index. 1.8.5.4 Money Market funds or liquid plans can be compared against a suitable Money Market Instrument or a combination of such instruments.

1.9 New Fund Offer (NFO) Period25

1.9.1 In case of open ended and close ended schemes (except ELSS schemes), the NFO should be open for 15 days (from 30 days in case of Open ended schemes and 45 days of close ended scheme).

1.9.2 The NFO period in case of ELSS schemes shall continue to be governed by guidelines issued by Government of India.

1.9.3 Mutual Funds/AMCs shall make investment out of the NFO proceeds only on or after the closure of the NFO period.

1.9.4 The mutual fund should allot units/refund of money and dispatch statements of accounts within five business days from the closure of the NFO and all the schemes (except ELSS) shall be available for ongoing repurchase/sale/trading within five business days of allotment”

1.10 Discontinuation of the nomenclature – ‘Liquid Plus Scheme(s)’26

1.10.1 The nomenclature “Liquid Plus Scheme(s)” has been discontinued from January 2009 since it gives a wrong impression of added liquidity. Mutual funds have been advised to carry out appropriate change(s) in the nomenclature of their scheme(s) designated as “Liquid Plus Scheme(s)”.

1.11 Fundamental Attributes27

1.11.1 The words “fundamental attributes”28 are elaborated below:

1.11.1.1 Type of a scheme

 a.  Open ended/Close ended/Interval scheme

 b.  Sectoral Fund/Equity Fund/Balance Fund/Income Fund/Debt Fund/Index Fund/Any other type of Fund

1.11.1.2 Investment Objective(s)

 a.  Main Objective – Growth/Income/Both.

 b.  Investment pattern – The tentative Equity/Debt/Money Market portfolio break-up with minimum and maximum asset allocation, while retaining the option to alter the asset allocation for a short term period on defensive considerations.

1.11.1.3 Terms of Issue

 a.  Liquidity provisions such as listing, repurchase, redemption.

 b.  Aggregate fees and expenses charged to the scheme.

 c.  Any safety net or guarantee provided.

CHAPTER 2

CONVERSION AND CONSOLIDATION OF SCHEMES AND LAUNCH OF ADDITIONAL PLAN

PART I – CONVERSION OF SCHEMES

2.1 Conversion of Close Ended Scheme(s) to Open Ended Scheme(s)29

2.1.1 Although the procedure for conversion of close ended scheme(s) to open ended scheme(s) has been clearly enumerated in the Mutual Funds Regulations30, following requirements are clarified again in the interests of investors:

2.1.1.1 Since the scheme(s) would reopen for fresh subscriptions, disclosures contained in the SID shall be revised and updated. A copy of the draft SID shall be filed with the Board as required under Regulation 28(1) of the Mutual Funds Regulations along with filing fees prescribed under Regulation 28(2) of the Mutual Funds Regulations. Instructions issued by the Board31 for filing of the SID shall also be followed.

2.1.1.2 A draft of the communication to be sent to unit holders shall be submitted to the Board which shall include the following:

 a.  Latest portfolio of the scheme(s) in the prescribed format32

 b. Details of the financial performance of the scheme(s) since inception in the format prescribed in SID33 along with comparisons with appropriate benchmark(s)34.

 c.  The addendum to the SID detailing the modifications (if any) made to the scheme(s).

2.1.1.3 The letter to unit holders and revised SID (if any) shall be issued only after the final observations as communicated by the Board in terms of Regulation 29(3) of the Mutual Funds Regulations have been incorporated therein and final copies of the same have been filed with the Board.

2.1.1.4 Unit holders shall be given at least 30 days to exercise exit option. During this period, the unit holders who opt to redeem their holdings in part or in full shall be allowed to exit at the NAV applicable for the day on which the request is received, without charging exit load.

PART II – CONSOLIDATION OF SCHEMES

2.2 Consolidation of Schemes35

2.2.1 Any consolidation or merger of Mutual Fund schemes will be treated as a change in the fundamental attributes of the related schemes and Mutual Funds shall be required to comply with the Mutual Funds Regulations in this regard36.

2.2.2 Further, in order to ensure that all important disclosures are made to the investors of the schemes sought to be consolidated or merged and their interests are protected; Mutual Funds shall take the following steps:

2.2.2.1 Approval by the Board of the AMC and Trustee(s):

 a.  The proposal and modalities of the consolidation or merger shall be approved by the Board of the AMC and Trustee(s), after they ensure that the interest of unit holders under all the concerned schemes have been protected in the said proposal.

2.2.2.2 Disclosures:

 a.  Subsequent to approval from the Board of the AMC and Trustee(s), Mutual Funds shall file the proposal with the Board, along with the draft SID, requisite fees (if a new scheme emerges after such consolidation or merger) and draft of the letter to be issued to the unit holders of all the concerned schemes.

 b.  The letter addressed to the unit holders, giving them the option to exit at prevailing NAV without charging exit load, shall disclose all relevant information enabling them to take well informed decisions. This information will include, inter alia:

  1.  Latest portfolio of the concerned schemes37.

  2.  Details of the financial performance of the concerned schemes since inception in the format prescribed in SID38 along with comparisons with appropriate benchmarks.

  3.  Information on the investment objective, asset allocation and the main features of the new consolidated scheme.

  4.  Basis of allocation of new units by way of a numerical illustration

  5.   Percentage of total NPAs and percentage of total illiquid assets to net assets of each individual scheme(s) as well the consolidated scheme.

  6.  Tax impact of the consolidation on the unit holders.

  7.  Any other disclosure as specified by the Trustees.

  8.  Any other disclosure as directed by the Board.

2.2.2.3 Updation of SID shall be as per the requirements for change in fundamental attribute of the scheme39.

2.2.2.4 Maintenance of Records:

 a.  AMC(s) shall maintain records of dispatch of the letters to the unit holders and the responses received from them. A report giving information on total number of unit holders in the schemes and their net assets, number of unit holders who opted to exit and net assets held by them and number of unit holders and net assets in the consolidated scheme shall be filed with the Board within 21 days from the date of closure of the exit option40.

2.2.2.5 Merger or consolidation shall not be seen as change in fundamental attribute of the surviving scheme if the following conditions are met41:

 a.  Fundamental attributes42 of the surviving scheme do not change. The ‘surviving scheme’ means the scheme which remains in existence after the merger.

 b.  Mutual Funds are able to demonstrate that the circumstances merit merger or consolidation of schemes and the interest of the unitholders of surviving scheme is not adversely affected.

 c.  After approval by the Boards of AMCs and Trustees, the mutual funds shall file such proposal with SEBI. SEBI would communicate its observations on the proposal within the time period prescribed43.

 d.  The letter to unitholders shall be issued only after the final observations communicated by SEBI have been incorporated and final copies of the same have been filed with SEBI.

PART III – LAUNCH OF ADDITIONAL PLANS44

2.3 Launch of Additional Plans

2.3.1 Additional plans sought to be launched under existing open ended schemes which differ substantially from that scheme in terms of portfolio or other characteristics shall be launched as separate schemes in accordance with the regulatory provisions.

2.3.2 However, plan(s) which are consistent with the characteristics of the scheme may be launched as additional plans as part of existing schemes by issuing an addendum. Such proposal should be approved by the Board(s) of AMC and Trustees. In this regard please note that:

2.3.2.1 The addendum shall contain information pertaining to salient features like applicable entry/exit loads, expenses or such other details which in the opinion of the AMC/ Trustees is material. The addendum shall be filed with SEBI 21 days in advance of opening of plan(s).

2.3.2.2 AMC(s) shall publish an advertisement or issue a press release at the time of launch of such additional plan(s).

CHAPTER 3

NEW PRODUCTS

3.1 Fund of Funds Scheme45

3.1.1 The SID and the advertisements pertaining to Fund of Funds Scheme46 shall disclose that the investors are bearing the recurring expenses of the scheme, in addition to the expenses of other schemes in which the Fund of Funds Scheme makes investments.

3.1.2 AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund. Any commission or brokerage received from the underlying fund shall be credited into concerned scheme’s account47.

3.1.3 Fund of funds mutual fund schemes shall adopt either of the total expense structures laid out in Regulations48, which Asset Management Companies shall clearly indicate in the SIDs.

3.1.4 Fund of Fund schemes49, shall, with the approval of trustees, adopt either of the total expense structures laid out in Regulation50 and change the total expense structure after giving the unit holders an option to exit in accordance with Regulation51.

3.2 Gold Exchange Traded Fund Scheme52

3.2.1 A Gold Exchange Traded Fund (GETF) Scheme53 shall invest primarily in:

3.2.1.1 Gold and

3.2.1.2 Gold related instruments54. However investments in gold related instruments shall be done only after such instruments are specified by the Board55

3.2.2 Valuation:

3.2.2.1 Gold shall be valued based on the methodology provided in Clause 3A of, Schedule Eight of the Mutual Funds Regulations56.

3.2.3 Determination of Net Asset Value57

3.2.3.1 The NAV of units under the GETF Scheme shall be calculated up to four decimal points as shown below:

NAV (in Rs. terms) = Market or Fair Value of Scheme’s investments + Current Assets – Current Liabilities and Provision
Number of Units outstanding under Scheme on the Valuation Date

3.2.4 Recurring Expenses58

3.2.4.1 The recurring expenses limits applicable to equity schemes59 shall be applicable to GETF Scheme(s).

3.2.5 Benchmarks for GETF Scheme60

3.2.5.1 GETF Scheme(s) shall be benchmarked against the price of gold.

3.2.6 Half yearly report by Trustees61

3.2.6.1 Physical verification of gold underlying the Gold ETF units shall be carried out by statutory auditors of mutual fund schemes and reported to trustees on half yearly basis.

3.2.6.2 The confirmation on physical verification of gold as above shall also form part of half yearly report62 by trustees to SEBI.

3.3 Capital Protection Oriented Scheme63

3.3.1 The SID, KIM and advertisements pertaining to Capital Protection Oriented Scheme64 shall disclose that the scheme is “oriented towards protection of capital” and not “with guaranteed returns.” It shall also be indicated that the orientation towards protection of capital originates from the portfolio structure of the scheme and not from any bank guarantee, insurance cover etc.

3.3.2 The proposed portfolio structure indicated in the SID and KIM shall be rated by a Credit Rating Agency registered with the Board from the view point of assessing the degree of certainty for achieving the objective of capital protection and the rating shall be reviewed on a quarterly basis.

3.3.3 The Trustees shall continuously monitor the portfolio structure of the scheme and report the same in the Half Yearly Trustee Reports65 to the Board. The AMC(s) shall also report on the same in its bimonthly (CTR(s)66to the Board.

3.3.4 It shall also be ensured that the debt component of the portfolio structure has the highest investment grade rating.

3.4 Real Estate Mutual Funds67:

3.4.1 A real estate mutual fund scheme68 can invest in real estate assets in the cities mentioned in:

3.4.1.1 List of Million Plus Urban Agglomerations/Cities; or

3.4.1.2 List of Million Plus Cities

3.4.2 Such list appears in Census Statistics of India (2001) at www.censusindia.gov.in. A printout of cities which appear in the foresaid categories taken from the said website is attached for ready reference at Annexure 4.

CHAPTER 4

RISK MANAGEMENT SYSTEM69

4.1 An Operating Manual70 for Risk Management has been developed to ensure minimum standards of due diligence and Risk Management Systems for all the Mutual Funds in various operational areas (for e.g. Fund Management, Operations, Customer Service, Marketing and Distribution, Disaster Recovery and Business Contingency, etc.) and is enclosed herewith as Annexure 2.

4.2 The Risk Management practices covered in the Operating Manual are under three categories as detailed below:

4.2.1 Existing Industry Practices:

4.2.1.1 Under each head of risk, the Manual covers the exemplary practices followed by some / most of Mutual Funds in India. However, the extent and degree of observance of these practices differs among the Mutual Funds. Mutual Funds shall accordingly develop their systems and follow these practices.

4.2.2 Practices to be followed on Mandatory Basis:

4.2.2.1 Mutual Funds shall follow the practices which have been indicated as mandatory in the operating manual. These are Risk Management function that shall be assigned to Compliance Officer or Internal Risk Management Committee or to an external agency

 a.  Disaster Recovery and Business Contingency plans, and

 b.  Insurance cover against certain risks.

4.2.3 Best Practices to be followed by Mutual Funds:

4.2.3.1 Mutual Funds shall adopt these practices as a part of their due diligence exercise after considering the size of their operations.

4.3 Implementation of the Risk Management System

4.3.1 Mutual Funds shall adopt the following approach to implement the Risk Management System:

4.3.2 Identification of observance of each recommendation:

4.3.2.1 Mutual Funds shall identify areas of current adherence as well as non-adherence of various Risk Management practices under each of the aforesaid three categories. They shall examine the areas where development or improvement of systems is required.

4.3.2.2 After identifying the same, Mutual Funds shall review the progress made on implementation of the systems on a monthly basis and place the progress report in periodical meetings of the Board of the AMC and Trustees.

4.3.3 Review of Progress of implementation by Board of AMC and Trustee(s):

4.3.3.1 The Board of the AMC and Trustee(s) shall review the progress made by the Mutual Funds with regard to Risk Management practices and the same shall be reported to the Board at the time of sending CTR(s) and Half Yearly Trustee Reports.

4.3.4 Review by Internal Auditors:

4.3.4.1 The review of Risk Management Systems shall be a part of internal audit and the auditors shall check their adequacy on a continuing basis. Their reports shall be placed before the Board of the AMC and Trustee(s) who shall comment on the adequacy of systems in the CTRs and Half Yearly Reports filed with the Board.

CHAPTER 5

DISCLOSURES & REPORTING NORMS

PART I – DISCLOSURES

5.1 Half Yearly disclosure of Portfolios71

5.1.1 Mutual Funds shall send a complete statement of Scheme Portfolio to the unit holders before the expiry of one month from the closure of each Half Year (i.e. March 31 and September 30), if such statement is not published by way of advertisement72.

5.1.2 The Scheme Portfolio(s)73 shall also be disclosed on the Mutual Funds’ web sites before the expiry of one month from the closure of each Half Year (i.e. March 31 and September 30) and a copy of the same shall be filed with the Board along with the Half Yearly Results74.

5.1.3 Disclosure of derivatives in Half Yearly Portfolios75

5.1.3.1 A format76 for the purpose of uniform disclosure of investments in derivative instruments by Mutual Funds in half yearly portfolio disclosure, annual report or in any other disclosures is prescribed.

5.1.3.2 Further, while listing net assets, the margin amounts paid should be reported separately under cash or bank balances.

5.2 Unaudited Half Yearly Financials 77

5.2.1 The publication of the unaudited half-yearly results in news paper and websites shall be made in the format prescribed in Twelfth Schedule in line with provisions of the Regulations78.

5.2.2 The half yearly results must be published before the expiry of one month from the close of each half year. Copies of the advertisements carrying the results must be filed with SEBI within 7 days from the date of publication79.

5.3 Mailing of Schemewise Annual Report or Abridged Summary80

5.3.1 Mailing of Schemewise Annual Reports81 or abridged summary thereof shall be subject to the following:

5.3.1.1 In case of unitholders whose email addresses are available with the Mutual Fund, the AMCs shall communicate to them stating that henceforth, the scheme annual reports or abridged summary would only be sent by email.

5.3.1.2 In case of unitholders whose email addresses are not available with the Mutual Fund, the AMCs shall communicate to the unitholders to obtain their email addresses for registration of the same in their database.

5.3.1.3 The communication in both the above cases shall clearly mention that the scheme annual accounts or abridged summary would henceforth be sent to these email addresses and not as physical copies and the communication shall also have an option for the investors stating that those who still wish to receive the reports as physical copies may indicate as such.

5.3.1.4 In case of any request from these unitholders as detailed above for physical copies notwithstanding their registration of email addresses, AMCs shall provide the same without demur.

5.3.1.5 For the rest of the investors, i.e. whose email addresses are not available with the mutual fund, the AMCs shall continue to send physical copies of scheme annual reports or abridged summary.

5.3.1.6 The AMCs shall display the link of the scheme annual reports or abridged summary prominently on their websites and make the physical copies available to the investors at their registered offices at all times. These websites should also be linked with AMFI website so that the investors and analyst(s) can access the annual reports of all mutual funds at one place82. However, as per the Regulations83, a copy of Scheme wise Annual Report shall be also made available to unitholder(s) on payment of nominal fees.

5.4 Disclosure of large unit holdings84

5.4.1 The number of investors holding over 25 % of the NAV85 in a scheme and their total holdings in percentage terms shall be disclosed in the Statement of Accounts issued after the NFO and also in the Half Yearly and Annual Results86.

5.5 Portfolio disclosure for debt oriented close-ended and interval schemes/plans87

5.5.1 AMCs shall disclose the portfolio of such schemes in the prescribed format88 on a monthly basis on their respective websites.

5.5.2 The said disclosure of the portfolio as on the last day of the month shall be made on or before 3rd working day of succeeding month. For example, portfolio as of March 31, 2009 shall be disclosed by April 04, 2009 – April 3, 2009 being a non-working day.

5.6 Asset Under Management (AUM) disclosure89

5.6.1 Wherever the Mutual Funds discloses the AUM figures for the fund, disclosure on bifurcation of the AUM into debt/equity/ balanced etc, and percentage of AUM by geography (i.e. top 5 cities, next 10 cities, next 20 cities, next 75 cities and others) shall be made. The Mutual Funds shall disclose the aforesaid data on their respective websites & to AMFI and AMFI shall disclose industry wide figures on its website.

5.7 Commission disclosure90

5.7.1 Mutual Funds / AMCs shall disclose on their respective websites the total commission and expenses paid to distributors who satisfy one or more of the following conditions with respect to non-institutional (retail and HNI) investors

5.7.1.1 Multiple point of presence (More than 20 locations)

5.7.1.2 AUM raised over Rs. 100 crore across industry in the non institutional category but including high networth individuals (HNIs).

5.7.1.3 Commission received of over Rs. 1 crore p.a. across industry

5.7.1.4 Commission received of over Rs.50 lakh from a single Mutual Fund/AMC.

5.7.2 Mutual Funds / AMCs shall also submit the above data to AMFI. AMFI shall disclose the consolidated data in this regard on its website.

5.8 Annual report of the AMC91

5.8.1 Annual report containing accounts of the asset management companies should be displayed on the website of the mutual funds. It should also be mentioned in the annual report of the mutual fund schemes that the unitholders, if they so desire, may request for a copy of the annual report of the asset management company.

5.9 Submission of bio data of key personnel92

5.9.1 AMCs are required to submit the bio data of all key personnel to Trustees and the Board. For this purpose, ‘key personnel’ would be the Chief Executive Officer (CEO), fund manager(s), dealer(s) & heads of other departments of the AMC93.

5.10 Disclosure of investor complaints with respect to Mutual Funds94

5.10.1 Mutual Funds shall disclose95 on their websites, on the AMFI website as well as in their Annual Reports, details of investor complaints received by them from all sources. The said details should be vetted and signed off by the Trustees of the concerned Mutual Fund.

5.10.2 The Mutual Funds are advised to:

5.10.2.1 Upload the report for the year 2009-10 by June 30, 2010.

5.10.2.2 Upload the report for the following financial years within 2 months of the close of the financial year.

5.10.2.3 Include the report in their annual reports, as part of the Report of the Trustees, beginning with the annual report for the year 2009-10.

5.11 Brokerage and commission paid to associates96

5.11.1 Regulations97 mandates payment of brokerage or commission if any, to the sponsor or any of its associates, employees or their relatives.

5.11.2 Disclosures on brokerage and commission paid to associates/related parties/group companies of sponsor/Asset Management Company in the unaudited half yearly financial results, the abridged scheme wise annual report and the SAI, shall be made in the format as prescribed98.

PART II – REPORTS

5.12 Monthly Cumulative Report (MCR)99

5.12.1 Date and Mode of Submission:

5.12.1.1 MCR100 shall be submitted to the Board by 3rd of each month by way of an email. Hard copy should also be sent by hand delivery/courier.

5.12.2 Other Guidelines:

5.12.2.1 Details of the new schemes launched shall be reported in the MCR for the month in which the allotment is done. For example, if an NFO closes in the month of July and the allotment is done in the month of August, then, the details of the new scheme shall be reported in the MCR for the month of August that will reach SEBI by 3rd of September.

5.12.2.2 Further, additional report on overseas investment101 by Mutual Funds in ADRs/GDRs, foreign securities and overseas exchange traded funds (ETFs) shall also be provided as per the prescribed format. For format please refer to the chapter on formats.

5.12.2.3 Compliance officers of all the Mutual Funds are advised to take due care while forwarding the MCR data to SEBI. Compliance Officers shall confirm that the data forwarded is correct and does not require any revision.

5.13 New Scheme Report (NSR)102

5.13.1 All Mutual Funds shall submit the NSR to SEBI complete in all respects within 10 working days from the date of allotment in the prescribed format103.

5.14 Bi–monthly Compliance Test Reports104

5.14.1 AMCs’ shall do exception reporting on a bi-monthly basis. AMCs’ are required to report only exceptions in the CTR to SEBI, i.e. AMCs’ shall report for only those points in the CTR where they have not complied with the same. The details sought in the annexures of the CTR shall be furnished to the Board in case of non-compliance only along with exception report. This exception report shall also be placed before the Trustee(s).

5.14.2 The CTRs105 should be submitted by the AMC to the Board once in every two months so as to reach within 21 days of completion of the two months period. As a compliance of SEBI Regulations is a continuous process, AMCs are advised to incorporate the modifications/additions under the relevant sections of the format, based on amendments to the Regulations/guidelines issued in the future from time to time.

5.15 Annual Statistical Report (ASR)106

5.15.1 AMC should submit the annual statistical report to SEBI in the prescribed format by 30th of April each year107.

5.16 Daily Transaction Report108

5.16.1 All Mutual Funds shall submit details of transactions in secondary market on daily basis in the prescribed format109. Accordingly, Mutual Funds are advised to make necessary arrangements with their custodians for the submission of reports on a daily basis. The report is to be submitted to the Board in both hard as well as soft copy.

5.16.2 It must be ensured by the compliance officers of the custodians as well as that of Mutual Funds that the information submitted is correct and reaches the Board by 3.00 p.m. on the following working day (T+1).

5.17 Responsibilities of AMC(s) and Trustees110

5.17.1 All information and documents relating to the compliance process shall be authenticated and/or adopted by the Board of the AMC(s) to strengthen the compliance mechanism.

5.17.2 The Trustee(s) shall also review all information and documents received from the AMC(s) as required under the compliance process.

5.17.3 AMC(s) shall develop a suitable Management Information System for reporting to the Trustees. The report shall contain specific comments on all issues related to the operation of the Mutual Fund as undertaken by the AMC including those provided in the format for reporting by AMC to Trustees111.

5.17.4 The half-yearly report on the activities of the mutual fund to be submitted by the trustees to the Board under the Mutual Funds Regulations112 shall cover all issues mentioned in the prescribed format as well as any other issue relevant to the operation of the Mutual Fund113. 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. The report shall mention that the Trustees have satisfied themselves about the adequacy of compliance systems in the Mutual Fund.

5.17.5 AMC(s) and the Trustees shall update the reporting formats including relevant provisions of amendments made to the Mutual Funds Regulations and/or guidelines and/or circulars issued by the Board and shall specifically comment on their compliance.

5.18 Filing of Annual Information Return by Mutual Funds114

5.18.1 Mutual Funds are required to submit the Annual Information Return under section 285 BA in the Income-tax Act. As per this requirement, Trustees of Mutual Funds or such other person managing the affairs of the Mutual Funds (as may be duly authorized by the trustees in this behalf) have to report specified financial transactions in electronic media to Income Tax Department giving PAN of the transacting parties in an Annual Information Return (AIR).

5.18.2 Some common errors in these returns have been pointed out by the Directorate of Income Tax (Systems) as:

5.18.2.1 Not mentioning PAN or mentioning invalid PAN.

5.18.2.2 Entering incomprehensible/ incomplete names of transacting parties, e.g. names of 2 or 3 letters.

5.18.2.3 Entering incomprehensible/ incomplete addresses of transacting parties, e.g. ‘Nil’, ‘N/A’, ‘_’, in all address fields, incomplete postal addresses, names of buildings split into separate fields, names of two cities in address fields, wrong PIN codes, etc.

5.18.2.4 Incorrect district and state codes.

5.18.2.5 Incorrect transaction codes.

5.18.2.6 Wrongly showing transaction as of ‘Govt.’ party.

5.18.3 In this regard, AIRs are required to be filed only by the Mutual Fund and no separate AIR has to be furnished for each scheme of the Mutual Fund.

CHAPTER 6

GOVERNANCE NORMS

PART I – FUND GOVERNANCE

6.1 Formation of Audit and Valuation Committees by the Trustees and/or AMC115

6.1.1 Audit Committee

6.1.1.1 Trustees shall constitute an audit committee, comprising of the Trustees and chaired by an Independent Trustee to review the internal audit systems and recommendations of the internal and statutory audit reports and ensure that the rectifications as suggested by internal and external auditors are acted upon.

6.1.2 Valuation Committee

6.1.2.1 The AMC shall constitute an in-house valuation committee consisting of senior executives including personnel from accounts, fund management and compliance departments. This committee shall, on a regular basis review the systems and practices of valuation of securities.

6.2 Review and Reporting of Transactions116

6.2.1 Reporting of transactions

6.2.1.1 Transaction(s) by directors of the AMC

 a.  Directors of the AMC shall file with the trustees on a quarterly basis details of transactions in securities exceeding Rs. 1 lac117.

6.2.1.2 Trustee(s) Directors

 a.  Trustees are required to report to Mutual Funds only those transactions in securities that exceed Rs. 1 lac in value118.

6.2.2 Review of transactions

6.2.2.1 Trustees shall review all transactions of the Mutual Fund with the associates as defined below on a regular basis and ensure that Regulations are complied with119.

6.3 Role of Independent Director on the Board of the AMC and Independent Trustees120

6.3.1 An Independent Trustee shall not be associated in any manner with the Sponsor(s)121. The independent directors on the Board of the AMC shall not be associate of, or associated in any manner with, the sponsor or any of its subsidiaries or the trustees122.

6.3.2 An ‘associate’ shall be defined as:

6.3.2.1 Relatives123 of Sponsor(s) or directors of the Sponsor Company or relatives of Associate Directors of the AMC(s) and Trustee.

6.3.2.2 Persons providing any type of professional service to the Mutual Funds, the AMC and the Trustees and the Sponsor(s). Also, persons having a material pecuniary relationship with the above mentioned entities that may, in the judgment of the Trustees, affect their independence.

6.3.2.3 Nominees of the companies who are stakeholders in the Sponsor company or AMC(s) (even if they are not deemed sponsors by virtue of holding less than 40% of net worth of AMC(s)).

6.3.3 Cooling off Period

6.3.3.1 An “Associate”124 as defined above cannot be appointed as Independent Director even after he ceases to be an “Associate” unless a cooling off period of three years has elapsed from the date of his disassociation. For example, an employee of the Sponsor(s) or their associate companies or AMC(s) or Trustees resigns on December 1, 2001 then he cannot be appointed as an Independent Director till December 1, 2004. During this intervening period, he can be appointed only as Associate Director. However, if he is taken as an Associate Director, say on December 2, 2001, then he cannot be considered as “Independent” from December 2, 2004. There must be a cooling off period of 3 years from the date he ceases to be an Associate Director.

6.3.4 Mutual Funds are required to have a minimum of 50 per cent. and two-third independent directors on the Board of the AMC(s) and Trustees respectively125. In case the composition of the directors does not meet these requirements, Mutual Funds are required to inform the Board along with the steps proposed to ensure compliance.

6.3.5 AMC(s) or Trustees shall appoint Independent Directors in place of the resigning director(s) within a period of 3 months from the date of resignation. Where Mutual Funds are unable to meet this time limit, they shall report to the Board explaining the reasons for non compliance. Mutual Funds may maintain a panel of eligible persons who can be appointed as Independent Directors126 as and when required. They may also consider appointing more than the required minimum number of Independent Directors to enhance the standards of corporate governance and also to meet the regulatory requirements in case of resignation of an independent director.

6.3.6 On appointment of new directors of the AMC or Trustee, their bio-data127 shall be filed with the Board for information or approval respectively.

6.4 Investment and/or for / Trading in Securities by the employees of the AMC(s) and Trustee(s)128

6.4.1 The Board of the AMC and Trustees shall ensure compliance with these Guidelines on a continuous basis and shall report any violations and remedial action taken by them in the periodical reports submitted to the Board129.

6.4.2 The guidelines enumerated below specify the minimum requirements that have to be followed. The AMC(s) and Trustees are free to set more stringent norms for investment and/or trading in securities by their employees.

6.4.3 Guidelines for Investment and/or Trading in Securities by Employees of AMC(s) and Trustees:

6.4.3.1 Applicability

 a. These Guidelines shall be applicable to all employees of AMC(s) and Trustees and shall form a part of the Code of Conduct for employees adopted by the AMC(s) and/or Trustees. New employees shall be bound by these Guidelines from the date of joining the AMC(s) and/or Trustees.

 b.  These Guidelines shall cover transactions for sale or purchase of securities made in the employees’ name, either individually or jointly, and in the name of the employees’ spouse and/or dependent children and transactions as a member of HUF.

6.4.3.2 The objectives and principles of these Guidelines are:

 a. To ensure that all securities transactions made by employees in their personal capacity are conducted in consonance with these Guidelines and in such manner as to avoid any actual or potential conflict of interest or any abuse of an individual’s position of trust and responsibility.

 b. The employees of AMC(s) and Trustees especially Access Persons shall not take undue advantage of any price sensitive information that they may have about any company. Access Person for the purpose of these Guidelines shall mean the Head of the AMC (designated as CEO/Managing Director/President or by any other name), the Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as decided by the AMC(s) and/or Trustees.

 c. To guide employees of AMC(s) and Trustees in maintaining a high standard of probity that one would expect from an employee in a position of responsibility.

6.4.4 General

6.4.4.1 Investments Covered:

 a. These Guidelines cover transactions for purchase or sale of any securities such as shares, debentures, bonds, warrants, derivatives and units of Mutual Fund schemes.

 b. These Guidelines do not apply to the following investments by the employees:

 1.  Investments in Fixed Deposits with banks and/or Financial Institutions and/or companies, Life Insurance Policies, Provident Funds (including Public Provident Fund) or investment in savings schemes such as National Savings Certificates, National Savings Schemes, Kisan Vikas Patra, or any other similar investment.

 2.  Investments of a non-financial nature such as gold etc.,130 where there is no likely conflict between the Mutual Fund’s interest and the employees’ interest.

 3.  Investments in government securities, Money Market instruments and Money Market Mutual Fund schemes.

6.4.4.2 No employee shall pass on information to anybody inducing him to buy/sell securities which are being bought and/or sold by the Mutual Fund of which the AMC is the investment manager.

6.4.4.3 Prior approval of personal investment transactions:

 a.  All access persons except Compliance Officer shall apply in the form prescribed by the AMC(s) and/or Trustees to the Compliance Officer for prior approval of transactions for sale or purchase of securities other than those expressly stated to be exempt under these guidelines. The Compliance Officer shall apply to the Head of the AMC(s). The decision of the Compliance Officer shall be final and binding on the employee.

 b.  In these Guidelines, in the case of the Compliance Officer’s own transactions for purchase or sale of securities or disclosure or any other related matter, the term “Compliance Officer” wherever it appears, shall be read as “Head of the AMC.”

 c.  The Compliance Officer may coordinate with the Fund Management Department of the Mutual Fund, wherever necessary, to clear requests of investment and/or trading in securities by the employees.

 d.  The approval of Compliance Officer for carrying out a transaction of sale or purchase of a security by the access person shall not be valid for more than seven calendar days from the date of approval131.

 e.  If a transaction approved by Compliance Officer has not been effected within seven132 calendar days from the date of its approval, the access person shall be required to obtain approval once again from Compliance Officer prior to effecting the transaction.

 f.  All employees shall refrain from profiting from the purchase and sale or sale and purchase of any security within a period of 30 calendar days from the date of their personal transaction133. However, in cases where it is done, the employee shall provide a suitable explanation to the Compliance Officer, which shall be reported to the Board of the AMC and the Trustees at the time of review.

6.4.5 Investments in Shares and/or Debentures and/or Bonds and/or Warrants and/or Derivatives

Investments in securities shall broadly be classified into investments through (a) primary markets and (b) secondary markets.

6.4.5.1 Investments through the primary markets:

 a.  An employee including access person is permitted to apply to a public issue of shares and/or debentures and/or bonds and/or warrants of any company, as long as the application is made in the normal course of the public issue. Such an application may be made without seeking the clearance from the Compliance Officer. Employees of AMC(s) and Trustees are prohibited from applying in any reserved quota such as promoters’ quota, employees’ quota etc. Employees shall not participate in any private placement of equity by any company.

 b.  Notwithstanding anything stated in (a) above, an employee of an AMC(s) and/or Trustees may apply for shares and/or debentures and/or bonds and/or warrants in a preferential offer, in cases where such a preferential offer is being made by a company that belongs to the same industrial group as the company in which the employee already has an investment, provided that such a preferential offer is made to all shareholders and/or debenture holders of such companies. Details of such applications made shall be intimated to the Compliance Officer.

 c.  The employees of the AMC(s) and/or Trustees including access person may apply for any rights offer of any company in which they are already shareholders. Applications for additional rights (over and above the normal rights entitlement) shares may be made by the employees including access person without getting the clearance from the Compliance Officer. An employee including access person may also sell and/or renounce his rights entitlement without getting the clearance from the Compliance Officer. However, if an access person wishes to purchase the “Rights renunciations” he shall get the clearance of the Compliance Officer for the same. Such purchases shall be done only at market prices. Details of any applications made in any rights issue, whether in the normal course, or through purchase of rights renunciations, shall be intimated to the Compliance Officer.

6.4.5.2 Investments Through The Secondary Markets:

 a.  An access person who wishes to make a secondary market transaction shall submit a written application to that effect to the Compliance Officer. Such an application shall specify the name of the company whose securities the employee wishes to buy and/or sell, type of security, and the number of shares and/or debentures and/or bonds and/or warrants and/or derivatives that the access person wishes to buy/sell.

 b.  The Compliance Officer shall clear these requests if the following conditions are met:

  1.  If the shares and/or debentures and/or bonds and/or warrants of the company or derivatives specified by the access person are not held by any scheme of the Mutual Fund of which the AMC is the investment manager;

 2.  If such shares and/or debentures and/or bonds and/or warrants of the company or derivatives specified by the employee are held by any scheme of the Mutual Fund of which the AMC is the investment manager, there should be a “cooling off” period of 15 calendar days. The Compliance Officer shall ensure that the last transaction in that particular security was done by the Mutual Fund at least 15 calendar days prior to the date of the written application by the access person. In other words, an application for a purchase/sale transaction on a personal basis would be cleared only if the Mutual Fund has not transacted in that particular security for at least 15 calendar days.

 c.  The Compliance Officer shall keep a track of the transactions of the employees and transactions of the Mutual Fund to ensure that there is no conflict of interest between them i.e. the Compliance Officer should track whether the Mutual Fund has transacted in the same securities either before or after the employee’s transaction(s).

 d.  The Compliance Officer shall maintain a record of all requests for pre clearance regarding the purchase or sale of a security, including the date of the request, the name of the access person, the details of the proposed transaction and whether the request was approved or denied and waivers given, if any, and its reasons.

 e.  No employee shall purchase any security (including derivatives) on a “Carry Forward” basis or indulge in “Short Sale” of any security (including derivatives) i.e. employees who effect any purchase transaction(s) shall ensure that they take delivery of the securities purchased, before selling them.

 f.  Any transaction of Front Running by any employee directly or indirectly is strictly prohibited. For this purpose, “Front Running” means any transaction of purchase and/or sale of a security carried by any employee whether for self or for any other person, knowing fully well that the AMC also intends to purchase and/or sell the same security for its Mutual Fund operations. To ascertain that the employee had no prior knowledge of the Mutual Fund’s intended transactions, the Compliance Officer may take a declaration in this regard from the employee. Such declaration may be included in the application form itself.

 g.  Any transaction of self dealing by any employee either directly or indirectly, whether alone or in concert with another person is prohibited. For this purpose, “Self Dealing’ means trading in the securities based on price sensitive information to which the employee has access by virtue of his office. Declaration to this effect may be taken from the employee while clearing the proposals for investment.

 h.  The employees shall not insist or suggest to the concerned brokers to charge reduced brokerage, or accept any contract with a clause on reduced brokerage charge.

6.4.6 Investments in units of Mutual Fund Schemes

6.4.6.1 Access persons as well as other employees do not require prior permission of the Compliance Officer for purchase or sale of units of Mutual Fund schemes. However, details of each such transaction, excluding transactions in Money Market Mutual Fund schemes shall be reported by them to the Compliance Officer within 7 calendar days from the date of transaction.

6.4.6.2 In case of investments in SIP of any Mutual Fund scheme, the employees may report only at the time of making the first installment of the SIP.

6.4.6.3 Notwithstanding anything mentioned earlier, in the following cases employees of AMC & Trustees shall not purchase or sell/or repurchase or redeem units of any scheme, including Money Market Mutual Fund scheme of their Mutual Fund:

 a.  There is a likelihood of a change in the investment objectives of the concerned Mutual Fund Scheme(s) and this has not been communicated to the investors;

 b.  There is a likelihood of a rights and/or bonus issue in the concerned Mutual Fund Scheme(s) and this has not been communicated to the investors;

 c.  The concerned Mutual Fund Scheme is contemplating to issue dividend to the unit holders and this has not been communicated to the investors;

 d.  There is a likelihood of a change in the accounting policy, or a significant change in the valuation of any asset, or class of assets and the same has not been communicated to the investors;

 e.  There is a likelihood of conversion of a close ended scheme to an open ended scheme and vice versa and this has not been communicated to the investors.

6.4.7 Periodic Disclosures

6.4.7.1 All access persons shall submit, in the form prescribed by the Mutual Fund of which the AMC is the investment manager, details of their personal transactions of purchase or sale of securities to the Compliance Officer. The details to be submitted are as follows:

 a.  Details of transactions effected for purchase and/or sale of securities including transactions in rights entitlements through the secondary market within 7 calendar days from the date of transaction;

 b.  Details of allotment received against application for public and rights issues within 7 calendar days from the date of receipt of the allotment advice;

 c.  A statement of holding in securities as on March 31 within 30 calendar days from the end of every financial year ending March 31.

6.4.7.2 All employees other than access persons shall submit, in the form prescribed by the Mutual Fund, to the Compliance Officer:

 a.  Details of each of their transactions for purchase or sale of securities including allotment in public and rights issues within 7 calendar days in tandem with SEBI (Insider Trading) Regulations.

 b.  A statement of holding in securities as on March 31 within 30 calendar days (in tandem with SEBI (Insider Trading) Regulations) from the end of every financial year ending March 31.

 c.  A declaration shall also be included in the reporting form on the lines of clause 6.4.5.2. (f) and 6.4.5.2. (g) regarding Front Running and Self Dealing.

6.4.8 Review by the Board of Directors of AMC and the Trustee(s)

6.4.8.1 The Board of the AMC and the Trustees shall review the compliance of these Guidelines in their periodic meetings. They shall review the existing procedures and recommend changes in procedures based on the AMCs experience, industry practices and/or developments in applicable laws and regulations. They shall report compliance and any violations and remedial action taken by them in their reports submitted to the Board.

6.5 Responsibilities of AMC & Trustees134

6.5.1 For effective discharge of their responsibilities under the Mutual Funds Regulations, the AMC(s) 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) of the Mutual Funds Regulations. AMC(s) shall place correspondence and reports submitted to SEBI before the Trustees.

6.6 Applicability of Insider Trading Regulations135

6.6.1 Securities and Exchange Board of India (Insider Trading) (Amendment) Regulations, 2002 shall be followed strictly by the trustee companies, asset management companies and their employees and directors.

PART II -SCHEME GOVERNANCE

6.7 Minimum Number of investors136

6.7.1 Applicability for an open-ended scheme

6.7.1.1 The Scheme/Plan shall have:

 a.  a minimum of 20 investors and

 b.  no single investor shall account for more than 25% of the corpus of the Scheme/Plan(s).

6.7.1.2 If either/both of such limit(s) is breached during the NFO of the Scheme, it shall be ensured that within a period of three months or the end of the succeeding calendar quarter from the close of the NFO of the Scheme, whichever is earlier, the Scheme complies with these two conditions.

6.7.1.3 In case the Scheme/Plan(s) does not have a minimum of 20 investors in the stipulated period, the provisions of Regulation137 would become applicable automatically without any reference from SEBI and accordingly the Scheme/Plan(s) shall be wound up and the units would be redeemed at applicable NAV.

6.7.1.4 If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25 % limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15th day of the notice period.

6.7.1.5 The two conditions mentioned above shall also be complied within each subsequent calendar quarter thereafter, on an average basis, as specified by SEBI.

6.7.1.6 The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard.

6.7.2 Applicability for a Close ended scheme/Interval scheme

6.7.2.1 The Scheme(s) and individual Plan(s) under the Scheme(s) shall have:

 a.  A minimum of 20 investors and

 b.  No single investor shall account for more than 25% of the corpus of the Scheme(s)/Plan(s).

6.7.2.2 These conditions will be complied with immediately after the close of the NFO itself i.e. at the time of allotment.

6.7.2.3 In case of non-fulfilment with the condition of minimum 20 investors, the Scheme(s)/Plan(s) shall be wound up in accordance with Regulation138 automatically without any reference from SEBI.

6.7.2.4 In case of non-fulfillment with the condition of 25% holding by a single investor on the date of allotment, the application to the extent of exposure in excess of the stipulated 25% limit would be liable to be rejected and the allotment would be effective only to the extent of 25% of the corpus collected. Consequently, such exposure over 25% limits will lead to refund within 6 weeks of the date of closure of the New Fund Offer.

6.7.2.5 For interval scheme the aforesaid provision will be applicable at the end of NFO and specified transaction period.

6.7.2.6 Requisite disclosure in this regard shall be made in the SID.

6.7.3 Determination of breach:

6.7.3.1 The average shall be calculated, at the end of each quarter, on the basis of number of investors at the end of the business hours of the scheme on a daily basis.

6.7.3.2 To determine breach of 25% holding limit by an investor, net assets under the scheme shall be calculated daily and the daily holding limit shall be determined accordingly. At the end of the quarter, average daily holding by each investor shall be calculated and any breach of the 25% holding limit will be accordingly determined.

6.7.4 Applicability

6.7.4.1 These Guidelines are applicable at the Portfolio level.

6.7.4.2 These Guidelines are not applicable to Exchange Traded Funds (ETFs).

6.7.5 Redemptions

6.7.5.1 Redemptions effected pursuant to these Guidelines shall be completed within 10 days from the day of winding up of the scheme(s) and/or plan(s).

6.7.6 Reporting to the Board

6.7.6.1 Compliance with these Guidelines shall be reported in Compliance Test Reports (CTRs) and Half Yearly Trustee Reports.

6.8 Scheme Performance Review

6.8.1 AMCs and Trustees shall review the performance of their schemes on periodic basis139. Such review can take place by comparing the performance of the schemes with benchmark indices as well as in light of the performance of the entire Mutual Funds industry by relying on data published from time to time by independent research agencies and financial newspapers and journals. Corrective action if required may be taken in case of unsatisfactory performance. Its compliance should be reported in the bimonthly CTRs of AMCs and half-yearly reports of the Trustees to SEBI (while reporting compliance of Regulation 25(2) on exercise of due diligence in investment decisions).

PART III -SYSTEMS AUDIT OF MUTUAL FUNDS140

6.9 Mutual funds shall have a systems audit conducted by an independent CISA/CISM qualified or equivalent auditor.

6.10 The systems audit should be comprehensive encompassing audit of systems and processes inter alia related to examination of integration of front office system with the back office system, fund accounting system for calculation of net asset values, financial accounting and reporting system for the AMC, Unit-holder administration and servicing systems for customer service, funds flow process, system processes for meeting regulatory requirements, prudential investment limits and access rights to systems interface.

6.11 Mutual Funds/AMCs should get the above systems audit conducted once in two years.

6.12 The Systems Audit Report and compliance status should be placed before the Trustees of the mutual fund.

6.13 The systems audit report/findings along with trustee comments should be communicated to SEBI.

6.14 For the financial years April 2008 – March 2010, the systems audit should

be completed by September 30, 2010.

PART IV – ROLE OF MUTUAL FUNDS IN CORPORATE GOVERNANCE OF PUBLIC LISTED COMPANIES141

6.15 Mutual Funds should play an active role in ensuring better corporate governance of listed companies.

6.16 AMCs shall disclose their general policies and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11.

6.17 AMCs are required to disclose on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11, the actual exercise of their proxy votes in the AGMs/EGMs of the investee companies in respect of the following matters.

6.17.1 Corporate governance matters, including changes in the state of incorporation, merger and other corporate restructuring, and anti takeover provisions.

6.17.2 Changes to capital structure, including increases and decreases of capital and preferred stock issuances.

6.17.3 Stock option plans and other management compensation issues;

6.17.4 Social and corporate responsibility issues.

6.17.5 Appointment and Removal of Directors.

6.17.6 Any other issue that may affect the interest of the shareholders in general and interest of the unit-holders in particular.

6.18 The format142 for disclosure of voting by mutual funds in general meetings of listed companies is provided.

CHAPTER 7

SECONDARY MARKET ISSUES

7.1 Non-Applicability of Listing Deposit143

7.1.1 The requirement of collecting listing deposit as specified under Circular Letter No. SE/12936 dated April 6, 1992 shall not be applicable to Mutual Fund schemes seeking listing on the Stock Exchanges.

7.2 Payment of Margins144

7.2.1 The applicable margins shall be paid as per the guidelines issued by SEBI and as directed by stock exchanges from time to time.

7.3 Unique Client Codes145

7.3.1 Mutual Funds are not permitted to operate in the securities market without furnishing a valid Unique Client Code (UCC).146 Mutual Funds are required to obtain UCC from the Bombay Stock Exchange Ltd. (BSE) or The National Stock Exchange Ltd. (NSE) whenever a new scheme(s) or plan(s) (wherever the portfolio of the plans is different) is launched147. Such UCC should be obtained before commencing the trading on behalf of the scheme(s)/plan(s). At the time of entering an order, the UCC pertaining to the parent Mutual Fund shall be provided and the allocation to individual schemes shall be done in the post closing session.148 The UCC can be shared with the unit holders to facilitate tax benefits linked to payment of Securities Transaction Tax (STT).

7.4 Trading in Exchange Traded Derivatives Contracts149

7.4.1 For trading in Exchange Traded Derivatives Contracts, following should be observed:

7.4.1.1 Mutual Fund schemes can participate in derivatives market as per the guidelines issued by SEBI in this regard from time to time.150

7.4.1.2 The Mutual Funds shall be treated at par with a registered FII in respect of position limits in index futures, index options, stock options and stock futures contracts. The Mutual Funds will be considered as trading members like registered FIIs and the schemes of Mutual Funds will be treated as clients like sub-accounts of FIIs.

7.4.1.3 Appropriate disclosures shall be made in the offer document regarding the extent and manner of participation of the schemes of the Mutual Funds in derivatives and the risk factors, which should be explained by suitable numerical examples.

7.4.1.4 The participation of existing schemes of the Mutual Funds in the derivatives market shall be subject to the following conditions:

 a.  The extent and the manner of the proposed participation in derivatives shall be disclosed to the unit holders.

 b.  The risks associated with such participation shall be disclosed and explained by suitable numerical examples.

 c.  Positive consent shall be obtained from majority of the unit holders.

 d.  An exit option shall be provided to the dissenting unit holders. Such option shall be kept open for a period of one month prior to the scheme commencing trading in derivatives.

 e.  No exit load shall be charged to the unit holders exercising such exit options.

7.4.1.5 Positions limits as specified by SEBI for Mutual Funds and its schemes from time to time shall be applicable151.

7.5 Trading in Interest Rate Derivatives152

7.5.1 Mutual Fund schemes are permitted to undertake transactions in Forward Rate Agreements and Interest Rate Swaps with banks, PDs & FIs as per applicable RBI Guidelines153, mutual funds can also trade in interest rate derivatives through the Stock Exchanges subject to requisite disclosures in the SID154.

7.6 Transactions of mutual funds in Government Securities in dematerialised form155

7.6.1 According to Regulation156, the Mutual Funds having an aggregate of securities worth Rs. 10 crore or more are required to settle their transactions only through dematerialised securities. All Mutual Funds should enter into transactions relating to government securities only in dematerialised form.

CHAPTER 8

NET ASSET VALUE157

8.1 Disclosure of Net Asset Value158

8.1.1 The NAV of schemes shall be published on a daily basis by the Mutual Funds at least in two daily newspapers159.

8.1.2 NAV and sale/repurchase price of all Mutual Fund schemes except for Fund of Fund Schemes shall be updated on AMFI’s website and the Mutual Funds’ websites by 9 p.m. of the same day160.

8.1.3 Fund of Fund Schemes shall have an extended time up to 10 a.m. the following business day in this regard161 and the NAVs shall be published in newspapers with an asterisk to indicate the one day time lag/or the actual time lag.

8.1.4 Delay beyond 10 a.m. of the following business day in case of Fund of Fund schemes and 9 p.m. on the same day for all other schemes shall be explained in writing to AMFI and the Board and shall also be reported in the CTR(s)162 in terms of number of days of non adherence of time limit for uploading NAV on AMFI’s website and the reasons for the same. Corrective steps taken by AMC to reduce the number of occurrences shall also be disclosed163.

8.1.5 In case the NAVs are not available before the commencement of business hours on the following day due to any reason, Mutual Funds shall issue a press release giving reasons for the delay and explain when they would be able to publish the NAVs164.

8.2 Rounding off NAVs165

8.2.1 To ensure uniformity, Mutual Funds shall round off NAV up to four decimal places for index funds and all types of debt & liquid/money market schemes.

8.2.2 For all equity oriented and balanced fund schemes, Mutual Funds shall round off NAVs up to two decimal places. However, Mutual Funds can round off the NAVs up to more than two decimal places in case of equity oriented and balanced fund schemes also, if they so desire166. Relevant disclosure in this regard shall be made in the SID/SAI167.

8.3 Uniform Cut off Timings for applicability of Net Asset Value of Mutual Fund scheme(s) and/or plan(s)168

8.3.1 Mutual Funds should follow the Guidelines enumerated below with respect to uniform Cut -off Timings:

8.3.2 Definitions:

8.3.2.1 In these Guidelines, unless the context otherwise requires:

 a.  ‘Cut-off Timing’, in relation to an investor making an application to a Mutual Fund for purchase or sale of units, shall mean, the outer limit of timing within a particular day which is relevant for determination of the NAV applicable for his transaction;

 b.  ‘International scheme’ means a Mutual Fund scheme having substantial investments in foreign securities valued as per time zones other than Indian Standard Time zone;

 c.  ‘Liquid fund schemes and plans’ shall mean the schemes and plans of a Mutual Fund as specified in the guidelines169 issued by SEBI in this regard170.

8.3.3 Applicability

8.3.3.1 The Guidelines on Cut off Timings for applicability of Net Asset Value of Mutual Fund scheme(s) and/or plan(s) shall be applicable to all schemes and plans of Mutual Funds except:

 a.  International schemes and

 b.  Transactions in Mutual Fund units undertaken on a recognized Stock Exchange.

8.3.4 Fixation of uniform Cut-off Timings

8.3.4.1 Mutual Funds shall reckon the Cut-off Timings for their schemes and plans in compliance with these Guidelines and the same shall be uniformly implemented for all investors.

8.3.4.2 Mutual Funds shall ensure that each payment instrument for subscription or purchase of units is deposited in a bank expeditiously by utilization of the appropriate banking facility, so as to comply with the requirement in Clause 8.3.4.1 above.

8.3.4.3 AMCs shall compensate any loss occasioned to any investor or to the scheme and/or plan on account of non compliance with Clause 8.3.4.2 above.

8.3.5 Cut-off Timings for liquid fund schemes and plans For determining the applicable NAV171:

8.3.5.1 The following cut-off timings shall be observed by a mutual fund in respect of purchase of units in liquid fund schemes and their plans, and the following NAVs shall be applied for such purchase:

 a.  where the application is received upto 2.00 p.m. on a day and funds are available for utilization before the cut-off time without availing any credit facility, whether, intra-day or otherwise – the closing NAV of the day immediately preceding the day of receipt of application;

 b.  where the application is received after 2.00 p.m. on a day and funds are available for utilization on the same day without availing any credit facility, whether, intra-day or otherwise – the closing NAV of the day immediately preceding the next business day ; and

 c.  irrespective of the time of receipt of application, where the funds are not available for utilization before the cut-off time without availing any credit facility, whether, intra-day or otherwise – the closing NAV of the day immediately preceding the day on which the funds are available for utilization.

8.3.5.2 For allotment of units in respect of purchase in liquid schemes, it shall be ensured that:

 a.  Application is received before the applicable cut-off time.

 b.  Funds for the entire amount of subscription/purchase as per the application are credited to the bank account of the respective liquid schemes before the cut-off time.

 c.  The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective liquid schemes.

8.3.5.3 For allotment of units in respect of switch-in to liquid schemes from other schemes, it shall be ensured that:

 a.  Application for switch-in is received before the applicable cut-off time.

 b.  Funds for the entire amount of subscription/purchase as per the switch-in request are credited to the bank account of the respective switch-in liquid schemes before the cut-off time.

 c.  The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective switch-in schemes.

8.3.5.4 The following Cut-off Timings shall be observed by Mutual Funds with respect to repurchase of units in liquid fund schemes and plans and the following NAVs shall be applied for such repurchase:

 a.  Where the application is received up to 3.00 pm – the closing NAV of day immediately preceding the next business day; and

 b.  Where the application is received after 3.00 pm – the closing NAV of the next business day.

8.3.5.5 Mutual Funds shall calculate NAV for each calendar day for their liquid fund schemes and plans.

 a.  Explanation: “Business Day” does not include a day on which the Money Markets are closed or otherwise not accessible.

8.3.6 Cut-off Timings for schemes and plans other than liquid fund schemes and plans

8.3.6.1 A Mutual Fund shall reckon only prospective NAV, in accordance with this clause, in respect of all their schemes and plans i.e. for other than liquid fund schemes and plans

8.3.6.2 The following Cut-off Timings shall be observed by Mutual Funds in respect of purchase of units in other schemes and plans and following NAVs shall be applied for such purchase:

 a.  Where the application is received up to 3.00 pm with a local cheque or demand draft payable at par at the place where it is received – closing NAV of the day on which the application is received;

 b.  Where the application is received after 3.00 pm with a local cheque or demand draft payable at par at the place where it is received – closing NAV of the next business day; and

 c.  Where the application is received with an outstation cheque or demand draft which is not payable on par at the place where it is received – closing NAV of day on which the cheque or demand draft is credited.

8.3.6.3 In respect of purchase of units in Income/Debt oriented schemes (other than liquid fund schemes and plans) with amount equal to or more than Rs. 1 crore, irrespective of the time of receipt of application, the closing NAV of the day on which the funds are available for utilization shall be applicable172.

 a.  For allotment of units in respect of purchase in income/debt oriented mutual fund schemes/plans other than liquid schemes, it shall be ensured that173:

   i.  Application is received before the applicable cut-off time (3 pm).

  ii.  Funds for the entire amount of subscription/purchase as per the application are credited to the bank account of the respective schemes before the cutoff time (3 pm).

 iii.  The funds are available for utilization before the cut-off time (3 pm) without availing any credit facility whether intra-day or otherwise, by the respective scheme.

 b.  For allotment of units in respect of switch-in to income/debt oriented mutual fund schemes/plans other than liquid schemes from other schemes, it shall be ensured that:

   i.  Application for switch-in is received before the applicable cut-off time.

  ii.  Funds for the entire amount of subscription/purchase as per the switch-in request are credited to the bank account of the respective switch-in income/debt oriented mutual fund schemes/plans before the cut-off time.

 iii.  The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective switch-in income/debt oriented mutual fund schemes/plans.

8.3.6.4 The following Cut-off Timings shall be observed by Mutual Funds in respect of repurchase of units in its other schemes and their plans, and the following NAVs shall be applied for such repurchase:

 a.  Where the application is received up to 3.00 pm – closing NAV of the day on which the application is received; and

 b.  An application received after 3.00 pm – closing NAV of the next business day.

8.3.7 Switch and Sweep Transactions

8.3.7.1 Paragraphs 8.3.5 and 8.3.6 shall apply to ‘switch in’ transactions as if they were purchase transactions and to ‘switch out’ transactions as if they were repurchase transactions.

8.3.7.2 Paragraphs 8.3.5 and 8.3.6 shall apply to ‘sweep’ transactions as if they were purchase transactions and to ‘reverse sweep’ transactions as if they were repurchase transactions.

8.3.7.3 In case of ‘switch’ transactions from one scheme to another, the allocation shall be in line with redemption payouts.

8.3.8 Time Stamping

8.3.8.1 Application from investors shall be received by Mutual Funds only at official points of acceptance, addresses of which shall be disclosed in the SID and on Mutual Funds’ websites.

8.3.2.2 Cut off timings as prescribed under Paragraphs 8.3.5 and 8.3.6 shall apply with reference to the point of time at which the applications are received at such official points of acceptance.

8.3.8.3 Time stamping machines at all official points of acceptance shall be in compliance with the requirements mentioned in Section 8.4.

8.3.9 Compliance Reporting

8.3.9.1 Status of compliance with these Guidelines shall be reported to the Board in the CTR(s)174 of the AMC(s) and the Half Yearly Trustee Reports175.

8.3.9.2 The Half Yearly Trustee Reports shall contain a declaration on whether the Trustees are satisfied with the systems and procedures of the Mutual Fund designed for the purpose of compliance with these Guidelines.

8.3.9.3 Further, the substance of these Guidelines shall be disclosed to investors in the SID or in any addendum thereto.

8.3.9.4 Encumbrance of the scheme property176

Regulations177 provides that the AMC shall not acquire any of the assets out of the scheme property which involves the assumption of any liability which is unlimited or which may result in encumbrance of the scheme property in any way. AMC’s are advised to strictly adhere to the said provision.

8.4 Requirements with respect to time stamping machines [pursuant to Clause 8(3)]

8.4.1 For every machine, running serial number shall be stamped from the first number to the last number as per its capacity before repetition of the cycle.

8.4.2 Every application for purchase shall be stamped on the face and the corresponding payment instrument shall be stamped on the back indicating the date and time of receipt and running serial number. The application and the payment instrument shall contain the same serial number.

8.4.3 Every application for redemption shall be stamped on the face thereof and on the investor’s acknowledgment copy (or twice on the application if no acknowledgment is issued) indicating the date and time of receipt and running serial number.

8.4.4 Different applications shall not be bunched together with the same serial number.

8.4.5 Blank papers shall not be time stamped. Genuine errors, if any, shall be recorded with reasons and the corresponding applications requests shall also be preserved.

8.4.6 The time stamping machine shall have a tamper proof seal and the ability to open the seal for maintenance or repairs must be limited to vendors or nominated persons of the mutual fund, to be entered in a proper record.

8.4.7 Breakage of seal and/or breakdown of the time stamping process shall be duly recorded and reported to the Trustees.

8.4.8 Every effort should be made to ensure uninterrupted functioning of the time stamping machine. In case of breakdown, the Mutual Funds shall take prompt action to rectify the situation. During the breakdown period, Mutual Funds shall adopt an alternative time stamping method that has already been approved by the Board of the AMC and the Trustee(s). An audit trail shall be available to check and ensure the accuracy of the time stamping process during the said period.

8.4.9 Any alternate mode of application that does not have any physical or electronic trail shall be converted into a physical piece of information and time stamped in accordance with these Guidelines.

8.4.10 Mutual Funds shall maintain and preserve all applications/ requests, duly time stamped as aforesaid, at least for a period of eight years178 to be able to produce them as and when required by the Board or auditors appointed by the Board.

8.5 Uniformity in calculation of sale and repurchase price179

8.5.1 The following method is being prescribed

8.5.1.1 To streamline the calculation of sale and repurchase price of mutual fund units180,

8.5.1.2 To avoid variation in the amounts payable to investors and/or number of units allotted to them, and

8.5.1.3 To make the calculations more comprehensible to the investors.

8.5.2 Exit loads shall be charged as a percentage of the NAV i.e. applicable load as a percentage of NAV will be subtracted from the NAV to calculate the repurchase price.

8.5.3 The formula for the same is as follows:

8.5.3.1 Sale Price = Applicable NAV

8.5.3.2 Repurchase Price = Applicable NAV *(1 – Exit Load, if any)

CHAPTER 9

VALUATION

9.1 Definitions181

9.1.1 Non-Traded Securities182

9.1.1.1 When a security (other than Government Securities) is not traded on any Stock Exchange for a period of thirty days prior to the valuation date, the scrip shall be treated as a non traded security.

9.1.2 Thinly Traded Securities

9.1.2.1 Thinly traded equity/ equity related securities:183

 a.  When trading in an equity and/or equity related security (such as convertible debentures, equity warrants etc.) in a month is both less than Rs. 5 lacs and the total volume is less than 50,000 shares, the security shall be considered as thinly traded security and valued accordingly.

 b.  In order to determine whether a security is thinly traded or not, the volumes traded in all recognized Stock Exchanges in India may be taken into account.

 c.  For example, if the volume of trade is 1,00,000 and value is Rs. 4,00,000, the shares do not qualify as thinly traded. Also if the volume traded is 40,000, but the value of trades is Rs. 6, 00,000, the shares do not qualify as thinly traded.

 d.  Where a Stock Exchange identifies the thinly traded securities by applying the above parameters for the preceding calendar month and publishes or provides the required information along with the daily quotations, the same can be used by the Mutual Funds.

 e.  If the shares are not listed on the Stock Exchanges which provide such information, then Mutual Funds shall make their own analysis in line with the above criteria to check whether such securities are thinly traded or not and then value them accordingly.

9.1.3 Thinly traded Debt Securities184

9.1.3.1 A debt security (other than Government Securities) shall be considered as a thinly traded security if, on the valuation date, there are no individual trades in that security in marketable lots (currently applicable) on the principal Stock Exchange or any other Stock Exchange.

9.2 Valuation of Securities

9.2.1 Traded Securities:185

9.2.1.1 When a security (other than debt securities) is not traded on any Stock Exchange on a particular valuation day, the value at which it was traded on the selected Stock Exchange, as the case may be, on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date.

9.2.1.2 When a debt security (other than Government Securities) is not traded on any Stock Exchange on any particular valuation day, the value at which it was traded on the principal Stock Exchange or any other Stock Exchange, as the case may be, on the earliest previous day may be used provided such date is not more than fifteen days prior to valuation date. When a debt security (other than Government Securities) is purchased by way of private placement, the value at which it was bought may be used for a period of fifteen days beginning from the date of purchase.

9.2.2 Non-Traded /and/or Thinly Traded Securities:186

9.2.2.1 AMCs shall value non-traded and/or thinly traded securities “in good faith” based on the Valuation norms prescribed below:

9.2.3 Non-traded/ and/or thinly traded equity securities:

9.2.3.1 Based on the latest available Balance Sheet, Net Worth shall be calculated as follows:

 a.  Net Worth per share = [Share Capital+ Reserves (excluding Revaluation Reserves) – Miscellaneous expenditure and Debit Balance in Profit and Loss Account] / Number of Paid up Shares.

 b.  Average Capitalization rate (P/E ratio) for the industry based upon either BSE or NSE data (which shall be followed consistently and changes, if any, noted with proper justification thereof) shall be taken and discounted by 75 per cent i.e. only 25 per cent. Of the industry average P/E shall be taken as Capitalization rate (P/E ratio). Earnings per share (EPS) of the latest audited annual accounts shall be considered for this purpose.

 c.  The value as per the Net Worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 10 per cent. for illiquidity so as to arrive at the fair value per share.

 d.  In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalised earning.

 e.  In case where the latest Balance Sheet of the company is not available within nine months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero.

 f.  In case an individual security accounts for more than 5 per cent. of the total assets of the scheme, an independent valuer shall be appointed for the valuation of the said security. To determine if a security accounts for more than 5 per cent. of the total assets of the scheme, it shall be valued by the procedure above and the proportion which it bears to the total net assets of the scheme to which it belongs will be compared on the date of valuation187.

g. In case trading in an equity security is suspended up to thirty days, then the last traded price shall be considered for valuation of that security. If an equity security is suspended for more than thirty days, then the AMC(s) or Trustees shall decide the valuation norms to be followed and such norms shall be documented and recorded.

9.2.4 Non-traded/thinly Traded Debt security

9.2.4.1 A thinly traded debt security as defined above shall be valued as per the norms for non traded debt security.

 a.  Valuation188 of money market and debt securities with residual maturity of upto 60189 days:

 1.  All money market and debt securities, including floating rate securities, with residual maturity of upto 60 days shall be valued at the weighted average price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they shall be valued on amortization basis. It is further clarified that in case of floating rate securities with floor and caps on coupon rate and residual maturity of upto 60 days then those shall be valued on amortization basis taking the coupon rate as floor.

 b.  Valuation of money market and debt securities with residual maturity of over 60190 days:

 1.  All money market and debt securities, including floating rate securities, with residual maturity of over 60 days shall be valued at weighted average price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they shall be valued at benchmark yield/ matrix of spread over risk free benchmark yield obtained from agency(ies) entrusted for the said purpose by AMFI.

 2.  The approach in valuation of non traded debt securities is based on the concept of using spreads over the benchmark rate to arrive at the yields for pricing the non traded security.

 3.  The Yields for pricing the non traded debt security would be arrived at using the process as defined below.

Step 1: A Risk Free Benchmark Yield is built using the government securities as the base. Government securities are used as the benchmarks as they are traded regularly; free of credit risk; and traded across different maturity spectrums every week.

Step 2: A Matrix of spreads (based on the credit risk) are built for marking up the benchmark yields. The matrix is built based on traded corporate paper on the wholesale debt segment of an appropriate stock exchange and the primary market issuances. The matrix is restricted only to investment grade corporate paper.

Step 3: The yields as calculated above are Marked-up/Marked-down for ill-liquidity risk

Step 4: The Yields so arrived are used to price the portfolio.

9.3 Methodology:

9.3.1 Construction of Risk Free Benchmark191

9.3.1.1 Using Government of India dated securities; the Benchmark shall be constructed as below:

 a.  Government of India dated securities will be grouped into various duration buckets such as 0.164-0.25 yrs192, 0.25- 0.5 yrs193, 0.5-1 year, 1-2 years, 2-3 years, 4-5 years, 5-6 years and 6 years and the volume weighted yield would be computed for each bucket. These duration buckets may be changed to reflect the market value more closely by any agency suggested by AMFI giving benchmark yield/ matrix of spreads over benchmark yield.

 b.  The benchmark as calculated above will be set at least weekly, and in the event of any significant movement in prices of Government Securities on account of any event impacting interest rated on any day such as a change in the Reserve Bank of India (RBI) policies, the benchmark will be reset to reflect any change in the market conditions.

9.3.2 Building a Matrix of Spreads for Marking-up the Benchmark Yield194

9.3.2.1 Mark up for credit risk over the risk free benchmark YTM as calculated in 9.3.1 above, will be determined using the trades of corporate debentures/bonds of different ratings. All trades on appropriate stock exchange during the fortnight prior to the benchmark date will be used in building the corporate YTM and spread matrices. Initially these matrices will be built only for corporate securities of investment grade. The matrices are dynamic and the spreads will be computed every week. The matrix will be built for all duration buckets for which the benchmark GOI matrix is built to effectively link the corporate matrix with the GOI securities matrix. Accordingly:

 a.  All traded paper (with minimum traded value of Rs. 1 crore) will be classified by their ratings and grouped into 7 duration buckets; for rated securities, the most conservative publicly available rating will be used;

 b.  For each rating category, average volume weighted yield will be obtained both from trades on the appropriate stock exchange and from the primary market issuances

 c.  Where there are no secondary trades on the appropriate stock exchange in a particular rating category and no primary market issuances during the fortnight under consideration, then trades on appropriate stock exchange during the 30 day period prior to the benchmark date will be considered for computing the average YTM for such rating category;

 d.  If the matrix cannot be populated using any or all of the above steps, then credit spreads from trades on appropriate stock exchange of the relevant rating category over the AAA trades will be used to populate the matrix;

 e.  In each rating category, all outliers will be removed for smoothening the YTM matrix;

 f.  Spreads will be obtained by deducting the YTM in each duration category from the respective YTM of the GOI securities;

 g. In the event of lack of trades in the secondary market and the primary market the gaps in the matrix would be filled by extrapolation. If the spreads cannot be extrapolated for the reason of practicality, the gaps in the matrix will be filled by carrying the spreads from the last matrix.

 h.  Accordingly, all Mutual Funds shall provide transaction details of various types of debt securities like NCDs, Mibor linked floaters and CPs on daily basis in the prescribed format enclosed at Annexure 3 to the agency recommended by AMFI. Submission of data would help in daily matrix generation, would improve uniformity and accuracy of valuation in the Mutual Funds industry195.

9.3.3 Mark-up/Mark-down Yield

9.3.3.1 The Yields calculated would be marked-up/marked-down to account for the illiquidity risk, promoter background, finance company risk and the issuer class risk. As the level of illiquidity risk would be higher for non rated securities the marking process for rated and non rated securities would be differentiated as follows:

 a.  Adjustments for Securities rated by external rating agencies196

Category Discretionary mark up/mark down
+
Rated instruments with duration upto 2 years 100 bps 50 bps
Rated instruments with duration over 2 years 75 bps 25 bps

 1.  The rationale for the above discount structure is to take cognizance of the differential interest rate risk of the securities. This structure will be reviewed periodically.

 b.  Adjustments for Internally Rated Securities197

 1.  To value an un-rated security, the fund manager shall assign an internal credit rating, which will be used for valuation. Since un-rated instruments tend to be more illiquid than rated securities, the yields would be marked up by adding discretionary discount as under:

 Category Discretionary discount
Unrated instruments with duration up to 2 years Discretionary discount of upto +50 bps over and above mandatory discount of +50 bps
Unrated instruments with duration over 2 years Discretionary discount of upto +50 bps over and above mandatory discount of +25 bps

 2.  The benchmark yield/ matrix of spreads over risk free benchmark yield obtained from any agency suggested by AMFI, must be applied for valuation of securities on the day of release of such bench mark yield/ matrix of spreads by the aforesaid agency.198

9.3.3.2 Chief Executive Officer (whatever his designation may be) of the AMC shall give prior approval to the use of discretionary mark up or down limit

9.4 Valuation of securities with Put/Call Options:199

9.4.1 The option embedded securities would be valued as follows:

9.4.1.1 Securities with call option

 a.  The securities with call option shall be valued at the lower of the value as obtained by valuing the security to final maturity and valuing the security to call option. In case there are multiple call options, the lowest value obtained by valuing to the various call dates and valuing to the maturity date is to be taken as the value of the instrument.

9.4.1.2 Securities with Put option

 a.  The securities with put option shall be valued at the higher of the value as obtained by valuing the security to final maturity and valuing the security to put option. In case there are multiple put options, the highest value obtained by valuing to the various put dates and valuing to the maturity date is to be taken as the value of the instruments.

9.4.1.3 Securities with both Put and Call option on the same day

 a.  The securities with both Put and Call option on the same day would be deemed to mature on the Put/Call day and would be valued accordingly.

9.5 Valuation of Government Securities

9.5.1 Government securities will be valued at prices for government securities released by an agency suggested by AMFI to ensure uniformity in calculation of NAVs200.

9.6 Illiquid Securities201

9.6.1 Aggregate value of “illiquid securities” under a scheme, which are defined as non-traded, thinly traded and unlisted equity shares, shall not exceed 15 per cent of the total assets of the scheme and any illiquid securities held above 15 per cent. of the total assets shall be assigned zero value.

9.6.2 All Mutual Funds shall disclose as on March 31 and September 30 the scheme wise total illiquid securities in value and percentage of the net assets while disclosing Half Yearly Portfolios to the unit holders. In the list of investments, an asterisk mark shall be given against all such investments which are recognised as illiquid securities.

9.6.3 Mutual Funds shall not be allowed to transfer illiquid securities among their schemes.

9.7 Guidelines for Identification and Provisioning for Non-Performing Assets (Debt Securities)202

9.7.1 Definition of a Non-Performing Asset (NPA)

9.7.1.1 An ‘asset’ shall be classified as NPA if the interest and/or principal amount have not been received or remained outstanding for one quarter from the day such income and/or installment was due.

9.7.2 Effective date for classification and provisioning of NPAs

9.7.2.1 The definition of NPA may be applied after a quarter past due date of the interest. For e.g. if the due date for interest is 30.06.2000, it will be classified as NPA from 01.10.2000.

9.7.3 Treatment of income accrued on the NPA and further accruals

9.7.3.1 After the expiry of the 1st quarter from the date the income has fallen due, there will be no further interest accrual on the asset i.e. if the due date for interest falls on 30.06.2000 and if the interest is not received, accrual will continue till 30.09.2000 after which there will be no further accrual of income. In short, taking the above example, from the beginning of the 2nd quarter there will be no further accrual on income.

9.7.3.2 On classification of the asset as NPA from a quarter past due date of interest, all interest accrued and recognized in the books of accounts of the Mutual Fund till the date shall be provided for. For e.g. if interest income falls due on 30.06.2000, accrual of interest will continue till 30.09.2000 even if the income as on 30.06.2000 has not been received. Further, no accrual will take place from 01.10.2000 onwards. Full provision will be made for interest accrued and outstanding as on 30.06.2000.

9.7.4 Provision for NPAs – Debt Securities

9.7.4.1 Both secured and unsecured investments, once they are recognized as NPAs, call for provisioning in the same manner and where these are related to close ended schemes, the phasing would be such that to ensure full provisioning prior to the closure of the scheme or the scheduled phasing which ever is earlier.

9.7.4.2 The value of the asset shall be provided in the following manner or earlier at the discretion of the Mutual Fund. Mutual Funds will not have discretion to extend the period of provisioning. The provisioning against the principal amount or installments shall be made at the following rates irrespective of whether the principal is due for repayment or not.

 a.  10 percent of the book value of the asset shall be provided for after 6 months past due date of interest i.e. 3 months form the date of classification of the asset as NPA.

 b.  20 percent of the book value of the asset should be provided for after 9 months past due date of interest i.e. 6 months from the date of classification of the asset as NPA.

 c.  Another 20 percent of the book value of the assets shall be provided for after 12 months past due date of interest i.e. 9 months from the date of classification of the asset as NPA.

 d.  Another 25 percent of the book value of the assets shall be provided for after 15 months past due date of interest i.e. 12 months from the date of classification of the asset as NPA.

 e.  The balance 25 percent of the book value of the asset shall be provided for after 18 months past due date of the interest i.e. 15 months from the date of classification of the assets as NPA.

9.7.4.3 Book value for the purpose of provisioning for NPAs shall be taken as a value determined as per the prescribed valuation method.

9.7.4.4 This can be explained by an illustration:

 a.  Let us consider that interest income is due on a half yearly basis and the due date falls on 30.06.2000 and the interest is not received till 1st quarter after due date i.e. 30.09.2000. The provisioning will be done in the following phased manner:

 10% provision 01.01.2001 6 months past due date of interest i.e. 3 months from the date of classification of asset as NPA (01.10.2000)
20% provision 01.04.2001
20% provision 01.07.2001
25% provision 01.10.2001
25% provision 01.01.2002

 b. Thus, one and half years past the due date of income or one year and three months from the date of classification of the ‘asset’ as an NPA, the ‘asset’ will be fully provided for. If any installment is fallen due, during the period of interest default, the amount of provision shall be the installment amount or above provision amount, whichever is higher.

9.7.5 Reclassification of assets

9.7.5.1 Upon reclassification of assets as ‘performing assets’:

 a.  In case a company has fully cleared all the arrears of interest, the interest provisions can be written back in full.

 b.  The asset will be reclassified as performing on clearance of all interest arrears and if the debt is regularly serviced over the next two quarters.

 c.  In case the company has fully cleared all the arrears of interest, the interest not credited on accrual basis shall be credited at the time of receipt.

 d.  The provision made for the principal amount can be written back in the following manner

 1.  100% of the asset provided for in the books will be written back at the end of the 2nd quarter where the provision of principal was made due to the interest defaults only.

 2.  50% of the asset provided for in the books will be written back at the end of the 2nd quarter and 25% after every subsequent quarter where both installments and interest payment were in default earlier.

 3.  Explanation: The words “2nd quarter” wherever appear, shall mean 2nd calendar quarter.203

 e.  An asset is reclassified as ‘standard asset’ only when both, the overdue interest and overdue installments are paid in full and there is satisfactory performance for a subsequent period of 6 months.

9.7.6 Receipt of past dues:

9.7.6.1 When the Mutual Fund has received income/ principal amount after their classifications as NPAs:

 a.  For the next 2 quarters, income shall be recognized on cash basis and thereafter on accrual basis. The asset will be continued to be classified as NPA for these two quarters.

 b.  During this period of two quarters although the asset is classified as NPA no provision needs to be made for the principal if the same is not due and outstanding.

 c.  If part payment is received towards principal, the asset continues to be classified as NPA and provisions are continued as per the norms set at 9.7.4 above any excess provision will be written back.

9.7.7 Classification of Deep Discount Bonds as NPAs

9.7.7.1 Investments in Deep Discount Bonds can be classified as NPAs, if any two of the following conditions are satisfied:

 a.  If the rating of the Bond comes down to Grade ‘BB’ (or its equivalent) or below

 b.  If the company is defaulting in their commitments in respect of other assets, if available.

 c.  Full Net worth erosion.

9.7.7.2 Provision should be made as per the norms set at 9.7.4 above as soon as the asset is classified as NPA.

9.7.7.3 Full provision can be made if the rating comes down to Grade ‘D’ (or its equivalent).

9.7.8 Reschedulement of an asset

9.7.8.1 In case a company defaults in payment of either interest or principal amount and the Mutual Fund has accepted a rescheduling of the schedule of payments, then the following practice shall be adhered to:

 a.  In case it is a first reschedulement and only payment of interest is in default, the classification of the asset as NPA shall be continued and existing provisions shall not be written back. This practice shall be continued for two quarters of regular servicing of the debt. Thereafter, this be classified as ‘performing asset’ and the interest provided can be written back.

 b.  If the reschedulement is done due to default in interest and principal amount, the asset shall continue as NPA for a period of 4 quarters, even though the asset is continued to be serviced during these 4 quarters regularly. Thereafter, the asset can be classified as ‘performing asset’ and all the interest provided till such date shall be written back.

 c.  If the reschedulement is done for a second/ third time or thereafter, the characteristics of NPA should be continued for eight quarters of regular servicing of the debt. The provision shall be written back only after the asset is reclassified as ‘performing asset’.

9.7.9 Disclosure in the Half Yearly Portfolio Reports

9.7.9.1 Mutual Funds shall make scrip wise disclosures of NPAs on Half Yearly basis along with the Half Yearly Portfolio Disclosure in the format prescribed204.

9.7.9.2 The total amount of provisions made against the NPAs shall be disclosed in addition to the total quantum of NPAs and their proportion to the assets of the Mutual Fund scheme. In the list of investments and asterisk mark shall be given against such investments which are recognized as NPAs. Where the date of redemption of an investment has lapsed, the amount not redeemed shall be shown as ‘Sundry Debtors’ and not investment, provided, that where an investment is redeemable by installments, that will be shown as an investment until all installments have become overdue.

9.8 Investment in Unlisted Equity Shares205

9.8.1 To ensure uniformity in calculation of NAV the following guidelines are issued:

9.8.1.1 Methodology for Valuation unlisted equity shares of a company shall be valued “in good faith” as below:

 a.  Based on the latest available audited balance sheet, Net Worth shall be calculated as the lower of item (1) and (2) below:

  1.  Net Worth per share = [Share Capital + Free Reserves (excluding revaluation reserves) – Miscellaneous expenditure not written off or deferred revenue expenditure, intangible assets and accumulated losses] / Number of Paid up Shares.

 2.   After taking into account the outstanding warrants and options, Net Worth per share shall again be calculated and shall be = [Share Capital + consideration on exercise of Option and/or Warrants received/receivable by the Company + Free Reserves (excluding Revaluation Reserves) – Miscellaneous expenditure not written off or deferred revenue expenditure, intangible assets and accumulated losses] / Number of Paid up Shares plus Number of Shares that would be obtained on conversion and/or exercise of Outstanding Warrants and Options.

 3.   The lower of (1) and (2) above shall be used for calculation of Net Worth per share and for further calculation in (c) below.

 b.  Average capitalisation rate (P/E ratio) for the industry based upon either BSE or NSE data (which shall be followed consistently and changes, if any, noted with proper justification thereof) shall be taken and discounted by 75 per cent. i.e. only 25 per cent of the industry average P/E shall be taken as capitalisation rate (P/E ratio). Earnings per share (EPS) of the latest audited annual accounts will be considered for this purpose.

 c.  The value as per the Net Worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 15 per cent for illiquidity so as to arrive at the fair value per share.

9.8.1.2 The above valuation methodology shall be subject to the following conditions:

 a.  All calculations shall be based on audited accounts.

 b.  If the latest Balance Sheet of the company is not available within nine months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero.

 c.  If the Net Worth of the company is negative, the share would be marked down to zero.

 d.  In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalised earning.

 e.  In case an individual security accounts for more than 5 per cent of the total assets of the scheme, an independent valuer shall be appointed for the valuation of the said security. To determine if a security accounts for more than 5 per cent of the total assets of the scheme, it shall be valued in accordance with the procedure as mentioned above on the date of valuation.

9.8.2 At the discretion of the AMCs and with the approval of the Trustees, unlisted equity shares may be valued at a price lower than the value derived using the aforesaid methodology.

9.8.3 Due Diligence

9.8.3.1 Mutual Funds shall not make Investment in unlisted equity shares at a price higher than the price obtained by using the aforesaid methodology. However, this restriction is not applicable for investment made in the Initial Public Offers (IPOs) of the companies or firm allotment in public issues where all the regulatory requirements and formalities pertaining to public issues have been complied with by the companies and where the Mutual Funds are required to pay just before the date of public issue.

9.8.3.2 The Board of the AMC and Board of Trustees shall lay down the parameters for investing in unlisted equity shares. They shall pay specific attention as to whether due diligence was exercised while making such investments and shall review the performance of such investments in their periodical meetings206.

9.8.4 Reporting of Compliance

9.8.4.1 Comments on compliance of these Guidelines shall be indicated by the AMCs and Trustees in their CTRs207 and Half Yearly Reports208 filed with the Board.

9.9 Valuation of securities not covered under the current valuation policy209:

9.9.1 In case of securities purchased by mutual funds do not fall within the current framework of the valuation of securities then such mutual fund shall report immediately to AMFI regarding the same. Further, at the time of investment AMCs shall ensure that the total exposure in such securities does not exceed 5% of the total AUM of the scheme.

9.9.2 AMFI has been advised that the valuation agencies should ensure that the valuation of such securities gets covered in the valuation framework within six weeks from the date of receipt of such intimation from mutual fund.

9.9.3 In the interim period, till AMFI makes provisions to cover such securities in the valuation of securities framework, the mutual funds shall value such securities using their proprietary model which has been approved by their independent trustees and the statutory auditors.

9.10 Dissemination of information:

9.10.1 All mutual funds shall provide transaction details, including inter scheme transfers, of money market and debt securities on daily basis to the agency entrusted for providing the benchmark yield/ matrix of spread over risk free benchmark yield. Submission of data210 would help in daily matrix generation and would improve uniformity and accuracy of valuation in the mutual funds industry.

9.10.2 The AMCs shall also disclose all details of debt and money market securities transacted (including inter scheme transfers) in its schemes portfolio on its website and the same shall be forwarded to AMFI for consolidation and dissemination as per format211. These disclosures shall be made settlement date wise on daily basis with a time lag of 30 days212.

9.11 Consistency

9.11.1 All AMC’s shall ensure that similar securities held under its various schemes shall be valued consistently.

9.12 The aforesaid valuation would be applicable with effect from August 1, 2010. However, those mutual funds which voluntarily propose to implement the valuation under the aforesaid circular before August 1, 2010 are permitted to do so.

CHAPTER 10

LOADS, FEES, CHARGES AND EXPENSES

10.1 Limits on fees and expenses charged to schemes213

10.1.1 Mutual Funds may charge certain expenses to a scheme, as specified under Regulations.214 Apart from the these expenses, any other expense as may be approved by SEBI under clause (xiii) of Sub Regulation 52(4) can also be charged to the Mutual Fund schemes. Other expenses directly attributable to a scheme may be charged with the approval of trustees within the overall limits as provided in the Regulation 52(6).215

10.1.2 The following expenses cannot be charged to the schemes of Mutual Funds:

10.1.2.1 Penalties and fines for infraction of laws.

10.1.2.2 Interest on delayed payment to the unit holders.

10.1.2.3 Legal, marketing, publication and other general expenses not attributable to any scheme(s).

10.1.2.4 Fund Accounting Fees.

10.1.2.5 Expenses on investment management/general management.

10.1.2.6 Expenses on general administration, corporate advertising and infrastructure costs.

10.1.2.7 Depreciation on fixed assets and software development expenses.

10.1.2.8 Such other costs as may be prohibited by the Board.

10.1.3 The expenditure and/or fee payable by Mutual Funds to the Depositories may either be capitalized or included as part of recurring expenditure within the limits prescribed under Regulation 52(6) of the Mutual Funds Regulations216.

10.1.4 Further, each item of expenditure accounting for more than 10% of total expenditure shall be disclosed in the accounts or the notes thereto of the schemes217.

10.1.5 Provision of charging of additional management fees by the Asset Management Companies in case of schemes launched on no load basis218.

10.1.5.1 AMC shall not collect any additional management fees referred to in Regulation219.

10.1.5.2 Mutual Fund Schemes to be launched including those for which observation letter have been issued under Regulation220 would be required to carry out the changes in SID and file the same with SEBI before the launch.

10.2 Restriction on paying brokerage or commission221

10.2.1 In case of investments made by the Sponsor(s), no brokerage or commission shall be paid.

10.3 Restriction on charging Service Tax222

10.3.1 AMC(s) can charge Service Tax, as per applicable Taxation Laws, to the scheme(s) within the limits prescribed under Regulations223

10.4 Empowering investors through transparency in payment of commission and load structure224

10.4.1 In order to empower investors in deciding the commission paid to distributors in accordance with the level of service received, it has been mandated that:

10.4.1.1 There shall be no entry load225 for all Mutual Fund schemes.

10.4.1.2 The scheme application forms shall carry a suitable disclosure to the effect that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor.

10.4.1.3 Of the exit load or CDSC charged to the investor, a maximum of 1% of the redemption proceeds shall be maintained in a separate account which can be used by the AMC for marketing and selling expenses including distributor’s/ agent’s commissions and any balance shall be credited to the scheme immediately. The load balances are maintained as ‘liabilities’ in the books of the scheme and are not included in the net asset value (NAV). The usage226 of the load account shall be subject to the following:

 a.  The load balance shall be segregated into two accounts in the books of accounts of the scheme – one to reflect the balance as on July 31, 2009 and the other to reflect accretions since August 01, 2009.

 b.  However, not more than one- third of load balance as on July 31, 2009 shall be used in any financial year. It is clarified though the unutilized balances can be carried forward, yet in no financial year the total spending can be more than one third of the load balances on July 31, 2009.

c. The accretions after July 31, 2009 can be used by mutual funds for marketing and selling expenses including distributor’s/agent’s commissions without any restrictions mentioned in Para (b) above.

10.4.1.4 The distributors should disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various Mutual Funds from amongst which the scheme is being recommended to the investor.

10.4.2 The above guidelines became applicable for:

10.4.2.1 Investments in mutual fund schemes (including additional purchases and switch-in to a scheme from other schemes) w.e.f August 1, 2009

10.4.2.2 Redemptions from mutual fund schemes (including switch-out from other schemes) w.e.f August 1, 2009

10.4.2.3 New mutual fund schemes launched on or after August 1, 2009

10.4.2.4 Systematic Investment Plans (SIP) registered on or after August 1, 2009227.

10.4.3 The AMCs are required to bring the contents of these guidelines to the notice of their distributors and monitor compliance.

10.5 Transaction Charges228

10.5.1 A transaction charge per subscription of Rs. 10,000/- and above be allowed to be paid to the distributors of the Mutual Fund products. However, there shall be no transaction charges on direct investments. The transaction charge shall be subject to the following:

10.5.1.1 For existing investors in a Mutual Fund, the distributor may be paid Rs. 100/- as transaction charge per subscription of Rs. 10,000/- and above.

10.5.1.2 As an incentive to attract new investors, the distributor may be paid Rs. 150/- as transaction charge for a first time investor in Mutual Funds.

10.5.1.3 The terms and conditions relating to transaction charge shall be part of the application form in bold print.

10.5.1.4 The transaction charge, if any, shall be deducted by the AMC from the subscription amount and paid to the distributor; and the balance shall be invested.

10.5.1.5 The statement of account shall clearly state that the net investment as gross subscription less transaction charge and give the number of units allotted against the net investment.

10.5.1.6 Distributors shall be able to choose to opt out of charging the transaction charge. However, the ‘opt-out’ shall be at distributor level and not investor level i.e. a distributor shall not charge one investor and choose not to charge another investor.

10.5.1.7 The AMCs shall be responsible for any malpractice/mis-selling by the distributor while charging transaction costs.

10.5.1.8 There shall be no transaction charge on subscription below Rs. 10,000/-

10.5.1.9 In case of SIPs, the transaction charge shall be applicable only if the total commitment through SIPs amounts to Rs. 10,000/- and above. In such cases the transaction charge shall be recovered in 3-4 installments.

10.5.1.10 There shall be no transaction charge on transactions other than purchases/ subscriptions relating to new inflows.

10.5.2 Mutual Funds shall institute systems to detect if a distributor is splitting investments in order to enhance the amount of transaction charges and take stringent action including recommendations to AMFI to take appropriate action.

10.5.3 Mutual Funds/AMCs shall carry out an exercise of de-duplication of folios across all Mutual Funds within a period of 6 months from August 22, 2011.

10.5.4 The upfront commission229 to distributors shall continue to be paid by the investor directly to the distributor by a separate cheque based on his assessment of various factors including the service rendered by the distributor.

10.6 No Load on Bonus Units and Units allotted on Reinvestment of Dividend230

AMC(s) shall not charge entry and/or exit load on bonus units and units allotted on reinvestment of dividend. Necessary disclosures in this regard shall be made in the SID filed with the Board231

10.7 Filing fees 232

10.7.1 Revised filing fee233 as per the SEBI (Payment of Fees) Amendment Regulations 2009 would be applicable to those scheme(s) whose SID has been filed with SEBI on or after July 01, 2009.

10.8 Exit load parity

10.8.1 While charging exit loads, no distinction among unit holders should be made based on the amount of subscription234. While complying with the same, Mutual Funds should ensure that “any imposition or enhancement in the load shall be applicable on prospective investments only.235

10.8.2 Further, the parity among all classes of unit holders in terms of charging exit load shall be made applicable at the portfolio level.236

CHAPTER 11

DIVIDEND DISTRIBUTION PROCEDURE237, 238

11.1 Regulations239 permit Mutual Funds to distribute returns including dividend. To introduce uniform practices in dividend distribution, the following guidelines should be followed:

11.2 These guidelines are applicable to all Mutual Fund schemes/plans which intend to declare the dividend irrespective of their dates of launch.240

11.2.1 Unlisted Scheme(s)/ Plan(s)

11.2.1.1 The Trustees shall decide the quantum of dividend and the record date in their meeting241. Dividend so decided, shall be paid, subject to availability of distributable surplus.

11.2.1.2 Record date shall be the date which will be considered for the purpose of determining the eligibility of investors whose names appear on the register of unit holders for receiving dividends. The NAV shall be adjusted to the extent of dividend distribution and statutory levy, if applicable, at the close of business hours on record date.

11.2.1.3 Within one calendar day of the decision of the Trustees with respect to the dividend to be distributed, the AMC(s) shall issue a notice to the public communicating the decision including the record date. The record date shall be five calendar days from the issue of public notice.

11.2.1.4 Before the issue of such notice, no communication whatsoever indicating the probable date of dividend declaration shall be issued by any Mutual Fund or its distributors of its products.

11.2.1.5 Such notice shall be given in at least one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the head office of the Mutual Fund is situated.

11.2.1.6 The notice shall, in font size 10, bold, categorically state that pursuant to dividend distribution, NAV of the scheme would fall to the extent of payout and statutory levy (if applicable).

11.2.2 Liquid/Debt Schemes with frequent dividend distribution

11.2.2.1 The requirement of giving notice is not mandatory for scheme(s)/ plan(s)/ option(s) with dividend distribution frequency ranging from daily up to monthly distribution if requisite disclosures in this regard are made in the SID.

11.2.3 Listed Schemes/Plans

11.2.3.1 Listed scheme(s)/ plan(s) shall follow the requirements stipulated in the Listing Agreement for dividend declaration and distribution.

11.3 Non-availability of Unit Premium Reserve for dividend distribution242

11.3.1 Regulations243 provide the accounting policies to be followed for determining distributable surplus and accounting the sale and repurchase of units in the books of the Mutual Fund. The format for Scheme Balance Sheet (including Abridged) provides for disclosure of Unit Premium Reserve.

11.3.2 Unit Premium Reserve, which is part of the sales price of units that is not attributable to realized gains, cannot be used to pay dividend. Therefore:

11.3.2.1 When units of an open-ended scheme are sold, and sale price is higher than face value of the unit, part of sale proceeds that represents unrealised gains shall be credited to a separate account (Unit Premium Reserve) and shall be treated at par with unit capital and the same shall not be utilized for the determination of distributable surplus.

11.3.2.2 When units of an open-ended scheme are sold, and sale price is less than face value of the unit, the difference between the sale price and face value shall be debited to distributable reserves and the dividend can be declared only when distributable reserves become positive after adjusting the amount debited to reserves as per Regulations244.

CHAPTER 12

INVESTMENT BY SCHEMES245

12.1 Investments by Index Funds:246

12.1.1 Investments by index funds shall be in accordance with the weightage of the scrips in the specific index as disclosed in the SID247 In case of sector or industry specific scheme, the upper ceiling on investments may be in accordance with the weightage of the scrips in the representative sectoral index or sub index as disclosed in the SID or 10% of the NAV of the scheme, whichever is higher.

12.2 Investments by Liquid Schemes and plans248

12.2.1 The ‘liquid fund schemes and plans’ shall make investment in /purchase debt and money market securities with maturity of upto 91 days only 249. This shall also be applicable in case of inter scheme transfer of securities 250

12.2.1.1 Explanation:

 a.  In case of securities where the principal is to be repaid in a single payout the maturity of the securities shall mean residual maturity. In case the principal is to be repaid in more than one payout then the maturity of the securities shall be calculated on the basis of weighted average maturity of security.

 b.  In case of securities with put and call options (daily or otherwise) the residual maturity of the securities shall not be greater than 91 days 251

 c.  In case the maturity of the security falls on a non-business day then settlement of securities will take place on the next business day.

12.2.2 The above requirements shall be disclosed in the SID and shall form part of the investment allocation pattern. Any deviation from these requirements shall be viewed as violation of investment restrictions.

12.3 Investments by close ended debt schemes:

12.3.1 Close ended debt schemes shall invest only in such securities which mature on or before the date of the maturity of the scheme252

12.4 Stock Lending Scheme253

12.4.1 The following guidelines are issued to facilitate lending of securities by Mutual Funds through intermediaries approved by the Board in accordance with the Stock Lending & Borrowing Scheme.254

12.4.2 Disclosure Requirements

12.4.2.1 The following information shall be disclosed in the SID to enable the investors and unit holders to take an informed decision:

 a.  Intention to lend securities belonging to a particular Mutual Fund scheme in accordance with the guidelines on securities lending and borrowing scheme issued by SEBI from time to time.255

 b.  Exposure limit with regard to securities lending, both for the scheme as well as for a single intermediary.

 c.  Risks factors such as loss, bankruptcy etc. associated with such transactions.

12.4.3 Reporting Requirement

12.4.3.1 The AMC(s) shall report to the Trustees on a quarterly basis about the level of lending, in terms of value, volume and intermediaries and also earnings and/or losses, value of collateral security etc.

12.4.3.2 The Trustees shall periodically review the securities lending contract and take reasonable steps to ensure that the same is not, in any way, detrimental to the interests of the unit holders of the scheme.

12.4.3.3 The Trustees shall offer their comments on the above aspects in the Half Yearly Trustee Report filed with the Board.256

12.4.4 Existing schemes

12.4.4.1 In case an existing SID does not provide for lending of securities, Mutual Funds may still lend securities belonging to the scheme, in accordance with the SEBI Guidelines, provided approval is obtained from the Trustees and the intention to lend securities is conveyed to the unit holders.

12.5 Approval for Investment in Unrated Debt Instruments257

12.5.1 Mutual Funds may, for the purpose of operational flexibility, constitute committees to approve investment proposals in unrated instruments. However, detailed parameters for investment in unrated debt instruments have to be approved by the Board of the AMC and Trustees. Details of such investments shall be communicated by the AMCs to the Trustees in their periodical reports, along with clear indication as to how the parameters set for investments have been complied with. Prior approval of the Board of the AMC and Trustees shall be required in case investment is sought to be made in an unrated security falling outside the prescribed parameters.

12.6 Investments in Units of Venture Capital Funds258

12.6.1 Mutual Fund schemes can invest in listed or unlisted securities or units of Venture Capital Funds within the prescribed investment limits as applicable.259

12.7 Investment limits for Government guaranteed debt securities260

12.7.1 Prudential investment norms as per Regulations stipulating limits for investments in debt securities261 issued by a single issuer are applicable to all debt securities issued by public bodies or institutions such as electricity boards, municipal corporations, state transport corporations etc. guaranteed by either State/Central Government. Government securities issued by Central and/or State Government or on its behalf, by the RBI are however exempt from these limits.

12.8 Investment Restrictions for Securitised Debt262

12.8.1 For investments made in Securitised Debt (mortgage backed securities and asset backed securities), restrictions as per Clause 1 of Seventh Schedule263 shall not apply at the originator level.

12.9 Investments in Short Term Deposits of Scheduled Commercial Banks264

12.9.1 The guidelines for deployment of funds in short term deposits of commercial banks for schemes are as under:

12.9.1.1 “Short Term” for parking of funds by Mutual Funds shall be treated as a period not exceeding 91 days.265

12.9.1.2 Such deposits shall be held in the name of the concerned scheme.

12.9.1.3 Mutual Funds shall not park more than 15% of their net assets in short term deposits of all scheduled commercial banks put together. This limit however may be raised to 20% with prior approval of the Trustees. Also, parking of funds in short term deposits of associate and sponsor scheduled commercial banks together shall not exceed 20% of the total deployment by the Mutual Fund in short term deposits.

12.9.1.4 Mutual Funds shall not park more than 10% of the net assets in short term deposits with any one scheduled commercial bank including its subsidiaries.

12.9.1.5 Trustees shall ensure that funds of a particular scheme are not parked in short term deposit of a bank which has invested in that scheme.

12.9.1.6 In case of liquid and debt oriented schemes, AMC(s) shall not charge any investment management and advisory fees for parking of funds in short term deposits of scheduled commercial banks.

12.9.1.7 Half Yearly portfolio statements shall disclose all funds parked in short term deposit(s) under a separate heading. Details shall also include name of the bank, amount of funds parked, percentage of NAV.

12.9.1.8 Trustees shall, in the Half Yearly Trustee Reports certify that provisions of the Mutual Funds Regulations pertaining to parking of funds in short term deposits pending deployment are complied with at all points of time. The AMC(s) shall also certify the same in its CTR(s).

12.9.1.9 Investments made in short term deposits pending deployment of funds266 shall be recorded267 and reported to the Trustees including the reasons for the investment especially comparisons with interest rates offered by other scheduled commercial banks.268

12.9.1.10 Except for clause (12.9.1.7) the above guidelines shall not apply to term deposits placed as margins for trading in cash and derivatives market269. However, duration of such term deposits shall be disclosed in the Half Yearly Portfolio270.

12.10 Reconciliation Procedure for Investment in Government Securities271

12.10.1 According to the RBI guidelines272 issued to all SGL account holders, to make transactions in government securities transparent, a monthly reconciliation system has been introduced between RBI and Mutual Funds maintaining SGL/CSGL accounts with respect to Government Securities on an ongoing basis.

12.10.2 Mutual Funds shall reconcile the balances reported in the monthly statements furnished by RBI with the transactions undertaken by them.

12.10.3 The reconciliation procedure shall be made part of internal audit and the auditors shall on a continuous basis, check the status of reconciliation and submit a report to the Audit Committee. These reports shall be placed in the meetings of the Board of the AMC and Trustees. Mutual Funds shall submit, on a quarterly basis to the RBI, a certificate confirming compliance with these requirements and any other guidelines issued by the RBI from time to time in this regard. Compliance shall also be reported to the Board in the CTRs of AMC(s) and Half Yearly Trustee Reports.

12.11 Participation of mutual funds in repo in corporate debt securities273

12.11.1 Mutual funds can participate in repos in corporate debt securities as per the guidelines issued by RBI from time to time, subject to the following conditions:

12.11.1.1 The gross exposure of any mutual fund scheme to repo transactions in corporate debt securities shall not be more than 10 % of the net assets of the concerned scheme.

12.11.1.2 The cumulative gross exposure through repo transactions in corporate debt securities along with equity, debt and derivatives shall not exceed 100% of the net assets of the concerned scheme.

12.11.1.3 Mutual funds shall participate in repo transactions only in AAA rated corporate debt securities.

12.11.1.4 In terms of Regulation 44 (2) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, mutual funds shall borrow through repo transactions only if the tenor of the transaction does not exceed a period of six months.

12.11.1.5 The Trustees and the Asset Management Companies shall frame guidelines about, inter alia, the following in context of these transactions keeping in mind the interest of investors in their schemes:

 a.  Category of counterparty

 b.  Credit rating of counterparty

 c.  Tenor of collateral

 d.  Applicable haircuts

12.11.1.6 Mutual funds shall ensure compliance with the Seventh Schedule of the Mutual Funds Regulations about restrictions on investments, wherever applicable, with respect to repo transactions in corporate debt securities.

12.11.1.7 The details of repo transactions of the schemes in corporate debt securities, including details of counterparties, amount involved and percentage of NAV shall be disclosed to investors in the half yearly portfolio statements and to SEBI in the half yearly trustee report.

12.11.1.8 To enable the investors in the mutual fund schemes to take an informed decision, the concerned Scheme Information Document shall disclose the following:

 a.  The intention to participate in repo transactions in corporate debt securities in accordance with directions issued by RBI and SEBI from time to time;

 b.  The exposure limit for the scheme; and

 c.  The risk factors associated with repo transactions in corporate bonds

12.12 Overseas Investment274

12.12.1 Applicable limits:

12.12.1.1 Aggregate ceiling for overseas investments is US $ 7 billion275 and within this overall limit, Mutual Funds can make overseas investments subject to a maximum of US $ 300 million per Mutual Fund.

12.12.1.2 Aggregate ceiling for investment by Mutual Funds in overseas Exchange Traded Fund (ETF(s)) that invest in securities is US $ 1 billion subject to a maximum of US $ 50 million per Mutual Fund.

12.12.2 Permissible investments:

12.12.2.1 ADR(s) and/or GDR(s) issued by Indian or foreign companies.

12.12.2.2 Equity of overseas companies listed on recognized Stock Exchanges overseas.

12.12.2.3 Initial and Follow on Public Offerings for listing at recognized Stock Exchanges overseas.

12.12.2.4 Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies.

12.12.2.5 Money Market Instruments rated not below investment grade.

12.12.2.6 Repos in form of investment, where the counterparty is rated not below investment grade; repo shall not however involve any borrowing of funds by Mutual Funds.

12.12.2.7 Government securities where the countries are rated not below investment grade.

12.12.2.8 Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities.

12.12.2.9 Short term deposits with banks overseas where the issuer is rated not below investment grade.

12.12.2.10 Units/securities issued by overseas Mutual Funds or unit trusts registered with overseas regulators and investing in

 a.  Aforesaid Securities

 b.  Real Estate Investment Trusts listed on recognized Stock Exchanges overseas or

 c.  Unlisted overseas securities, not exceeding 10% of their net assets

12.12.3 Other Conditions:

12.12.3.1 Apart from the Mutual Funds Regulations and guidelines issued from time to time, Mutual Funds shall adhere to the following specific guidelines while making overseas investments:

12.12.3.2 Appointment of a Dedicated Fund Manager:

 a.  A dedicated fund manager shall be appointed for making the above overseas investments stipulated under clause 12.12.2.1 to 12.12.2.9.

12.12.3.3 Due Diligence:

 a.  The Board of the AMC and Trustees shall exercise due diligence in making investment decisions and record the same.276 They shall make a detailed analysis of risks and returns of overseas investment and how these investments would be in the interest of investors. Investment shall be made in liquid actively traded securities/instruments.

 b.  The Board of the AMC and Trustees may prescribe detailed parameters for making such investments which may include identification of countries, country rating, country limits etc. They shall satisfy themselves that the AMC has experienced key personnel, research facilities and infrastructure for making such investments. Other specialized agencies and service providers associated with such investments e.g. custodian, bank, advisors etc. shall also have adequate expertise and infrastructure facilities. Their past track record of performance and regulatory compliance record, if they are registered with foreign regulators, should also be considered. Necessary agreements may be entered into with them as required.

12.12.3.4 Mandatory Disclosure Requirements for Mutual Fund schemes proposing overseas investments:

 a.  Intention to invest in foreign securities and/or ETF(s) shall be disclosed in the SID. The attendant risk factors and returns ensuing from such investments shall be explained clearly in the SID. Mutual Funds shall also disclose as to how such investments will help in the furtherance of the investment objectives of the scheme(s). Such disclosures shall be in a language comprehensible to an average investor

 b.  Mutual Funds shall disclose the name of the Dedicated Fund Manager for making overseas investments as stipulated under paragraph 12.12.3.2 above.

 c.  Mutual Funds shall disclose exposure limits i.e. the percentage of assets of the scheme they would invest in foreign securities/ETF(s).

 d.  Such investments shall be disclosed while disclosing Half Yearly portfolios in the prescribed format under a separate heading “Foreign Securities and/or overseas ETF(s).” Scheme wise percentage of investments made in such securities shall be disclosed while publishing Half Yearly Results in the prescribed format277 as a footnote.

12.12.3.5 Investment by Existing Schemes:

 a.  Existing schemes of Mutual Funds where the SID provides for investment in foreign securities and attendant risk factors but which have not yet invested, may invest in foreign securities, consistent with the investment objectives of the schemes, provided a Dedicated Fund Manager has been appointed as stipulated in paragraph 12.12.3.2. Additional disclosures specified above shall be included by way of addendum and unit holders will be informed accordingly.

 b.  In case the SID of an existing scheme does not provide for overseas investment, the scheme, if it so desires, may make such investments in accordance with these Guidelines, provided that prior to the overseas investments for the first time, the AMC shall ensure that a written communication about the proposed investment is sent to each unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated. The communication to unit holders shall also disclose the risk factors associated with such investments.

12.12.3.6 Detailed periodic reporting to Trustees by AMC(s) shall include:

 a.  Performance of overseas investments

 b.  Amount invested in various schemes and any breach of the exposure limit laid down in the SID.

12.12.3.7 Review of Performance:

 a.  The Board of the AMC and Trustees shall review the performance of schemes making overseas investments with appropriate benchmark(s) as disclosed in the SID.

12.12.3.8 Reporting to the Board:

 a.  The Trustees shall offer their comments on the compliance of these guidelines in the Half Yearly Reports filed with the Board.

12.12.3.9 Prudential Investment Norms:

 a.  Investment restrictions specified in Schedule Seven of the Mutual Funds Regulations are applicable to overseas investments stipulated under paragraph 12.12.2.1- 12.12.2.9

 b.  However, Clause 4 of the Seventh Schedule of the Mutual Funds Regulations that restricts investments in Mutual Fund units up to 5% of net assets and prohibits charging of fees, shall not be applicable to investments in Mutual Funds in foreign countries made in accordance with these Guidelines.

 c.  Management fees and other expenses charged by the Mutual Funds in foreign countries along with the management fee and recurring expenses charged to the domestic Mutual Fund scheme shall not exceed the total limits on expenses as prescribed under Regulation 52(6) of the Mutual Funds Regulations. Where the scheme is investing only a part of the net assets in overseas Mutual Funds, the same principle shall be applicable for that part of investment. Details of calculation for charging such expenses shall be reported to the Board of the AMC and the Trustees and shall also be disclosed in the Annual Report of the scheme

 d.  The application278 for seeking approval for investing in foreign securities, ADR/GDR/overseas ETF(s) shall be made in advance of making investments. On receipt of approval from the Board, intimation may be sent by the AMC(s) to Overseas Investment Division, Foreign Exchange Department, RBI.

12.13 Investments in Indian Depository Receipts (IDRs)279

12.13.1 Mutual funds can invest in Indian Depository Receipts280 [Indian Depository Receipts as defined in Companies (Issue of Indian Depository Receipts) Rules, 2004] subject to compliance with SEBI (Mutual Funds) Regulations 1996 and guidelines issued there under, specifically investment restrictions as specified in the Seventh Schedule of the Regulations.

12.14 Investment Restrictions281

12.13.1 All investment restrictions as contained in the Regulations282 shall be applicable at the time of making investment.

12.15 Recording of Investment Decisions283

12.15.1 AMC(s) shall exercise due diligence and care in all investment decisions as would be exercised by other persons engaged in the same business.284 Further AMC(s) shall maintain records in support of each investment decision which will indicate data, facts and opinion leading to that decision. While broad parameters for investments can be prescribed by the Board of Directors of the AMC, the basis for taking individual scrip wise investment decision in equity and debt securities shall be recorded. A detailed research report analyzing various factors for each investment decision taken for the first time shall be maintained and the reasons for subsequent purchase and sales in the same scrip shall also be recorded. The contents of the research reports may be decided by the AMC(s) and the Trustees.

12.15.2 The Board of the AMC shall develop a mechanism to verify that due diligence is being exercised while making investment decisions especially in cases of investment in unlisted and privately placed securities, unrated debt securities, NPAs, transactions where associates are involved and instances where the performance of the scheme(s) is poor.

12.15.3 AMC(s) shall report compliance with these requirements in their periodical reports to the Trustees and the Trustees shall report the same to the Board in the Half Yearly Trustee Reports285. Trustees shall also check compliance with these Guidelines through independent auditors or internal and/or statutory auditors or other systems developed by them.

12.16 Norms for investment and disclosure by Mutual Funds in derivatives286

12.16.1 Exposure Limits

12.16.1.1 The cumulative gross exposure through equity, debt and derivative positions should not exceed 100% of the net assets of the scheme.

12.16.1.2 Mutual Funds shall not write options or purchase instruments with embedded written options.

12.16.1.3 The total exposure related to option premium paid must not exceed 20% of the net assets of the scheme.

12.16.1.4 Cash or cash equivalents with residual maturity of less than 91 days may be treated as not creating any exposure.

12.16.1.5 Exposure due to hedging positions may not be included in the above mentioned limits subject to the following:

 a.  Hedging positions are the derivative positions that reduce possible losses on an existing position in securities and till the existing position remains.

 b.  Hedging positions cannot be taken for existing derivative positions. Exposure due to such positions shall have to be added and treated under limits mentioned in Point 12.16.1.1.

 c.  Any derivative instrument used to hedge has the same underlying security as the existing position being hedged.

 d.  The quantity of underlying associated with the derivative position taken for hedging purposes does not exceed the quantity of the existing position against which hedge has been taken.

12.16.1.6 Mutual Funds may enter into plain vanilla interest rate swaps for hedging purposes. The counter party in such transactions has to be an entity recognized as a market maker by RBI. Further, the value of the notional principal in such cases must not exceed the value of respective existing assets being hedged by the scheme. Exposure to a single counterparty in such transactions should not exceed 10% of the net assets of the scheme.

12.16.1.7 Exposure due to derivative positions taken for hedging purposes in excess of the underlying position against which the hedging position has been taken, shall be treated under the limits mentioned in point 12.16.1.1.

Definition of Exposure in case of Derivative Positions

12.16.1.8 Each position taken in derivatives shall have an associated exposure as defined under. Exposure is the maximum possible loss that may occur on a position. However, certain derivative positions may theoretically have unlimited possible loss. Exposure in derivative positions shall be computed as follows:

Position Exposure
Long Future Futures Price * Lot Size * Number of Contracts
Short Future Futures Price * Lot Size * Number of Contracts
Option bought Option Premium Paid * Lot Size * Number of Contracts.

12.16.1.9 The provisions shall be applicable for all new schemes launched post the issue of the aforementioned guidelines. For all existing schemes, compliance with the guidelines shall be effective from October 01, 2010.

12.17 Interval Schemes/Plans287

12.17.1 Certain SIDs provide that the subscription to the scheme can be made during a specific period (known as specified transaction period) and the repurchase of units is permitted on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged). These schemes are generally referred to as ‘interval schemes’.

12.17.2 For all interval schemes/plans288:

12.17.2.1 The units shall be mandatorily listed.

12.17.2.2 No redemption/repurchase of units shall be allowed except during the specified transaction period (the period during which both subscription and redemption may be made to and from the scheme). The specified transaction period shall be of minimum 2 working days.

12.17.2.3 Minimum duration of an interval period in an interval scheme/plan shall be 15 days.

12.17.2.4 Investments shall be permitted only in such securities which mature on or before the opening of the immediately following specified transaction period.

 a.  Explanation:

In case of securities with put and call options the residual time for exercising the put option of the securities shall not be beyond the opening of the immediately following transaction period.

CHAPTER 13

ADVERTISEMENTS289

13.1 Advertisement shall be in terms of Sixth Schedule290.

13.2 In addition to the provisions of the Sixth Schedule, mutual funds shall comply with the following:291

13.2.1 While advertising pay out of dividends, all advertisements shall disclose the dividends declared or paid in rupees per unit along with the face value of each unit of that scheme and the prevailing NAV at the time of declaration of the dividend.

13.2.2 Impact of Distribution Taxes: While advertising returns by assuming reinvestment of dividends, if distribution taxes are excluded while calculating the returns, this fact shall also be disclosed.

13.2.3 Pay out of Dividend/Bonus: While advertising pay outs, all advertisements shall disclose, immediately below the pay out figure (in percentage or in absolute terms) that the NAV of the scheme, pursuant to pay out would fall to the extent of payout and statutory levy (if applicable).

13.3 Transparency of Information292

13.3.1 When the scheme has been in existence for more than three years:

13.3.1.1 Point-to-point returns on a standard investment of Rs. 10,000/-shall also be shown in addition to CAGR for a scheme in order to provide ease of understanding to retail investors.

13.3.1.2 Performance advertisement shall be provided since inception and for as many twelve month periods as possible for the last 3 years, such periods being counted from the last day of the calendar quarter preceding the date of advertisement, along with benchmark index performance for the same periods.

13.3.2 Where scheme has been in existence for more than one year but less than three years, performance advertisement of scheme(s) shall be provided for as many as twelve month periods as possible, such periods being counted from the last day of the calendar quarter preceding the date of advertisement, alongwith benchmark index performance for the same periods.

13.3.3 Where the scheme has been in existence for less than one year, past performance shall not be provided.

13.3.4 In case of Money Market schemes or cash and liquid schemes293, wherein investors have very short investment horizon, the performance can be advertised by simple annualisation of yields if a performance figure is available for at least 7 days, 15 days and 30 days provided it does not reflect an unrealistic or misleading picture of the performance or future performance of the scheme.

13.3.5 For the sake of standardization, a similar return in INR and by way of CAGR must be shown for the following apart from the scheme benchmarks:

Scheme Type Benchmark
Equity Scheme Sensex or Nifty
Long term debt scheme 10 year dated GOI security
Short term debt fund 1 year T-bill

These disclosures shall form a part of the Statement of Additional Information and all advertisements of Mutual Funds.

13.3.6 Any disclosure regarding quarterly/half yearly/yearly performance shall pertain to respective calendar quarterly/half yearly/yearly only.

13.3.7 When the performance of a particular Mutual Fund scheme is advertised, the advertisement shall also include the performance data of all the other schemes managed by the fund manager of that particular scheme.

In case the number of schemes managed by a fund manager is more than six, then the AMC may disclose the total number of schemes managed by that fund manager along with the performance data of top 3 and bottom 3 schemes (in addition to the performance data of the scheme for which the advertisement is being made) managed by that fund manager in all performance related advertisement. However, in such cases AMCs shall ensure that true and fair view of the performance of the fund manager is communicated by providing additional disclosures, if required.

13.4 Indicative portfolios and yields in mutual funds schemes294

13.4.1 Mutual Funds shall not offer any indicative portfolio and indicative yield. No communication regarding the same in any manner whatsoever shall be issued by any Mutual Fund or distributors of its products. The compliance of the same shall be monitored by the AMC and Trustees and reported in their respective reports to SEBI.

13.4.2 Indicative portfolio or yield in close ended debt oriented mutual fund schemes295

Mutual Funds (MFs)/AMCs may make following additional disclosures in the SID/SAI and KIM without indicating the portfolio or yield, directly or indirectly:

13.4.2.1 MFs/AMCs shall disclose their credit evaluation policy for the investments in debt securities.

13.4.2.2 MFs/AMCs shall also disclose the list of sectors they would not be investing.

13.4.2.3 MFs shall disclose the type of instruments which the schemes propose to invest viz. CPs, CDs, Treasury bills etc

13.4.2.4 MFs shall disclose the floors and ceilings within a range of 5% of the intended allocation (in %) against each sub asset class/credit rating. For example, it may be disclosed that x-y % would be in AAA rated bank CD as per the sample matrix below:

13.4.2.5 After the closure of NFO, the AMCs will report in the next meeting of AMCs and Trustees the publicized percentage allocation and the final portfolio. Variations between indicative portfolio allocation and final portfolio will not be permissible.

CHAPTER 14

INVESTOR RIGHTS & OBLIGATIONS

PART I – INVESTOR RIGHTS

14.1 Payment of interest for delay in dispatch of redemption and/or repurchase proceeds and/or dividend296

14.1.1 In the event of failure to dispatch:

 a.  Redemption or repurchase proceeds within 10 working days from the date of receipt of such requests and/or

 b.  Dividend within the stipulated 30 day period297,

14.1.2 The AMC(s) shall be liable to pay interest @ 15 per cent per annum to the unit holders.298 AMC(s) must ensure that the interest amount due for the period of delay in dispatch of repurchase or redemption and/or dividend is added to the proceeds when such payments are made to the investors. Such interest shall be borne by the AMC(s).

14.1.3 Details of such payments shall be sent to the Board along with the CTR(s).299 Investors shall also be informed about the rate and amount of interest paid to them. Non compliance with these directions may invite action under the Mutual Funds Regulations.

14.2 Unclaimed Redemption Amount300

14.2.1 Unclaimed redemption and dividend amounts may be deployed by Mutual Funds in Call Money Market or Money Market instruments, as may be permitted by RBI from time to time.

14.2.2 Investors claiming these amounts within three years from the due date shall be paid at the prevailing NAV. At the end of three years, the amount can be transferred to a pool account and investors can claim the amount at the NAV prevailing at the end of the third year.

14.2.3 Income earned on such funds can be used for the purpose of investor education.

14.2.4 The AMC shall make a continuous effort to remind the investors through letters to take their unclaimed amounts.

14.2.5 The investment management and advisory fee charged by the AMC for managing unclaimed amounts shall not exceed 50 basis points.

14.2.6 Disclosures on above provisions shall be made in the SAI/SID. Disclosure on the unclaimed amounts and the number of such investors for each scheme shall be made in the Annual Report also.301

14.3 Dispatch of Statement of Accounts302

14.3.1 AMCs shall allot the units to the applicant whose application has been accepted and also send confirmation specifying the number of units allotted to the applicant by way of email and/or SMS’s to the applicant’s registered email address and/or mobile number as soon as possible but not later than five working days from the date of closure of the initial subscription list and/or from the date of receipt of the request from the unitholders.

14.3.2 Consolidated Account Statement303

14.3.2.1 As per regulation304, AMCs shall issue consolidated account statement for each calendar month to the investors in whose folios transaction(s) has/have taken place during that month.

14.3.3 Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) or Systematic Withdrawal Plan (SWP)305

 a.  Mutual Funds may dispatch the Statement of Accounts to the unit holders under SIP or STP or SWP, once every quarter ending March, June, September and December within 10 working days of the end of the respective quarter. The first Statement of Accounts shall however be issued within 10 working days of the initial transaction.

 b.  Mutual funds shall also provide Statement of Accounts to unit holders within 5 working days, without any charges, if specific requests are received from the investors. Further, if so mandated, a soft copy of the Statement of Accounts shall be e-mailed to the unit holders on a monthly basis.

14.3.4 Dormant Accountholders

14.3.4.1 Mutual Funds shall also provide Statement of Accounts to those unit holders who have not transacted during the last six months prior to the date of generation of the Statement of Accounts. In such cases, the Statement of Accounts may be issued along with the scheme’s Portfolio Statement or Annual Report and should reflect the last closing balance and value of the units prior to the date of generation of the Statement of Accounts. Further, if so mandated, a soft copy of the Statement of Accounts shall be e-mailed to the unit holders instead of a physical statement.

14.4 AMC’s Annual Reports for unitholders306

14.4.1 The annual report containing accounts of the AMCs should be displayed on the website of Mutual Fund. It should also be mentioned in the Annual Report of Mutual Funds schemes that the unitholders, if they so desire may request for the Annual Report of the AMC.

14.5 Distribution of Proceeds realized from illiquid securities/NPAs307

14.5.1 Some of the investments made by Mutual Funds may become non-performing assets (NPAs) or illiquid at the time of maturity/winding up of the scheme(s). In due course of time i.e. after the maturity/winding up of the scheme(s), these NPAs and illiquid securities may be realized by the Mutual Funds. Mutual Funds shall distribute such amounts to the old investors if such amounts are substantial and realized within two years. If the amounts realized are not substantial or are realized after two years, the same may be transferred to the Investor Education Fund maintained by each Mutual Fund. The decision as to the determination of substantial amount shall be taken by the trustees of mutual funds after considering the relevant factors.

14.6 Change of Mutual Fund Distributor

14.6.1 Incase an investor wishes to change his distributor or wishes to go direct, Mutual Funds/AMC’s shall ensure compliance with the instruction of the investor informing his desire to change his distributor and/or go direct, without compelling that investor to obtain a ‘No Objection Certificate’ from the existing distributor.308

14.7 Additional mode of payment through Applications Supported by Blocked Amount (hereinafter referred to as “ASBA”) in Mutual Funds309

14.7.1 ASBA facility which investors have been enjoying for subscription to public issue of equity capital of companies has been extended to the investors subscribing to New Fund Offers (NFOs) of mutual fund schemes. It shall co-exist with the current process, wherein cheques/demand drafts are used as a mode of payment.

14.7.2 The banks which are in SEBI’s list shall extend the same facility in case of NFOs of mutual fund schemes to all eligible investors in Mutual Fund units.

14.7.3 Mutual Funds shall ensure that adequate arrangements are made by Registrar and Transfer Agents for the implementation of ASBA.

Mutual Funds/AMCs shall make all relevant disclosures in this regard in the SAI.

14.7.4 SEBI circulars310 related to ASBA shall be followed to the extent applicable.

14.7.5 The Mutual Funds/AMCs have to compulsorily provide ASBA facility to the investors for all NFOs launched on or after October 1, 2010.

PART II – INVESTOR’S OBLIGATIONS

14.8 Mandatory mentioning of PAN Number311

14.8.1 14.7.1 For, the requirement of mentioning PAN Number by investors of mutual fund schemes, the applicable SEBI guidelines may be referred312

14.9 Mandatory mentioning of Bank Account by Investors313

14.9.1 It shall be mandatory for the investors of the Mutual Funds schemes to mention their bank account numbers in their applications/request for redemption. For this purposes Mutual Funds shall provide space in applications and redemption request forms.

PART III– INVESTOR EDUCATION

14.10 SEBI Investors Education Programme – Investments in Mutual Funds314

14.10.1 Board has prepared a brochure in question-answer format explaining the fundamental issues pertaining to mutual funds. The same is enclosed at Annexure 5. The same is also available at our website www.sebi.gov.in under the “Mutual Funds” section.

14.10.2 AMCs are advised to circulate copies of the brochure among their distributors and agents (including brokers, banks, post offices) and the investors.

14.10.3 AMCs may publish the same as small booklets. In such a case, while the booklets must bear SEBI name and logo, AMC may give their name as publisher. This may also be displayed prominently on their web sites

14.10.4 AMFI may consider including the brochure as a part of study material for their training programmes for investors and for their certification programme conducted for agents and distributors.

14.10.5 Board may be kept informed about the steps taken by the AMCs in this regard from time to time.

CHAPTER 15

CERTIFICATION AND REGISTRATION OF INTERMEDIARIES315,316

15.1 No Mutual Fund shall deal with any intermediary (i.e. distributors, agents, brokers, sub brokers or called by any other name, whether individuals or belonging to any other organization structure) in relation to selling and marketing of Mutual Fund units unless they have cleared the certification examination.

15.2 No Mutual Fund shall engage/employ employee(s) interacting with investors (i.e. those working in investors relations, call centers, employees engaged in sales and marketing etc) unless they have cleared the certification examination.

15.3 Further, such intermediaries and employees shall also adhere to the Guidelines specified by the Board and AMFI.317

15.4 Distributors of Mutual Fund products318

15.4.1 The AMCs shall regulate the distributors by putting in place a due diligence process as follows:

15.4.1.1 The due diligence of distributors is solely the responsibility of mutual funds/AMCs. This responsibility shall not be delegated to any agency. However, mutual funds/AMCs may take assistance of an agency of repute while carrying out due diligence process of distributors. 319

15.4.1.2 The due diligence process shall be initially applicable for distributors satisfying one or more of the following criteria:

 a.  Multiple point presence (More than 20 locations)

 b.  AUM raised over Rs. 100 Crore across industry in the non institutional category but including high networth individuals (HNIs)

 c.  Commission received of over Rs. 1 Crore p.a. across industry

 d.  Commission received of over Rs. 50 Lakh from a single Mutual Fund

15.4.1.3 At the time of empanelling distributors and during the period i.e. review process, Mutual Funds/AMCs shall undertake a due diligence process to satisfy ‘fit and proper’ criteria that incorporate, amongst others, the following factors:

 a.  Business model, experience and proficiency in the business.

 b.  Record of regulatory/statutory levies, fines and penalties, legal suits, customer compensations made; causes for these and resultant corrective actions taken.

 c.  Review of associates and subsidiaries on above factors.

 d. Organizational controls to ensure that the following processes are delinked from sales and relationship management processes and personnel:

 1.  Customer risk/investment objective evaluation.

 2.  MF scheme evaluation and defining its appropriateness to various customer risk categories.

15.4.1.4 In this respect, customer relationship and transactions shall be categorized as:

(a) Advisory – where a distributor represents to offer advice while distributing the product, it will be subject to the principle of ‘appropriateness’ of products to that customer category. Appropriateness is defined as selling only that product categorization that is identified as best suited for investors within a defined upper ceiling of risk appetite. No exception shall be made.

(b) Execution Only – in case of transactions that are not booked as ‘advisory’, it shall still require:

  i.  The distributor has information to believe that the transaction is not appropriate for the customer, a written communication be made to the investor regarding the unsuitability of the product. The communication shall have to be duly acknowledged and accepted by investor.

 ii.  A customer confirmation to the effect that the transaction is ‘execution only notwithstanding the advice of in-appropriateness from that distributor be obtained prior to the execution of the transaction.

 iii.  That on all such ‘execution only’ transactions, the customer is not required to pay the distributor anything other than the standard flat transaction charge.

(c)  There shall be no third categorization of customer relationship/transaction.

(d) While selling Mutual Fund products of the distributors’ group/affiliate/associates, the distributor shall make disclosure to the customer regarding the conflict of interest arising from the distributor selling of such products.

15.4.1.5 Compliance and risk management functions of the distributor shall include review of defined management processes for:

(a)  The criteria to be used in review of products and the periodicity of such review.

(b) The factors to be included in determining the risk appetite of the customer and the investment categorization and periodicity of such review.

(c)  Review of transactions, exceptions identification, escalation and resolution process by internal audit.

(d)  Recruitment, training, certification and performance review of all personnel engaged in this business.

(e)  Customer on boarding and relationship management process, servicing standards, enquiry/grievance handling mechanism.

(f)  Internal/external audit processes, their comments/observations as it relates to MF distribution business.

(g) Findings of ongoing review from sample survey of investors.

15.4.2 Mutual Funds/AMCs may implement additional measures as deemed appropriate to help achieve greater investor protection.

15.5 Code of Conduct:

15.5.1 Mutual Funds are required to monitor the activities of their distributors, agents, brokers to ensure that they do not indulge in any malpractice or unethical practice while selling or marketing Mutual Funds units. Any non compliance with the Mutual Funds Regulations and Guidelines pertaining to Mutual Funds especially guidelines on advertisements and/or sales literature and/or Code of Conduct shall be reported in the periodic meetings of the Board of the AMC and the Trustee(s) and shall also be reported to the Board by the AMC(s) in their CTR(s) and by the Trustees in their Half Yearly Reports.

15.5.2 AMFI has prescribed a Code of Conduct for Mutual Fund intermediaries enclosed herewith as Annexure 1320. All intermediaries shall follow the Code of Conduct strictly and not indulge in any practice contravening it directly or indirectly.

15.5.3 Non-compliance with the Code of Conduct shall be reported by the Mutual Funds to the Board and AMFI. Further, no Mutual Fund shall deal with intermediaries contravening the prescribed Code of Conduct.

15.6 Empanellment of Intermediaries by Mutual Funds

15.6.1 Empanelment of intermediaries by Mutual Funds, payment of commissions, brokerage and/or sub-brokerage etc. shall be in accordance with parameters and guidelines specified by the Board and AMFI from time to time. Mutual Funds shall monitor the compliance of these guidelines and Code of Conduct by their intermediaries in terms of business done across all Mutual Funds. In case of non-compliance, Mutual Funds shall suspend further business and payment of commissions, etc. until full compliance by the empanelled intermediary.

15.7 Certification Programme for sale and/or distribution of mutual fund products321

15.7.1 With effect from June 01, 2010, the certification examination for distributors, agents or any other persons employed or engaged or to be employed or engaged in the sale and/or distribution of mutual fund products, would be conducted by the National Institute of Securities Markets (NISM)322.

15.7.2 Under the existing instructions, the agent/distributor was exempted from the AMFI certification examination if he had completed fifty years of age and had at least five years of experience in distribution of mutual fund units. As per regulation 4(3) of the Certification Regulations, persons who have attained the age of fifty years or who have at least ten years experience in the securities markets in the sale and/or distribution of mutual fund products as on May 31, 2010, will be given the option of obtaining the certification either by passing the NISM certification examination or qualifying for Continuing Professional Education (CPE) by obtaining such classroom credits as may be specified by NISM from time to time.

15.7.3 The Certification Regulations require the persons referred to in paragraph 15.7.1 above to comply with the requirements for CPE as specified by NISM within the validity period of the certificate obtained by passing the certification examination. However, to facilitate the transition process from AMFI to NISM, it has been decided that a person holding a valid AMFI certification whose validity expires between June 01, 2010 and December 31, 2010, would be required to comply with the CPE requirements as laid down by NISM under the relevant clauses of the Certification Regulations, by December 31, 2010.

15.7.4 An associated person holding a valid AMFI/NISM certification whose validity expires anytime after December 31, 2010, would be required to comply with the CPE requirements as laid down by NISM under the relevant clauses of the Certification Regulations, prior to the expiry of the validity of the certification.

15.7.5 The requirement of obtaining registration from AMFI after obtaining certification, as per the Circular dated November 28, 2002, would continue.

CHAPTER 16

TRANSACTION IN MUTUAL FUNDS UNITS

16.1 Maintenance of documents323

16.1.1 As per the requirements specified by Board in respect of “Anti Money Laundering (AML) Standards/Combating Financing of Terrorism (CFT) / Obligations of Securities Market Intermediaries under Prevention of Money Laundering Act, 2002 and Rules framed there-under”324, maintenance of all documentation pertaining to the unitholders/ investors is the responsibility of the AMC.

16.1.2 Accordingly, vide SEBI Circular No – SEBI/IMD/CIR No.12 /186868 /2009 dated December 11, 2009, AMCs were advised to confirm whether all the investor related documents were maintained/ available with the AMC. If not, and to the extent of and relating to such investor accounts/folios where investor related documentation was incomplete/inadequate/not available or was stated to be maintained by the distributors, then the Trustees were advised to ensure the following:

16.1.2.1 No further payment of any commissions, fees and / or payments in any other mode should be made to such distributors till full compliance/ completion of the steps enumerated herein.

16.1.2.2 Take immediate steps to obtain all investor/ unit holders documents in terms of the AML/ CFT, including KYC documents/ PoA as applicable.

16.1.2.3 Take immediate steps to obtain all supporting documents in respect of the past transactions.

16.1.2.4 On a one time basis, send statement of holdings and all transactions since inception of that folio in duplicate to the investor and seek confirmation from the unit holders on the duplicate copy.

16.1.2.5 Set up a separate customer services mechanism to handle/ address queries and grievance of the above mentioned unitholders.

16.1.3 Pending completion of documentation, exercise great care and be satisfied of investor bonafides before authorizing any transaction, including redemption, on such accounts/ folios.

16.1.4 The Trustees were required forthwith to confirm to Board that the steps had been taken to address the above and also send a status to the Board as and when process was completed to their satisfaction.

16.1.5 All mutual funds/ AMCs are directed that325:

16.1.5.1 All new folios/ accounts shall be opened only after ensuring that all investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature are available with AMCs/RTAs and not just with the distributor.

16.1.5.2 For existing folios, AMCs shall be responsible for updation of the investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature by November 15, 2010.

16.1.5.3 The trustees shall submit a confirmation after they receive certification from an Independent auditor on completion of the said process latest by November 22, 2010.

16.2 Facilitating transactions in Mutual Fund schemes through the Stock Exchange infrastructure326

16.2.1 Stock Exchange terminals can be used for facilitating transactions in mutual fund schemes. The Stock Exchange mechanism would also extend the present convenience available to secondary market investors to mutual fund investors.

16.2.2 Units of mutual fund schemes may be permitted to be transacted through registered stock brokers of recognized stock exchanges and such stock brokers will be eligible to be considered as official points of acceptance327.

16.2.3 The respective stock exchange would provide detailed operating guidelines to facilitate the same.

16.2.4 In this regard, Mutual Funds/AMC are advised that:

16.2.4.1 Empanelment and monitoring of Code of Conduct for brokers acting as mutual fund intermediaries-

 a.  The stock brokers intending to extend the transaction in Mutual Funds through stock exchange mechanism shall be required to comply with the requirements of passing the AMFI certification examination328.All such stock brokers would then be considered as empanelled distributors with mutual fund/AMC.

 b.  These stock brokers shall also comply with Code of Conduct329 for intermediaries of Mutual Funds, and applicable SEBI guidelines330, applicable to intermediaries engaged in selling and marketing of mutual fund units.

 c.  It is clarified that, stock exchanges shall monitor the compliance of the code of conduct specified regarding empanelment of intermediaries by mutual funds331.

16.2.4.2 Time stamping

 a. Time stamping as evidenced by confirmation slip given by stock exchange mechanism to be considered sufficient compliance with clause for cut–off timing for liquid scheme and plans, cut-off timing for other schemes and plans and time stamping provisions mandated by Board332.

16.2.4.3 Statement of Account

 a. Where investor desires to hold units in dematerialised form, demat statement given by depository participant would be deemed to be adequate compliance with requirements for account statement prescribed by SEBI 333.

16.2.4.4 Investor grievance mechanism

 a.  Stock exchanges shall provide for investor grievance handling mechanism to the extent they relate to disputes between brokers and their client.

16.2.4.5 Dematerialization of existing units held by investors

 a.  In case investors desire to convert their existing physical units (represented by statement of account) into dematerialized form, mutual funds / AMCs shall take such steps in coordination with Registrar and Transfer Agents, Depositories and Depository participants (DPs) to facilitate the same.

16.2.4.6 Option to hold units in demat form334

 a.  Mutual Funds/AMCs are advised to invariably provide an option to the investors to mention demat account details in the subscription form, in case they desire to hold units in demat form while subscribing to any scheme (open ended/close ended/Interval).

 b.  Mutual Funds/AMCs shall ensure that above mentioned option is provided to the investors in all their schemes (existing and new).

 c.  Mutual Funds/AMCs are advised to obtain ISIN for each option of the scheme and quote the respective ISIN along with the name of the scheme, in all Statement of Account/Common Account Statement (CAS) issued to the investors.

16.2.4.7 Know your client (KYC).

 a.  Where investor desires to hold units in dematerialised form, the KYC performed by DP in terms of SEBI requirements335 would be considered compliance with applicable requirements specified in this regard336 by Mutual Funds/AMCs.

 b. The Mutual Funds/AMC shall take necessary steps to do KYC requirements of all investors as per the prescribed guidelines337.

16.2.4.8 Stock exchanges and mutual funds/AMCs, based on the experience gained may improve the mechanism in the interest of investors.

16.2.4.9 In addition to the existing facilities of purchasing and redeeming directly with the Mutual Funds and Stock Brokers, the following be noted338:

 a.  Units of mutual funds schemes may be permitted to be transacted through clearing members of the registered Stock Exchanges.

 b.  Permit Depository participants of registered Depositories to process only redemption request of units held in demat form.

16.2.4.10 The following be noted with respect to investors having demat account and purchasing and redeeming mutual funds units through stock brokers and clearing members:

 a.  Investors shall receive redemption amount (if units are redeemed) and units (if units are purchased) through broker/clearing member’s pool account. Mutual Funds(MF)/ Asset management Companies(AMC) would pay proceeds to the broker/clearing member (in case of redemption) and broker/clearing member in turn to the respective investor and similarly units shall be credited by MF/AMC into broker/clearing member’s pool account (in case of purchase) and broker/clearing member in turn to the respective investor.

 b.  Payment of redemption proceeds to the broker/clearing members by MF/AMC shall discharge MF/AMC of its obligation of payment to individual investor. Similarly, in case of purchase of units, crediting units into broker/clearing member pool account shall discharge MF/AMC of its obligation to allot units to individual investor.

16.2.4.11 The following may be noted in this regard:

 a.  Clearing members and Depository participants will be eligible to be considered as official points of acceptance339 and conditions stipulated340 Viz. AMFI /NISM certification, code of conduct prescribed by SEBI for Intermediaries of Mutual Fund, shall be applicable for such Clearing members and Depository participants as well.

 b.  Stock exchanges and Depositories shall provide investor grievance handling mechanism to the extent they relate to disputes between their respective regulated entity and their client and shall also monitor the compliance of code of conduct specified341 regarding empanelment and code of conduct for intermediaries of Mutual Funds.

16.2.4.12 The respective stock exchanges and Depositories would provide detailed operating guidelines to facilitate the above and ensure that timelines prescribed342 shall be adhered to with regard to allotment of units and receipt of redemption proceeds at the investor’s level.

16.2.4.13 Transferability of Mutual Fund units343

 a.  Regulations344 states that “a unit unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law.” The spirit and intention of this regulation is not to prohibit transferability of units as a general rule or practice.

 b.  All AMCs shall clarify by way of an addendum that units of all mutual fund schemes held in demat form shall be freely transferable from the date of the issue of said addendum which shall be not later than October 1, 2010. However, restrictions on transfer of units of ELSS schemes during the lock-in period shall continue to be applicable as per the ELSS Guidelines.

16.2.5 Stock exchanges and mutual funds/AMCs, based on the experience gained may further improve the mechanism in the interest of investors. Necessary clarifications, if any, would be issued at appropriate time by SEBI in this regard.

CHAPTER 17

MISCELLANEOUS

17.1 Investment by Foreign Investors in Mutual Fund Schemes345.

17.1.1 Foreign investors (termed as Qualified Foreign Investors/ QFIs) who meet KYC requirement may invest in equity and debt schemes of Mutual Funds (MF) through the following two routes:

17.1.1.1 Direct route – Holding MF units in demat account through a SEBI registered depository participant (DP).

17.1.1.2 Indirect route- Holding MF units via Unit Confirmation Receipt (UCR).

17.1.2 The investment through the above mentioned routes shall be subject to the following conditions:

17.1.2.1 Qualified Foreign Investor (QFI) shall mean a person resident in a country that is compliant with Financial Action Task Force (FATF) standards and that is a signatory to International Organization of Securities Commission’s (IOSCO’s) Multilateral Memorandum of Understanding,

Provided that such person is not resident in India,

Provided further that such person is not registered with SEBI as Foreign Institutional Investor or Sub-account.

Explanation- For the purposes of this clause:

(1)  the term “Person” shall carry the same meaning under Section 2(31) of the Income Tax Act, 1961

(2)  the phrase “resident in India” shall carry the same meaning as in the Income Tax Act, 1961

(3)  “resident” in a country, other than India, shall mean resident as per the direct tax laws of that country.

17.1.2.2 MF shall ensure that only QFIs who comply with para 17.1.2.1 are allowed to invest under these routes.

17.1.2.3 MF shall ensure that QFIs meet the KYC requirements as per the FATF standards, Prevention of Money Laundering Act, 2002 (PMLA) rules and regulations made thereunder, and SEBI circulars issued in this regard before accepting subscriptions from QFIs.

17.1.2.4 The aggregate investments by QFIs under both the routes shall be subject to a total overall ceiling of US $10 billion for equity schemes.

17.1.2.5 In addition to the above, the aggregate investments by QFIs under both the routes for debt schemes which invest in infrastructure (“Infrastructure” as defined under the extant ECB guidelines issued by RBI) debt of minimum residual maturity of 5 years, shall be subject to a total overall ceiling of US $3 billion within the existing ceiling of US $25 billion for FII investment in corporate bonds issued by infrastructure companies.

17.1.2.6 MF can accept subscriptions from QFIs till such time the investments by QFIs under both the routes reaches US $8 billion in equity schemes and US $2.5 billion in debt schemes and the remaining limit of US $2 billion in equity schemes and US $0.5 billion in debt schemes shall be auctioned by SEBI through bidding process.

17.1.2.7 MF shall file with SEBI a report about the total subscription and redemption by QFIs on a daily basis as per the format. MF shall prepare such report on actual receipt and payment basis. SEBI will disseminate on an aggregate basis the total amount of investments by QFIs in equity and debt schemes of the MF on SEBI’s website. When the total investment reaches US $8 billion in equity schemes or US $2.5 billion in debt schemes, MF shall stop accepting fresh investment from QFIs unless they get allotment of limits out of the remaining limit of US $2 billion in equity schemes or US $0.5 billion in debt schemes respectively in the auction process referred in para 17.1.2.6.

17.1.2.8 MF/ DP shall ensure that the units held by QFIs by way of UCR/demat holding are non transferable and non tradable.

17.1.2.9 MF/ DP shall capture the bank account details of the QFIs designated overseas bank account and shall ensure that all subscriptions are received from that overseas account and redemption proceeds are also transferred into the same overseas account. MF/ DP shall also ensure that the overseas bank account which QFIs has designated for the purpose is based in countries which are compliant with FATF standards and are signatory to MMOU of IOSCO.

17.1.2.10 In case of subscription, MF shall allot units based on the NAV of the day on which funds are realized in the MF’s scheme bank account in India and in case of redemption, units shall be redeemed on the day on which transaction slip/instruction is received and time stamped by MF, as per the applicable cut off time. The Scheme information documents of the MF shall clearly mention the applicable cut off time for QFIs and the other requirements / applicable guidelines for QFIs.

17.1.2.11 MF shall ensure that Systematic Investments/ transfer/ withdrawals and switches are not available to the QFIs. QFIs can only subscribe or redeem.

17.1.2.12 MF/ DP shall ensure that units/ UCRs held by QFIs are free from all encumbrances i.e. pledge or lien cannot be created for such units.

17.1.2.13 MF shall comply with all the requirements as per the PMLA, FATF standards and SEBI circulars issued in this regard on an ongoing basis.

17.1.2.14 MF shall ensure that all the investor related documents/ records of the QFIs are available with them.

17.1.2.15 MF shall ensure compliance with laws (rules and regulations) of the jurisdictions where the QFIs are based and also ensure that the interest of existing unit holders of the MF schemes are not adversely affected due to the issuance of UCRs/ demat units to the QFIs.

17.1.2.16 In case of any penalty, pending litigations or proceedings, findings of Inspections or investigations for which action may have been taken or is in the process of being taken by an overseas regulator against MF/ AMC, it shall bring such information to the attention of SEBI and unitholders of the concerned scheme.

17.1.2.17 MF shall be responsible for the deduction of applicable tax at source out of the redemption proceeds before making redemption payments to QFIs.

17.1.2.18 MF/DP shall require QFIs to submit necessary information for the purpose of obtaining PAN. MF/DP may use the combined PAN cum KYC form to be notified by CBDT for QFIs. MF/ DP may take any additional information/ documents from the QFIs other than those mentioned in the common PAN cum KYC from to ensure compliance with Para 17.1.2.3 above.

17.1.3 Other conditions for direct route (demat account).

17.1.3.1 There shall be 3 parties under this route – QFIs, qualified DP and MF.

17.1.3.2 A QFIs can open only one demat account with any one of the qualified DPs and shall subscribe and redeem through that DP only. MF alongwith the DP shall have adequate systems to ensure the compliance of the same.

17.1.3.3 To become a qualified DP, a SEBI registered DP shall fulfill the following:

 a.  DP shall have paid up capital of Rs. 50 Crore or more,

 b.  DP shall be either a clearing bank or clearing member of any of the clearing corporations.

 c.  DP shall have appropriate arrangements for receipt and remittance of money with a designated Authorised Dealer (AD) Category – I bank

 d.  DP shall demonstrate that it has systems and procedures to comply with the FATF Standards, PMLA and SEBI circulars issued from time to time.

 e.  DP shall obtain prior approval of SEBI before commencing the activities relating to accepting MF subscription from QFIs.

17.1.3.4 The qualified DP shall open a demat account for the QFIs after ensuring all the requirements as per the PMLA, FATF standards and SEBI circulars issued in this regard.

17.1.3.5 For the purpose of account opening, MF can rely on the KYC done by DPs. Further, MF shall obtain the relevant records of KYC/ other documents from the DP and ensure compliance with para 1.11.3.14. However, MF shall comply with PMLA, FATF standards and SEBI circulars issued in this regard from time to time on an ongoing basis.

17.1.3.6 The qualified DP shall open a separate single rupee pool bank account with a designated AD Category -I bank, exclusively for the purpose of investments by QFIs in India.

17.1.3.7 Process Flow

Subscription

 a.  The QFIs shall place a purchase/ subscription order mentioning the name of the scheme/MF with its DP and remit foreign inward remittances through normal banking channel in any permitted currency (freely convertible) directly to the single rupee pool bank account of the DP maintained with a designated AD category – I bank.

 b.  DP in turn shall forward the purchase order to the concerned MF and remits the money to the MF’s scheme account on the same day as the receipt of funds from QFIs. In case of receipt of money after business hours, DP shall remit the funds to MF scheme account by next business day.

 c.  If for any reasons, the DP is not able to remit the money to the MF scheme account within the stipulated timeframe as mentioned in para-b, the DP shall immediately return the money to the designated overseas bank account of the QFIs.

 d.  MF shall process the order and credit units into the demat account of the QFIs.

 e.  If for any reasons the units are not allotted, MF / DP shall ensure that the money is remitted back to the QFI’s designated overseas bank account within 3 working days from the date of receipt of subscription of money in the single rupee pool bank account of the DP maintained with a designated AD category I bank.

Redemption

 f.  QFIs can redeem, either through Delivery Instruction (physical/electronic) or any another mode prescribed by the Depositories. On receipt of instruction from QFIs, DP shall process the same and forward the redemption instructions to the MF. Upon receipt of instruction from DP, MF shall process the same and shall credit the single rupee pool bank account of the DP with the redemption proceeds.

 g.  The DP can make fresh purchase of units of equity and debt schemes of MF (if so instructed by the QFIs) out of the redemption proceeds received provided that payment is made towards such purchase is made within two working days of receipt of money from MF in the pooled bank account. In case no purchase is made within said period, the money shall be remitted by the DPs to the designated bank overseas account of the QFIs within two working days from the date of receipt of money from the MF in the pooled bank account.

Dividend

 h.  In case of dividend payout, the MF shall credit the single rupee pool bank account of the DP with the dividend amount. The DP in turn shall remit the same to the designated bank overseas account of the QFIs within two working days from the date of receipt of money from the MF in the DP’s rupee pooled bank account.

17.1.4 Other conditions for Indirect route (Unit Confirmation Receipts)

17.1.4.1 There shall be four parties involved – QFIs, UCR issuer (based overseas), SEBI registered Custodian (based in India) and MF.

17.1.4.2 QFIs can subscribe / redeem only through the UCR Issuer.

17.1.4.3 MF shall appoint one or more UCR issuing agent overseas and one SEBI registered custodian in India.

17.1.4.4 UCR issuer appointed by MF shall act as agent of the MF.

17.1.4.5 MF can appoint entities fulfilling the following conditions as UCR issuer:

 a.  The entity is able to demonstrate that it has proven track record, expertise and technology in the business of issuance of global depository receipts/global custody agency

 b.  The entity is registered with an overseas securities market/ banking regulator.

17.1.4.6 MF shall seek no objection from SEBI before appointing any UCR issuer and furnish the details and information sought by SEBI about the UCR issuer. SEBI reserves the right to seek additional information / clarification and direct action, including non appointment/ revocation of appointment of that UCR Issuing Agent.

17.1.4.7 MF shall comply with all the requirements as per the PMLA, FATF standards and SEBI circulars issued in this regard on an ongoing basis.

17.1.4.8 Custodians appointed by the MF shall comply with the SEBI (Custodian of Securities) Regulations, 1996, circulars and guidelines issued by SEBI.

17.1.4.9 The rupee denominated units of the MF would be held as underlying by the custodian in India in demat mode against which the UCR issuer would issue UCR to be held by QFIs.

17.1.4.10 MF shall ensure that for every UCR issued by UCR issuer, Custodian in India shall hold corresponding number of units against it i.e., there shall be one unit of MF scheme for every unit of UCR.

17.1.4.11 MF shall receive money from UCR issuer either in foreign country by opening bank account overseas (in accordance with the relevant extant FEMA regulations) or in Indian rupees in the respective MF scheme account held in India.

17.1.4.12 MF shall mandate the UCR issuer regarding the requirements for KYC, Customer due diligence process and documents and information to be collected from the QFIs in terms of the requirements mentioned in para 17.1.2.13 above.

17.1.4.13 MF shall obtain the relevant records of KYC/ other documents from the UCR issuer in order to comply with FATF standards, PMLA and SEBI circulars issued in this regard and ensure compliance with para 17.1.2.14.

17.1.4.14 Units purchased and redeemed through UCR issuer shall be settled on gross basis and under no circumstances shall be netted against other investors of UCR issuer

17.1.4.15 Process flow:

 a.  The QFIs places a purchase/ subscription order through the UCR issuer.

In case of MF opening bank account overseas (in accordance with the relevant extant FEMA regulations)

 b.  UCR issuer shall forward the order of QFIs to the MF/Custodian. Upon receipt and transfer of funds to India; the MF shall issue units to the custodian and custodian in turn confirm to the UCR Issuer to issue UCR to the QFIs.

 c.  In case of redemption, UCR issuer shall confirm receipt of redemption request to the MF and Custodian. Upon receipt of instruction, MF shall process the same and shall transfer the redemption proceeds to the MF overseas bank account for making payment to the designated overseas bank account of the QFIs.

 d.  In case of dividend payout, the MF shall transfer the dividend amounts to the MF overseas bank account for making payment to the designated overseas bank account of the QFIs.

In case MF receives money in India from UCR issuer.

 e.  UCR issuer shall forward the purchase order to MF and Custodian, and remit the funds into MF scheme account (in rupee terms). Upon receipt of funds; the MF shall issue units to the custodian and custodian shall in turn confirm to the UCR Issuer to issue UCR to the QFIs.

 f.  In case of redemption, UCR issuer shall confirm receipt of redemption request to the MF & Custodian. Upon receipt of instruction, MF shall process and remit redemption proceeds to the UCR issuer which in turn shall remit redemption proceeds to the designated bank account of the QFIs.

 g.  In case of dividend payout, the MF shall remit the dividend amount proceeds to the UCR issuer which in turn shall remit the dividend amount to the designated bank account of the QFIs.

17.1.5 The investment by the QFIs in MF equity and debt schemes under this scheme shall also be subject to the relevant and extant FEMA regulations and guidelines issued by the Reserve Bank of India under FEMA, 1999 from time to time.

17.2 Clarification346 to Regulation 24347

17.2.1 The amended Regulation mandates that AMCs shall appoint separate fund manager for each separate fund managed by it unless the investment objectives and assets allocations are the same and the portfolio is replicated across all the funds managed by the fund manager.

17.2.2 The replication of minimum 70% of portfolio value shall be considered as adequate for the purpose of said compliance, provided that AMC has in place a written policy for trade allocation and it ensures at all points of time that the fund manager shall not take directionally opposite positions in the schemes managed by him.

17.2.3 Wherein a fund manager is common across mutual fund schemes and schemes/products under other permissible activities of AMC, then the AMC shall:

17.2.3.1 disclose on their websites, the returns provided by the said manager for all the schemes (mutual fund, pension funds, offshore funds etc) on a monthly basis.

17.2.3.2 in case of any performance advertisement is issued by the AMC for any scheme, then the details of returns of all the schemes (mutual fund, pension funds, offshore funds etc) managed by that fund manager shall be provided.

17.2.3.3 in case the difference between the annual returns provided by the schemes managed by the same fund manager is more than 10% then the same shall be reported to the trustee and explanation for the same shall be disclosed on the website of the AMC.

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________________

 1. SEBI Circular No. SEBI/IMD/CIR No.5/ 126096/08 dated May 23,2008 and SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009

 2.  For format of SID & SAI, please refer to the Chapter on Formats

 3.  The filing fees was revised via gazette notification No. LAD-NRO/GN/2009-10/11/167759 on SEBI (Payment of Fees) (Amendment) Regulations, 2009 dated 29 June, 2009, The revised filing fee was applicable to those scheme(s) whose scheme information document(s) had been filed with SEBI on or after July 1, 2009.- SEBI Circular No – SEBI / IMD / CIR No. 5/169030 / 2009 dated July 8,2009

 4.  SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997.

 5.  Regulation 28 (1) of SEBI (Mutual Funds) Regulation 1996

 6.  Regulation 29(3) of SEBI (Mutual Funds) Regulation 1996

 7.  SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997.

 8. SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997, SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997.

 9.  SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009

10. SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009

11. SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997.

12. Regulation 29(2) of the SEBI (Mutual Funds) Regulations, 1996

13. The existing schemes shall adopt the SID and KIM format as soon as possible but not later than 12 months from the date of issuance of the circular- SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008. A confirmation in this regard shall be given in the half yearly trustee report.

14. Regulation 18 (15A) of SEBI (Mutual Funds) Regulation, 1996

15. SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009

16. SEBI Circular No – SEBI/IMD/CIR No.10/178129/09 dated September 29,2009

17. SEBI Cir No IMD/CIR No.5/70559/06 dated June 30,2006

18. Regulation 18 (4) of SEBI ( Mutual Funds) Regulations, 1996.

19. For Standard Observations, please refer to the Chapter on Formats

20. For format of KIM please refer to the Chapter on Formats

21. SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000, SEBI Circular No. MFD/CIR/16/400/02 dated March 26, 2002, SEBI Circular No. MFD/CIR/01/071/02 April 15, 2002.

22. SEBI Circular No. MFD/CIR/01/071/02 dated April 15, 2002.

23. SEBI Circular No. MFD/CIR/16/400/02 dated March 26, 2002. Also please note that for review of scheme performance with benchmark indices please refer to section on governance norms.

24. SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000

25. SEBI circular no MFD/Cir.No 9/120/2000 dated November 24, 2000. SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010. The provisions mentioned shall be applicable for all NFOs launched on or after July 01, 2010.

26. SEBI/IMD/CIR No.13/150975 / 09 dated January 19, 2009

27. SEBI Circular No- IIMARP/MF/CIR/01/294/98 dated February 4, 1998

28. Clause (d) of sub-regulation (15) of Regulation 18 of SEBI (Mutual Funds) Regulations, 1996

29. SEBI Circular No. MFD/CIR No.22/2311/03 dated January 30, 2003.

30. Regulation 33(3) of the SEBI (Mutual Funds), Regulations, 1996.

31. SEBI Circular No. SEBI/IMD/Cir No 5/126096/08 dated May 23, 2008

32. Refer to format of half yearly portfolio disclosure under chapter on formats.

33. Please refer to format of SID under chapter on Formats.

34. For examples of Benchmarks, refer to chapter on SID

35. SEBI Circular No. SEBI/MFD/CIR No.5/12031/03 dated June 23, 2003.

36. Regulation 18(15A) of the Mutual Funds Regulations.

37. Refer format of half yearly portfolio disclosure under chapter on Formats

38. Please refer to SID Format under Chapter on Formats

39. Please refer to SID chapter for further details

40. SEBI Circular No- SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009

41. SEBI Circular No- Cir / IMD / DF / 15/ 2010 dated October 22, 2010

42. SEBI Circular No-IIMARP/MF/CIR/01/294/98 dated February 4, 1998

43. Regulation 29(3) of SEBI (Mutual Funds) Regulations, 1996

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44. SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009

45. SEBI Circular No. MFD/CIR. No.04/11488/2003 dated June 12, 2003.

46. Regulation 2(ma) of the Mutual Funds Regulations introduced vide Gazette Notification No. S.O 632(E) dated May 29, 2003.

47. SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 dated March 15, 2010

48. Regulation 52(6)(a) of SEBI (Mutual Funds) Regulations, 1996

49. existing as on July 29, 2010, Cir/IMD/DF/8/2010 dated August 6, 2010

50. Regulation 52 (6)(a) of SEBI (Mutual Funds) Regulations, 1996

51. Regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996

52. SEBI Circular No. SEBI/IMD/CIR. No.4/58422/06 dated January 24, 2006, SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006, SEBI Circular No. SEBI/IMD/CIR No.14/84243/07 dated January 15, 2007.

53. Regulation 2(mb) of the SEBI (Mutual Funds) Regulations, 1996 introduced vide Gazette Notification No. S.O. 38(E) dated January 12, 2006.

54. Regulations 2(mc) of the Mutual Funds Regulations introduced vide Gazette Notification No. S.O. 38(E) dated January 12, 2006.

55. SEBI Circular No. SEBI/IMD/CIR No. 4/58422/06 dated January 24, 2006.

56. SEBI Circular No. SEBI/IMD/CIR No.14/84243/07 dated January 15, 2007 read with Gazette Notification F. No. SEBI/LAD/DoP/82534/2006 dated December 20, 2006.

57. SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.

58. SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.

59. Regulation 52(6) of the SEBI (Mutual Funds) Regulations, 1996.

60. SEBI Circular No. SEBI/IMD/CIR No.2/65348/06 dated April 21, 2006.

61. SEBI Circular No. Cir/IMD/DF/20/2010 dated December 06, 2010

62. Please refer to the Chapter on Formats for the disclosures in the Half Yearly Trustee Report w.r.t physical verification of Gold. This will be effective from the half yearly report ending April 2011 by Trustees to SEBI.

63. SEBI Circular No. SEBI/IMD/CIR No.9/74364/06 dated August 14, 2006.

64. Regulation 2(ea), 33(2A) and 38A of the Mutual Funds Regulations introduced vide Gazette Notification No. S.O. 1254(E) dated August 3, 2006.

65. For format of Half Yearly Trustee Report please refer Chapter on Formats

66. For format of bimonthly CTR please refer Chapter on Formats

67. SEBI Circular No – SEBI/IMD/CIR No.4/124477/08 May 2,2008

68. Regulation 49 A(a)(i) of SEBI (Mutual Fund) Regulations, 1996

69. SEBI Circular No. MFD/CIR/15/19133/2002 dated September 30, 2002.

70. The Manual has been developed by AMFI in association with Pricewaterhouse Coopers as a part of Indo-US Financial Institutions Reforms and Expansion Project.

71. SEBI Circular No. MFD/CIR No.010/024/00 dated January 17, 2000, SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000, SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No. MFD/CIR/14/18337/2002 dated September 19, 2002, SEBI Circular No. IMD/CIR 8/132968/2008 dated July 24, 2008

72. Regulation 59A of the Mutual Funds Regulations & SEBI Circular No. MFD/CIR No.010/024/00 dated January 17, 2000.

73. For format of half yearly portfolio, please refer to the formats chapter

74. SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001.

75. SEBI Circular Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010.

76. For formats on disclosure of derivatives, please refer to the chapter on Formats

77. SEBI Circular MFD/CIR/1/200/2001 dated April 20, 2001 & SEBI Circular No. IMD/CIR No.8/132968/2008 dated July 24, 2008

78. Regulation 59 of SEBI (Mutual Funds) Regulations, 1996.

79. For format of Half Yearly Financials, please refer to the formats chapter

80. SEBI Circular No. IMD/CIR No.8/132968/2008 dated July 24, 2008 and Circular No.Cir/IMD/DF/16/2011 dated September 8, 2011

81. For format of abridged schemewise report, please refer the formats chapter

82. SEBI Cir No – MFD/CIR/15/041/2002 dated March 14,2002

83. Regulation 56(1) & 56(3) of SEBI (Mutual Funds) Regulations, 1996

84. SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001.

85. For further details, refer Section II – Scheme Governance in the Chapter on Governance Norms

86. Please refer the Chapter on Formats for requisite formats

87. SEBI Circular No. IMD/CIR No.15/157701/2009 dated March 19, 2009

88. For portfolio format please refer to Chapter on Formats

89. 91 SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011

91. MFD/CIR/9/120/2000 dated November 24, 2000

92. IIMARP/CIR /08/845/97 DATED May 7,1997,IIMARP/MF/CIR/05/788/97 dated April 28,1997

93. For format of bio-data of key personnel, please refer the Chapter on Formats

94. SEBI Circular No. Cir /IMD/DF/2/2010 dated May 13, 2010

95. For disclosure format please refer to chapter on Formats.

96. SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010

97. Regulation 25 (8) of SEBI (Mutual Funds) Regulations, 1996

98. Please refer to the chapter on Formats

99. SEBI circular MFD/CIR/07/206/2001 dated July 19, 2001, SEBI circular No IMD/Cir No.15/87045/2007 dated February 22, 2007, SEBI circular SEBI/IMD/CIR No 3/124444/08 dated April 30, 2008.

100. For format of MCR please refer to Chapter on Formats.

101. SEBI Circular No. SEBI/IMD/CIR NO 15/87045/07 dated February 22,2007

102. SEBI Circular No. SEBI/IMD/CIR NO 13/118899/08 dated February 29, 2008, SEBI Circular No MFD/CIR/12/16588/02 dated August 28, 2002 & SEBI Circular No IIMARP/MF/CIR/05/788/97 dated April 28, 1997, SEBI Circular No. IIMARP/10772/93 dated July 14,1993.

103. For details on format of NSR please refer the Chapter on Formats.

104. SEBI Circular No. SEBI/IMD/CIR NO 6/98057/07 dated July 5, 2007, SEBI Circular No MFD/CIR/11/36222/2005 dated March 16,2005, SEBI Circular No IIMARP/MF/CIR/10/1076/97 dated June 05,1997 & SEBI Circular No.MFD/CIR/5/360/2000 dated July 4, 2000.

105. For CTR format, please refer the Chapter on Formats.

106. IIMARP/CIR /08/845/97 DATED May 7,1997, MFD/CIR/02/110/02 dated April 26,2002, SEBI Cir No- IMD/CIR No 6/72245/06 dated July 20,2006,

107 For format of ASR refer the Chapter on Formats Quarterly Movement of Net Assets- SEBI CIR – IIMARP/MF/CIR/05/788/97 dated April 28, 1997 required mutual funds to submit the statement for quarterly movement of net assets. However, SEBI circular MFD/CIR/12/16588/02 dated August 28,2002 stated that such Statement of movement of net assets /portfolios are no more to be submitted

108. SEBI Circular No.MFD/CIR/07/384/99 dated December 17, 1999 and MFD/CIR/08/23026/99 dated December 23, 1999

109. For format of daily transaction report, please refer the chapter on formats

110. SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000, SEBI Circular No. SEBI/MFD/CIR/10/039/2001 dated February 9, 2001.

111. Please refer the formats chapter for format for reporting by AMC to Trustees

112. Regulation 18(23)(a) of SEBI (MF) Regulations, 1996

113. For format of Trustee Report, please refer to the formats chapter.

114. SEBI cir no IMD/CIR No.8/73580/06 dated August 4,2006

It may be noted that Annual Information Returns (AIRs) constitute an important source of information to Income Tax Department and, as such, it is imperative that the data furnished to them is complete and accurate in all respects. It is therefore advised that to re-check the accuracy of the data furnished by your office for the Financial Year 2004-05 and ensure that all the columns are correctly filled-in and submit a ‘Supplementary Information Report’, if need be, to the Income Tax Department. The AIRs for the financial year 2005-2006 are required to be filed before August 31, 2006.

115. SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000.

116. SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000, SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000, SEBI Circular No. SEBI/MFD/CIR/10/039/2001 dated February 9, 2001.

117. SEBI Circular No. SEBI/MFD/CIR/10/039/2001 dated February 9, 2001.

118. Regulation 18(11) of SEBI (MF) Regulations, 1996 and SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000.

119. Regulations 18(6) and 18(7) of SEBI (Mutual Funds), Regulations, 1996 and SEBI Circular No. MFD/CIR No.010/024/2000 dated January 17, 2000.

120. SEBI Circular No. MFD/CIR/11/354/2001 dated December 20, 2001, SEBI Circular No. MFD/CIR/13/16799/2002 dated August 29, 2002, SEBI Circular No. MFD/CIR/17/21105/2002 dated October 28, 2002.

121. Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996.

122. Regulation 21(d) of the SEBI (Mutual Funds) Regulations, 1996.

123. As defined under Section 6 of the Companies Act 1956.

124. Regulation 2(c) of the SEBI (Mutual Funds) Regulations, 1996.

125. Regulation 21(d) and Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996.

126. For biodata of directors (AMC and Trustee), please refer to Chapter on Formats

127. For biodata of directors (AMC and Trustee), please refer to Chapter on Formats

128. SEBI Circular No. MFD/CIR No.4/216/2001 dated May 8, 2001, SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003.

129. Regulation 25(9) & 23(b) of SEBI (MF) Regulations, 1996

130. Real Estate has been deleted pursuant to the amendment to the Mutual Funds Regulations launching the Real Estate Mutual Funds Schemes wherein guidelines have been prescribed for employee investment in Real Estate.

131. SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003.

132. SEBI Circular No. SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15,2009

133. SEBI Circular No. SEBI/IMD/CIR No.7/13391/03 dated July 11, 2003.

134.. MFD/CIR/09/014/2000 dated January 5, 2000

135. SEBI Cir MFD/CIR/05/432/2002 June 20, 2002

136. SEBI Circular No. SEBI/IMD/CIR No.10/22701/03 dated December 12, 2003, SEBI Circular No. SEBI/IMD/CIR No.1/42529/05 dated June 14, 2005.

137. Regulation 39(2)(c) of the SEBI (MF) Regulations, 1996

138. Reg. 39 (2) (c) of SEBI (MF) Regulations, 1996

139. SEBI Circular No. dated July 27, 2000 & SEBI Cir 16/400/02 dated March 26, 2002.

140. SEBI Circular No SEBI/IMD/CIR No. 9/176988/2009 dated September 16, 2009

141. SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010

142. For disclosure of voting by mutual funds in general meetings of listed companies, please refer to the chapter on formats

143. SEBI Circular No. SMD-II(N)/2113/94 dated April 12, 1994. Further, in this regard, circulars issued by SEBI from time to time may be considered.

144. SEBI Circular No. MFD/CIR/9/230/2001 dated August 14, 2001

145. SEBI Circular No. MFD/CIR No.8/290/01 dated July 30, 2001, SEBI Circular No. SEBI/SMD/SE/11/2003/31/03 dated March 31, 2003, SEBI Circular No. SEBI/IMD/CIR No.01/1756/04 dated January 27, 2004, SEBI Circular No. MRD/DoP/SE/Cir-35/2004 dated October 26, 2004, SEBI Circular No. SEBI/IMD/CIR No.2/46603/05 dated August 10, 2005. Further, in this regard, circulars issued by SEBI from time to time may be considered

146. SEBI Circular No. SMDRP/Policy/Cir-39/2001 dated July 18, 2001.

147. SEBI Circular No. SEBI/IMD/CIR No.01/1756/04 dated January 27, 2004.

148. SEBI Circular No. MRD/DoP/SE/Cir-35/2004 dated October 26, 2004.

149. SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005; SEBI Circular No. DNPD/Cir-30/2006 dated January 20, 2006, SEBI Circular No. SEBI/DNPD/Cir-31/2006 dated September 22, 2006.

150. SEBI Circular No. DNPD/Cir-29/2005 dated September 14, 2005.

151. Please refer SEBI Circular No DNPD/Cir – 29/2005 Dated September 14, 2005 for position limits and subsequent circulars issued in this regard from time to time.

152. SEBI Circular No. SEBI/MFD/CIR No.03/158/03 dated June 10, 2003.

153. RBI Circular dated November 1, 1999.

154. SEBI Circular No. SEBI/MFD/CIR No.03/158/03 dated June 10, 2003.

155. SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002

156. Regulation 44(1A) of SEBI (Mutual Funds) Regulations, 1996

157. Regulation 48(1) of SEBI (Mutual Funds) Regulations, 1996

158. SEBI Circular No. IIMARP/MF/CIR/07/844/97 dated May 5, 1997, SEBI Circular No. MFD/CIR No.11/171/01 dated February 9, 2001, SEBI Circular No. MFD/CIR/13/087/2001 dated March 28, 2001; SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006, SEBI Circular No. SEBI/IMD/CIR No.5/96576/2007 dated June 25, 2007, SEBI Cir No. SEBI/IMD/Cir No.12/147132/08 dated December 11,2008

159. Regulation 48(2) of SEBI (Mutual Funds) Regulations, 1996

160. SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.

161. SEBI Circular No. SEBI/IMD/CIR No.5/96576/2007 dated June 25, 2007.

162. For format of CTR, please refer to chapter on formats

163. SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.

164. SEBI Circular No. SEBI/IMD/CIR No.5/63714/06 dated March 29, 2006.

165. SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002, SEBI Circular No. MFD/CIR/11/16159/2002 dated August 22, 2002.

166. SEBI Circular No. MFD/CIR/11/16159/2002 dated August 22, 2002.

167. SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002.

168. SEBI Circular No. SEBI/IMD/CIR No. 11/78450/06 dated October 11, 2006.

169. Please refer to the Section on liquid schemes

170. SEBI Circular No.SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009

171. SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010

172. SEBI Circular No SEBI/IMD/CIR No. 11/142521/08 dated October 24, 2008

173. SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010

174.  for CTR format, please refer to the chapter on formats

175. For Trustee report, please refer to the chapter on formats

176. SEBI Circular No SEBI/IMD/DF/15/2010 dated November 26, 2010

177. Fourth Schedule of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

178. Regulation 50(2) of SEBI (Mutual Funds) Regulations, 1996

179. SEBI Circular No. MFD/CIR/08/514/2002 dated July 22, 2002 & SEBI Circular No. SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009

180. Regulation 49(3) of the SEBI (Mutual Funds) Regulations, 1996.

181. SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000, SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001 and SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

182. SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.

183. SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001.

184. SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

185. SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

186. SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.

187. SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001

188. SEBI Circular No. SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010

189. SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012

190. SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012

191. SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

192. SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012

193. SEBI/IMD/CIR No.16/ 193388/2010 dated February 02, 2010

194. SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.

195. SEBI Circular No. MFD/CIR.No 23/066/2003 dated March 7, 2003

196. SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

197. SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

198. SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

199. SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.

200. SEBI Circular No. MFD/CIR/14/442/2002 dated February 20, 2002.

201. SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.

 1.  Provided that in case any scheme has illiquid securities in excess of 15% of total assets as on September 30, 2000 then such a scheme shall within a period of two years bring down the ratio of illiquid securities within the prescribed limit of 15 per cent. in the following time frame:

  a.  All the illiquid securities above 20 per cent. of total assets of the scheme shall be assigned zero value on September 30, 2001.

  b.  All the illiquid securities above 15 per cent. of total assets of the scheme shall be assigned zero value on September 30, 2002.

 2.  In respect of closed ended funds, for the purposes of valuation of illiquid securities, the limits of 15 per cent. and 20 per cent. applicable to open ended funds should be increased to 20 per cent. and 25 per cent. respectively.

 3.  Where a scheme has illiquid securities as at September 30, 2001 not exceeding 15% in the case of an open-ended fund and 20% in the case of closed fund, the concessions of giving time period for reducing the illiquid security to the prescribed limits would not be applicable and at all time the excess over 15% or 20% shall be assigned nil value

202. SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000.

203. SEBI Circular No. MFD/CIR/14/088/2001 dated March 28, 2001.

204. For formats of Half yearly disclosure, please refer to the Chapter on Formats

205. SEBI Circular No. MFD/CIR/03/526/2002 dated May 9, 2002.

206. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.

207. For CTR format please refer to the chapter on formats

208. For Half Yearly Reports, please refer to the chapter on formats

209. SEBI/IMD/CIR No.16/193388/2010 dated February 02, 2010 and Cir/IMD/DF/4/2010 dated June 21, 2010

210. SEBI Circular No.MFD/CIR/23/066/2003 dated March 7, 2003. For disclosure of transaction details, please refer to the chapter on Formats

211. For format please refer to the chapter on formats

212. SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012

213. SEBI Circular No. IIMARP/MF/CIR/01/428/97 dated February 28, 1997, SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998, SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.

214. Regulation 52(4) of the Mutual Funds Regulations, 1996

215. SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.

216. SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998.

217. SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.

218. SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010

219. Regulation 52(3) of SEBI Mutual Funds Regulation, 1996 and SEBI Circular No. SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009

220. Regulation 29 of SEBI (Mutual Funds) Regulations, 1996

221. SEBI Circular No. MFD/CIR No.3/211/2001 dated April 30, 2001, SEBI Circular No. MFD/CIR No.5/153/2001 dated May 24, 2001.

222. SEBI Circular No. MFD/CIR/04/430/2002 dated June 19, 2002.

223. Reg.52(6) of the SEBI (Mutual Funds) Regulations, 1996.

224. 219 SEBI Circular No SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009

225. Waiver of load for direct applications – Vide SEBI Circular No. SEBI/IMD/CIR No.10/112153/07 dated December 31, 2007,SEBI mandated w.e.f January 4,2009 no entry load shall be charged for applications received directly by the AMC(s) through internet or submitted directly to the AMC(s) or Collection Center/Investor Service Centre and not routed through any distributor or agent or broker. This waiver was applicable to both additional purchases under the same folio and ‘switch in’ to a scheme from other schemes also done directly by the investor. AMCs shall follow the provisions pertaining to informing the unitholders upon a change in load structure as per clause 3(d) of standard observations.

226. SEBI Circular No.CIR/IMD/DF/4/2011 dated March 9, 2011

228. SEBI Circular no. CIR/IMD/DF/13/2011 dated August 22, 2011

229. SEBI circular no. SEBI/IMD/CIR No.4/168230/09, dated June 30, 2009

230-231. SEBI Circular No. SEBI/IMD/CIR No. 14/120784/08 dated March 18, 2008

232. SEBI Cir No. SEBI/IMD/CIR No. 5/169030/2009 dated July 8, 2009

233. Gazettee Notification No. LAD-NRO/GN/2009-10/11/167759 on SEBI (Payment of Fees) (Amendment) Regulations, 2009 dated 29 June, 2009

234. SEBI Circular No. SEBI/IMD/CIR No. 6/172445/ 2009 dated August 7,2009 All Mutual Funds shall ensure compliance with this circular on or before August 24, 2009

235. SEBI Circular No – SEBI/IMD/CIR No. 7/173650/2009 dated August 17,2009 and SEBI circular No. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 (clause 16 of the standard observations)

236. SEBI Circular No – SEBI/IMD/CIR No. 7/173650/2009 dated August 17, 2009

237. SEBI Circular No. SEBI/IMD/CIR No.1/64057/06 dated April 4, 2006.

238. For details on advertisement on dividend please refer to Chapter on ‘Advertisements’

239. Regulation 53(a) of the SEBI (Mutual Funds) Regulations, 1996

240. SEBI Circular No SEBI/IMD/CIR No. 3/65370/06 dated April 21, 2006

241. Clause 20 of Third Schedule of SEBI (Mutual Funds) Regulations, 1996

242. SEBI circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010

243. Ninth and Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996

244. Paragraph 2(a) (ix) of Eleventh Schedule of SEBI (Mutual Funds) Regulations, 1996

245. Investments in Money Market instruments (MMIs)

In case of the existing schemes ( i.e. existing on date of issue of SEBI Circular No – SEBI/IMD/CIR No.3/166386/2009 dated June 15, 2009) where the investments in money market instruments of an issuer are not in compliance with the Gazette Notification No. LAD – NRO/GN/2009-10/07/165404 dated June 5, 2009, AMC shall ensure compliance within a period of 3 months from the date of notification.

246. SEBI Circular No – MFD/CIR/09/014/2000 dated January 5, 2000

247. See Clause 10, Seventh Schedule of Mutual Funds Regulations.

248. SEBI Circular No – SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009

249. With effect from February 01, 2009 make investment in/purchase debt and money market securities with maturity of upto182 days only.

250. Transition provision:

Inter-scheme transfers of securities having maturity upto 365 days and held in other schemes as on February 01, 2009 shall be permitted till October 31, 2009. With effect from November 1, 2009 the requirements stated at paragraph 12.2.1 above shall apply to such inter-se scheme transfers also.

251. w.e.f May 01, 2009.

252. SEBI Circular No IMD/CIR No 12/147132/08 dated December 11, 2008.

253. SEBI Circular No MFD/CIR/01/047/99 dated February 10, 1999.

254. Regulation 44(4) of the SEBI (Mutual Funds) Regulations, 1996.

255. SEBI Circular No – SEBI/IMD/CIR No 14/187175/ 2009 dated December 15, 2009

256. Regulation 18(23)(a) of the Mutual Funds Regulations. Further, for format of Half Yearly Trustee Report please refer to chapter on Formats.

257. SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000.

258. SEBI Circular No. MFD/CIR/9/230/2001 dated August 14, 2001.

259. Clauses 10 and 11, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996.

260. SEBI Circular No. SEBI/IMD/CIR No.8/18944/03 dated October 6, 2003.

261. Clauses 1 and 1A, Seventh Schedule of SEBI (Mutual Funds), Regulations, 1996.

262. SEBI Circular No. SEBI/IMD/CIR No.6/63715/06 dated March 29, 2006.

263. Clause I of Schedule VII of SEBI (Mutual Fund), Regulations, 1996

264. SEBI Circulars No. SEBI/IMD/CIR No.9/20306/03 dated November 12, 2003, SEBI Circular No. SEBI/IMD/Cir No.1/91171/07 dated April 16, 2007, SEBI and Clause 8 of Seventh Schedule of Mutual Funds Regulations, 1996.

265. SEBI Circular No. SEBI/IMD/Cir No.1/91171/07 dated April 16, 2007.

266. Clause 8, Schedule Seven, SEBI (Mutual Funds), Regulations, 1996.

267. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.

268. SEBI Circular No. SEBI/IMD/CIR No.9/20306/03 dated November 12, 2003.

269. SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008.

270. SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008

271. SEBI Circular No. MFD/CIR/19/22474/2002 dated November 20, 2002.

272. RBI Circular No.P.D.O.SGL.CIRR/1945/2002-2003 dated November 1, 2002.

273. SEBI Circular No. CIR/IMD/DF/19/2011 dated November 11, 2011

274. SEBI Circular No. SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007 & SEBI Circular No. SEBI/IMD/CIR No.2/122577/08 dated April 8, 2008.

275. SEBI Circular No. SEBI/IMD/CIR No.2/122577/08 dated April 8, 2008.

276. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.

277. For Half Yearly Results, please refer to the Chapter on Formats

278. Please refer the chapter on formats for format of proposal for investments in foreign securities and ETFs

279. SEBI Circular No. IMD/CIR. No.1/165935/2009 dated June 09, 2009

280. Regulation 43(1) of SEBI (Mutual Funds) Regulations, 1996

281. SEBI Circular No. MFD/CIR/09/014/2000 dated January 5, 2000.

282. Seventh Schedule of SEBI (Mutual Funds) Regulations, 1996.

283. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.

284. Regulation 25(2) of the SEBI (Mutual Funds) Regulations, 1996.

285. For Half Yearly Trustee Report please refer to the chapter on Formats

286. SEBI Circular No. Cir/IMD/DF/11/2010 dated August 18, 2010

287. SEBI Circular No. CIR/IMD/DF/19/2010 dated November 26, 2010

288. Applicability:

The AMC shall ensure compliance with the requirements mentioned in Clause 12.16.2 from the date of next specified transaction period or April 1, 2011 whichever is later. Schemes for which observations (final) under Regulation 29 of SEBI (Mutual Funds) Regulations, 1996 have been issued but are yet to be launched would be required to carry out the changes in Scheme Information Document and file the same with SEBI before the launch.

289. SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011 and SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012

290. Sixth Schedule of SEBI (Mutual Funds) Regulations, 1996 as amended via gazette notification No. LAD- NRO/GN/2011-12/38/4290 dated February 21, 2012

291. SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012

292. SEBI Circular No.Cir/IMD/DF/13/2011 dated August 22, 2011

293. SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012

294. SEBI Circular No. IMD/CIR No. 14/1510/2009 dated January 19, 2009

295. SEBI Circular No. CIR/IMD/DF/12/2011 dated August 01,2011

296. SEBI Circular No. SEBI/MFD/CIR/2/266/2000 dated May 19, 2000.

297. SEBI Circular No. SEBI/IMD/CIR No 14/187175/2009 dated December 15,2009

298. Regulation 53(c) of the SEBI (Mutual Fund) Regulations, 1996.

299. For CTR format please refer to Chapter on Formats

300. SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000

301. Please refer to Schedule XI of SEBI (Mutual Funds) Regulations, 1996

302. SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000, SEBI Circular No. IMD/CIR/12/80083/2006 dated November 20, 2006 and SEBI Circular No.Cir/IMD/DF/16/2011 dated September 08, 2011

303. SEBI Circular No.Cir/IMD/DF/16/2011 dated September 08, 2011

304. Regulation 36(4) of SEBI (Mutual Funds) Regulations, 1996

305. SEBI Circular No. IMD/CIR/12/80083/2006 dated November 20, 2006

306. SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000

307. SEBI Circular No. MFD/CIR/05/432/2002 dated June 20, 2002.

308. SEBI Circular No -SEBI/IMD/CIR No./13/187052/2009 December 11, 2009

309. SEBI Circular No. SEBI/IMD/CIR No 18/198647/2010 dated March 15, 2010

310. SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008, SEBI/CFD/DIL/2008/25/09 dated September 25, 2008, SEBI/CFD/DIL/MB/IS/5/2009/05/08 dated August 5, 2009 and SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009 and CIR/CFD/DIL/7/2010 dated July 13, 2010

311. SEBI Circular No. MRD/DoP/Cir-05/2007 dated April 27, 2007, SEBI Circular No. MRD/DoP/Cir-08/2007 dated June 25, 2007, SEBI Circular No. MRD/DoP/MF/Cir- 08/2008 dated April 3, 2008.

312. SEBI Circular No. MRD/DoP/MF/Cir-08/2008 dated April 3, 2008.

313. SEBI Circular No. IIMARP/MF/CIR/07/826/98 dated April 15, 1998. 145 Master Circular for Mutual Funds

314. SEBI Cir No. MFD/CIR NO -13/370/02 dated January 16,2002

315. SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No. MFD/CIR/20/23230/2002 dated November 28, 2002, SEBI Circular No. SEBI/MFD/CIR No.01/6693/03 dated April 3, 2003, SEBI Circular No. SEBI/IMD/CIR No.2/254/04 dated February 4, 2004, SEBI Circular No. MFD/CIR/06/210/2002 dated June 26, 2002.

316. Exemption for Senior Citizens: Senior citizens with experience in distributing Mutual Funds units are exempt from the mandatory certification examination if they have completed 50 years of age and have experience of at least 5 years as on September 30, 2003.316 They are also required to follow the guidelines prescribed by the Board and AMFI. They had to attend a mutual fund training programme and a certificate to that effect endorsed by a mutual fund should be submitted to AMFI.

317. SEBI Circular No. MFD/CIR No.10/310/01 dated September 25, 2001, SEBI Circular No. MFD/CIR/20/23230/2002 dated November 28, 2002.

318. SEBI Circular No. CIR/IMD/DF/13/2011 dated August 22, 2011.

319. SEBI Circular No. Cir/IMD/DF/7/2012 dated February 28, 2012

320. Refer Annexure and Reports for details on Code of Conduct

321. SEBI Circular No. Cir/IMD/DF/5/2010 dated June 24, 2010

322. For Notification under regulation 3 of the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 please refer Chapter on Annexure

323. SEBI Circular No – SEBI/IMD/CIR No.12 /186868 /2009 dated December 11,2009

324. SEBI Circular No ISD/AML/CIR-1/2008 dated December 19, 2008

325. SEBI Circular No Cir /IMD/DF/9 / 2010 dated August 12, 2010

326. SEBI Circular No – SEBI /IMD / CIR No.11/183204/ 2009 dated November 13,2009

327. SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006

328. Please refer Chapter 15 on Certification and Registration of Mutual Funds intermediaries

329. For Code of Conduct, please refer to Annexure I

330. Please refer Chapter 15 on Certification and Regiatration of Mutual Funds intermediaries

331. Please refer Chapter 15 on Certification and Regiatration of Mutual Funds intermediaries

332. Please refer to Chapter 8 – Net Asset Value for details on cut off timing provisions

333. For details on dispatch of statement of accountts. refer to Chapter 14- Investor Rights and services

334. SEBI circular no.CIR/IMD/DF/9/2011, dated May 19, 2011

335. SEBI Circular No – MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004

336. SEBI Circular No – ISD/AML/CIR-1/2008 dated December 19, 2008

337. SEBI Circular No. MIRSD/SE/Cir-21/2011, dated October 5, 2011, SEBI Circular No.MIRSD/Cir-23/2011 dated December 2, 2011 and SEBI Circular No.MIRSD/Cir- 26 /2011 dated December 23, 2011

338. SEBI Circular No CIR/IMD/DF/17/2010 dated November 9, 2010

339. SEBI Circular No. SEBI/IMD/CIR No.11/78450/06 dated October 11, 2006

340. SEBI Circular dated November 13, 2009 for stock brokers

341. SEBI Circulars MFD/CIR/20/23230/02 dated November 28, 2002 and SEBI/IMD/08/174648/2009 dated August 27, 2009

342. SEBI (Mutual Funds) Regulations, 1996

343. SEBI Circular No – CIR/IMD/DF/10/2010 dated August 18, 2010

344. Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996

345. SEBI Circular No.CIR/IMD/DF/14/2011 dated August 9, 2011

346. SEBI Circular No.Cir/IMD/DF/7/2012 dated February 28, 2012

347. Of SEBI (Mutual Funds) Regulations, 1996.

 

 

FORMATS

Placed below are all the formats prescribed by SEBI, standardizing disclosure by the AMC to unitholders as well as reporting to SEBI. Please note that, as a compliance of SEBI Regulations is a continuous process, you are advised to incorporate the modifications/additions under the relevant sections of the format, based on amendments to the Regulations/guidelines issued in the future from time to time.

1. FORMAT OF BIO DATA

1. BIO-DATA OF DIRECTOR OF AMC/ TRUSTEE COMPANY

2. BIO-DATA OF KEY PERSONNEL

A. BIO-DATA OF DIRECTOR OF AMC/ TRUSTEE COMPANY1

Identification:

1.  Name:

2.  Father’s name:

3.  Date of birth:

4.  Sex (Please tick): Male/Female

5.  Present residential address:

6.  Permanent address:

7.  Appointment as Director of (Please tick): AMC / Trustee Co.

Educational Qualifications:

Experience (During last 10 years):

Name & Place of Organization Position held Nature of job responsibilities Period From – To

If retired more than 10 years back, please indicate last position held.

For AMC directors, details of professional experience in finance and financial services field [Reg. 21(b)]:

Particulars of Present Directorship and Trusteeship:

Organisation Name Any association with the sponsor Position held Nature of job responsibilities  Period From – To

Relationship with Sponsor or AMC:

1.  Are you associated with the sponsors or with any of its associate companies in any manner during the last 3 years?

2.  Are you relative of sponsor or any of the directors of the sponsor company or relative of associate directors of the AMC or the Trustee Company?

3.  Do you have personal holding in AMC or are you a nominee of an entity having stake in AMC?

4.  Have you been providing any professional service to the mutual fund, AMC, Trustee Company or Sponsor?

5.  Do you have any pecuniary relationship with the mutual fund, AMC, Trustee Company or Sponsors?

Record of Regulatory Violations/Criminal Offence (if any):

1.  Have you ever been convicted by a court for any criminal offence or any other offence involving moral turpitude or fraud or have been found guilty of any economic offence at any time in the past?

2.  Has any organization of which you were an employee or director or over which you exercise/exercised management or policy control ever been convicted of any criminal offence or any criminal suit filed during your association with them?

3.  Have you ever been found guilty by any court / regulatory body / self-regulatory organization / stock exchange for any offence related to securities market in India or abroad?

4.  Have you ever been associated with any organization as a director or an employee against which SEBI had initiated action of suspension or cancellation of certificate of registration or initiated action under Section 11(B) of SEBI Act or any prosecution launched for acts committed during your association?

(If the answer to any of the above questions is in affirmative, please furnish details. Please disclose any such pending proceedings also).

Other Details: Achievements, Awards, Publications, etc.:

Declaration:

I affirm that all the information given above is true and complete to the best of my knowledge and belief. I have been adequately briefed on my responsibilities and duties under SEBI (Mutual Funds) Regulations, 1996 and agree to abide by the same. Regarding the information contained within para VI and VII above, SEBI would be informed immediately on any changes.

 

Signature:

Name:

 

(New/Proposed Director)


Date:

Place:

 

For Use of Trustees:

1.  Mr. / Ms.—————– who is appointed / proposed to be appointed as a director of AMC/Trustee Co. is a person of ability, integrity and standing (Reg.16(2)(a).

2.  In case of Chairman/ Director including independent director of AMC, he is not a trustee of any mutual fund (Reg. 16(3) and Reg. 21(1)(e)

3.  In case of a Trustee, he is not on board of any other AMC or Trustee Co. of any mutual fund.2

4.  After his induction, the board would consist of the following members

Member’s name Status (associate / independent)

1.

2.

3….

5.  (i) The trustees were discerning in the appointment of this director (Reg.18(25)(A)(I).

(ii) The independent directors of the trustees and AMC have paid specific attention in the selection and nomination of this director (Reg. 18(27)(iii) and (v)).

(iii) The director does not have any material pecuniary relationship with the mutual fund, AMC, Trustee Company or Sponsor which in the judgment of the Trustee may affect independence of Director (applicable in case of independent directors also.)

6.  SEBI would immediately be informed on any changes pertaining to Para VI and VII in the Bio-Data and other requirements as specified in Regulations would be complied with.

 

Signature:

Name:

 

(Trustee Authorized by the Board of Trustees)

 

Date:

Place:

B. BIO-DATA OF KEY PERSONNEL3

I. IDENTIFICATION
 1.  Name :
 2.  Fathers’ Name :
 3.  Date of Birth :
 4.  Sex :
 5.  Present Residential Address :
 6.  Permanent Residential Address :
II. EDUCATIONAL QUALIFICATIONS :
III. EMPLOYMENT DETAILS :
 (a)  Current Employer
 1.  Name of employer :
 2.  SEBI Regn. No. of employer :
 3.  Regd. Office of employer :
 4.  Address of office where employed :

(b) Ten year history of employment starting with current employment

NAME OF THE

EMPLOYER

DESCRIBE

FUNCTIONS

PRIMARY

RESPONSIBILITIES

OTHER

RESPONSIBILITIES

REPORTING

RELATIONSHIP

IV. OTHER BUSINESS

1.  Brief Description of any other business, full time or part time in self name or in name of close relative (parent-spouse-child):

2.  Details of business of close relatives:

V. RECORD OF REGULATORY VIOLATIONS/CRIMINAL OFFENCE (IF ANY):

(i)  Have you ever been convicted by a court for any criminal offence? : Yes / No

(ii) Have you ever been convicted by any court or authorised body for any offence related to the securities industry? : Yes / No

(iii) Have you or any organisation over which you exercised management or policy control ever been convicted of any criminal offence? : Yes / No

(iv) Are there any proceedings against you or any organisation over which you exercised management or policy control? : Yes / No

(v) Have you been accused of or convicted for any offence by a regulatory of the securities or financial industry, a self regulatory organisation, stock exchange in India or from any foreign country? : Yes / No

(vi) If the answer to any of the following questions is yes, please furnish details. N.A.

OATH OVER SIGNATURE

I affirm that I have read and understood the items in this form and that my answers including attachments are true and complete to the best of my knowledge and belief. I understand that I may be subject to administrative, civil or criminal liabilities if I give false and misleading answers.

Date:

Signature of applicant

Name of the applicant (in block print)

Certificate from the Employer

The information provided by the applicant is currently true and complete to the best of our knowledge and belief. We have taken appropriate steps to verify the accuracy and completeness of the information contained in this application.

I agree to update this form by causing an amendment to be filed on a timely basis whenever changes occur to answers previously reported. Further, to the extent that information previously given is not amended, the information provided in this form is currently accurate and complete.

Date:

Signature of appropriate signatory

 

Name of appropriate signatory (in block letters)

 

Name and Regn. No. of Organisation

2. REPORTS

 A.  NEW SCHEME REPORT

 B.  COMPLIANCE TEST REPORT

 C.  HALF YEARLY TRUSTEE REPORT

 D. MONTHLY CUMULATIVE REPORT (Additional Reporting format on the overseas investment by Mutual Funds in ADRs/ GDRs, foreign securities and overseas Exchange Traded Funds (ETFs))

 E.  ANNUAL STATISTICAL REPORT

 F.  DAILY TRANSACTION REPORT

 G.  PORTFOLIO FORMAT FOR DEBT ORIENTED CLOSE ENDED AND INTERVAL SCHEMES/ PLANS

 H.  REPORT TO TRUSTEES BY AMC

A. NEW SCHEME REPORT4

NAME OF THE MUTUAL FUND:

SCHEME DETAILS:

 A.  Scheme Name :

 B.  Scheme Type ( ) : Open Ended/Close Ended/Interval

 C.  Date of Opening :

 D.  Date of Closing of Scheme/Initial Subscription Period/ Transaction Period :

 E.  Maximum Subscription Amount acceptable as per Offer Document :

 F.  Minimum Target Amount to be raised (Rs) :

II SUBSCRIPTION / ALLOTMENT DETAILS

1.  No. of applicants :

•   Direct –

•   Broker –

2.  No. of applicants rejected & their total value (Rs):

3.  NFO expenses incurred (Rs) :

4.  Entry Load incurred (Rs) :

5.  Subscription Received (Rs) :

•   Direct –

•   Broker –

6.  Allotment Date :

7.  Listing (Names of stock exchanges) :

III DATE OF DESPATCH OF REFUND ORDERS

(If subscription received is less than minimum target amount to be raised).

IV UNIT HOLDING PATTERN

Sr.No. Unit holding pattern No. of Unitholders No. of units held Holding as % of net asset
Direct Broker Direct Broker Direct Broker
1 Individuals
2 NRIs/OCBs
3 FIIs
4. Corporates/Institutions/Others
TOTAL

V (a) COMMUNICATION TO THE UNITHOLDERS

Please confirm whether the number of investors holding more than 25% of the net assets of the scheme and total holdings by such investors in percentage terms have been communicated to all unit holders through allotment letters/ account statements :

Yes/ No

(b) DISTRIBUTION SCHEDULE

If any unit holder is holding more than 25% of the net assets of the scheme, please give the following details.

Sr. No Name of the unit holder Classification (Individuals, NRIs/OCBs, FIIs, Corporate/Institutions/ Others) Address No. of units held Holding as % of net asset
1
2
TOTAL

VI GEOGRAPHICAL DISPERSION

1. Please list state wise geographical dispersion of unit holders in the following format:

Sr.No Name of the State Mode of Entry No. of unit holders Amount mobilised as % of total assets mobilised
1 Direct
Broker
2 Direct
Broker
Direct
Broker
TOTAL Direct
Broker

2. Total number of cities from which subscriptions have been received:

VII DETAILS OF TOP TEN AGENTS/DISTRIBUTORS

Please list names of top ten agents/distributors in the descending order of commission paid in the following format:

Sr. No Name of Agent/Distributors Amount mobilized in Rs. Cr. Commission paid Rs. Cr
1
2
TOTAL

Name and Signature of the Compliance Officer/Authorised Signatory:

Date:

Instructions 1. Broker implies broker/agent/distributor
2. Give all amounts in Rs.Crore

B. COMPLIANCE TEST REPORT5 FOR THE BI-MONTH ENDED :

Name of the Mutual Fund:

Name of the Asset Management Company:

Name of the Chief Compliance Officer:

Compliance Tests for Mutual Funds regulated by SEBI under SEBI (Mutual Funds) Regulations, 1996.

I. General Compliance Test

II. Investment Compliance Test

III. Investor Services Compliance Test

 

Compliance Tests for Mutual Funds regulated by SEBI under SEBI (Mutual Funds) Regulations, 1996.
Compliance Test for the bi-month ended ______________.

I. General Compliance Test

S.N. Regulations Particulars Remarks
(Indicate ‘yes’ if complied with the Regulations and ‘No’ for non-compliance)
1 sub-regulation (11) of regulation 18 Each trustee has filed the details of his transactions of dealing in securities on a quarterly basis.
2 Sub-regulation (27) of regulation 18 Independent directors of trustee or asset management company have paid specific attention and commented in their reports on clause (i) to (ix) of this sub regulation.
3 Clause (f) of sub-regulation (1) of regulation 21 Networth of the AMC computed as per the definition under the regulation is more than Rs.10 crores.
4 Sub-regulation (1) of regulation 24 The asset management company is not acting as a trustee
5 sub-regulation (2) of regulation 24 The asset management company is not undertaking any other business activities in the nature of portfolio management services, management and advisory services to offshore funds, pension funds, provident funds, venture capital funds, management of insurance funds, financial consultancy and exchange of research on commercial basis if any of such activities are in conflict with the activities of the mutual fund
6 first proviso to sub-regulation (2) of regulation 24 If the asset management company itself or through its subsidiaries undertake activities as mentioned in paragraph 2 above, it has satisfied SEBI that the key personnel of the asset management company, the systems, back office, bank and securities accounts are segregated activity wise and there exist systems to prohibit access to inside information of various activities.
7 second proviso to sub-regulation (2) of regulation 24 The asset management company has met the capital adequacy requirements, if any, separately for each such activity as mentioned in para 2 above, and has obtained separate approval/registration from SEBI, if necessary under the relevant regulations of SEBI.
8 sub-regulation (3) of regulation 24 The asset management company has not invested in any of its schemes unless full disclosure of its intention to invest has been made in the offer documents in case of schemes launched after the Notification dated 12th January’98.
Indicate details of such investments giving the names of schemes and the nature and amount of investments.
9 sub-regulation (3) of regulation 24 If the asset management company has invested in any of its schemes, it has not charged any fees on its investment in that scheme.
10 sub-regulation (1) of regulation 25 The asset management company has taken all reasonable steps and has exercised due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of these regulations and the trust deed.
11 sub-regulation (2) of regulation 25 The asset management company has exercised due diligence and care in all its investment decisions as is exercised by other persons engaged in the same business.
12 sub-regulation (3) of regulation 25 The asset management company has ensured that there are no acts of commissions or omissions by its employees or the persons whose services have been procured by the asset management company
13 sub-regulation (4) of regulation 25 and our Circular dated January 05, 2000 The asset management company has submitted to the trustees bi-monthly/quarterly/six monthly reports of each year on its activities and the compliance with the SEBI (Mutual Funds) Regulations, 1996.
14 sub-regulation (8) of regulation 25 The asset management company has not utilized the services of the sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction and distribution and sale of securities
15 proviso to sub-regulation (8) of regulation 25 If the asset management company has utilized the services of the sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction and distribution and sale of securities, the asset management company has ensured that disclosure to that effect is made to the unit holders and the brokerage or commission paid is also disclosed in the half yearly/ annual accounts of the mutual fund.
16 second proviso to sub-regulation (8) of the regulation 25 The Mutual Fund has disclosed in the half yearly & yearly accounts :

(i) any underwriting obligations taken by the Scheme in respect of issues of securities of associate companies & (ii) devolvement, if any,

(iii) subscriptions in issues lead managed by associate companies & (iv) subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies has acted as arranger or manager.

17 sub-regulation (9) of regulation 25 The asset management company has filed with the trustees the details of transactions in securities by the key personnel of the asset management company in their own name or on behalf of the asset management company.
18 sub-regulation (10) of regulation 25 In case the asset management company has entered into any securities transactions with any of its associates a report to that effect be sent to the trustees at its next meeting.
19 sub-regulation (11) of regulation 25 In case any company has invested more than 5 per cent of the net asset value of a scheme, the investments made by that scheme or by any other scheme of the same mutual fund in that company or its subsidiaries have been brought to the notice of the trustees by the asset management company indicating the names of companies/schemes in which such investments have been made and have been disclosed in the half yearly and annual accounts of the respective schemes with justification for such investment. Provided the latter investment has been made within one year of the date of the former investment calculated on either side.
20 sub-regulation (12) of regulation 25 The asset management company has filed with the trustees and SEBI the following :

(i) detailed bio-data of all its directors along with their interest in other companies within fifteen days of their appointment; and

(ii) any change in the interests of directors every 6 months

(iii) a quarterly report to the trustee giving details and adequate justification in respect of the purchase and/or sale of the securities of the group companies of the sponsor or the AMC by the mutual fund

21 sub-regulation (13) of regulation 25 A statement of holdings in securities of the directors of the asset management company has been filed with the trustees with the dates of acquisition of such securities at the end of each financial year.
22 sub-regulation (14) of regulation 25 The asset management company has not appointed any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws.
23 sub-regulation (15) of regulation 25 The asset management company has appointed registrars and share transfer agents who are registered with the Board.
24 proviso sub-regulation (15) of regulation 25 If the work relating to the transfer of units is processed in-house, the charges at competitive market rates have been debited to the scheme and for rates higher than the competitive market rates, prior approval of the trustees has been obtained and reasons for charging higher rates have been disclosed in the annual accounts.
25 sub-regulation (16) of regulation 25 The asset management company has abided by the Code of Conduct as specified in the Fifth Schedule of the SEBI (Mutual Funds) Regulations, 1996.
26 Regulation 31 The AMC has complied with each of the clauses under sixth schedule and SEBI circular MFD/CIR/4/51/2000 dated June 05, 2000, while releasing scheme specific advertisement, sales literature, news letters, web sites and any other advertisement pertaining to the mutual fund.

Place:

Date :

Signature of the Chief Compliance Officer :

II. Investment Compliance Test

S.N. Regulations Particulars Remarks
(Indicate ‘yes’ if complied with the Regulations and ‘No’ for non-compliance)
1 clause 1 of seventh schedule to sub-regulation (1) of regulation 44 No scheme has invested more than 15% of its NAV in rated (not below investment grade by a credit rating agency authorised to carry out such activity) debt instruments (apart from Government securities), issued by a single issuer and has not extended such investments to 20% of NAV of the Scheme without the prior approval of the Board of AMC and Board of Trustee.
2 clause 1A of seventh schedule to sub-regulation (1) of regulation 44 No scheme has invested more than 10% of its NAV in unrated debt issued by a single issuer and the total investment in such instruments has not exceeded 25% of NAV of any of the Scheme and all such investments are with the prior approval of the Board of AMC and Trustee Company.
3 clause 2 of seventh schedule to sub-regulation (1) of regulation 44 The Mutual Fund does not own more than 10% of any company’s paid-up capital carrying voting rights under all its schemes.
(If yes, give details of the investments made in excess of 10% of the paid up capital of the company in the prescribed format CRI)
4 clause 3 of seventh schedule to sub-regulation (1) of regulation 44  Inter scheme transfers of investments have been done at the prevailing market price for quoted instruments on spot basis and are in conformity with the investment objective of the scheme to which such transfer has been made.

(Give details of all inter scheme transfers in the prescribed format CR2)

5 clause 4 of seventh schedule to sub-regulation (1) of regulation 44 Aggregate inter scheme investments made by all schemes under the mutual fund including investments in schemes under another mutual fund have not exceeded 5% of the net asset value of all the schemes under the mutual fund and no fees has been charged for the same.

(Give details of such investments in the prescribed format CR 3)

6 clause 6 of seventh schedule to sub-regulation (1) of regulation 44 The fund has bought and sold securities on the basis of deliveries and has in all cases of purchases, taken delivery of relative securities and in all cases of sale delivered the securities.
7 clause 6 of seventh schedule to sub-regulation (1) of regulation 44 The fund has not indulged in short sale or carry forward transactions or engaged in “badla” finance. In case of short sales please furnish details of names of the scrips , short sale price, buy price for covering up the short sale, loss if any and total loss. [The aforesaid details if applicable should be submitted in a tabular form as an annexure]
The fund has not entered into any derivative transactions for the purpose of hedging and portfolio balancing except in accordance with the guidelines.
8 clause 7 of seventh schedule to sub-regulation (1) of regulation 44 The securities purchased have been transferred in the name of the Mutual Fund on account of the concerned scheme, wherever investments are intended to be of long term nature.
9 clause 9 of seventh schedule to sub-regulation (1) of regulation 44 No mutual fund Scheme has invested in any unlisted or private placement security of the associate or group company of the sponsor nor invested in any listed securities of the group companies of sponsor in excess of 25% of the NAV of its Scheme.
10 clause 10 of seventh schedule to sub-regulation (1) of regulation 44 No mutual fund Scheme at the time of making the investment has invested more than 10% of its NAV in the equity shares or equity related instruments of any Company except as provided in the proviso to clause 10.

[Give details of all cases where the investments have exceeded the limit of 10% including the exempted cases under the proviso to clause 10 in the prescribed format CR 4]

11 clause 11 of seventh schedule to sub-regulation (1) of regulation 44 No mutual fund Scheme has invested more than 5% of its NAV in the unlisted equity shares or equity related instruments in case of open ended scheme and 10% in case of close ended schemes.
12 Proviso to sub-regulation (2) of regulation 44 The borrowings by the Mutual Fund do not exceed more than 20% of net assets of the scheme and do not exceed a period of six months.

(Give details of all borrowings by the scheme as per the prescribed format CR 5)

13 sub-regulation (2) of regulation 44 The Mutual Fund has borrowed only for the purpose mentioned in sub-regulation 2 of regulation 44.
14 sub-regulation (3) of regulation 44 No loans have been advanced by the Mutual Fund
15 sub-regulation (4) of regulation 44 The mutual fund has lent securities in accordance with the stock lending scheme
16 sub-regulation (7) of regulation 25 a. The business done through any broker associated with the sponsor or through a firm which is an associate of the sponsor has not exceeded 5% of the aggregate purchase and sale of securities made by the mutual fund in all its Scheme in a block of three months.

(b) A justification has been furnished in writing to the Trustee in the quarterly report for the business done through any broker (other than a broker referred to in Regulation 25(7)(a)) which is average of 5% or more of the aggregate purchase or sale of securities made by the mutual fund in all its schemes. Inter scheme transfer and direct offer of companies have not been included in the in the aggregate transaction amount used as the basis for the computation of the business to non-associate brokers.

(Give details of transactions done through the top 20 brokers, by amount, as per the prescribed format in CR 6, please mark * against the names of associates.)

(Regulation 25 (7)(a) & (b) above – Inter scheme transfer and direct deals with the companies should not be included in the aggregate transaction amount used as the basis for the computation of the total business to the brokers)

 

Place:

Date:

Signature of the Chief Compliance Officer:

III. Investors Service Compliance Test

S No Regulation Particulars Remarks
(Indicate ‘yes’ if complied with the Regulations and ‘No’ for non-compliance)
1 sub-clause (2) of regulation 37 The unit certificates are transferred and returned to the transferees within 30 days from the date of production of instruments of transfer together with relevant unit certificates.
2 sub-clause (a) of regulation 53 The dividend warrants have been despatched to the unit holders within 30 days of the declaration of the dividend.
3 sub-clause (b) of regulation 53 The repurchase/redemption proceeds have been despatched within 10 working days from the date of receipt of requests for repurchase/redemption.
4 sub-clause (c) of regulation 53 The AMC has paid interest @15% for the period of delay in the event of failure to despatch the redemption or repurchase proceeds within the stipulated time. Details of interest paid enclosed in the format specified in SEBI circular MFD/CIR/2/266/2000 dated May 19, 2000.
Give details regarding the status of investor complaints forwarded by SEBI during the bi-month and at the beginning of the bi-month as per the following format :
Number of complaints pending at the beginning of the bi-month Number of complaints forwarded by SEBI during the bi-month Number of complaints redressed* during the bi-month Number of complaints pending at the end of the bi-month
Give details regarding the status of investor complaints received directly by the mutual fund as per the following format :
Number of complaints pending at the beginning of the bi-month Number of complaints received during the bi-month Number of complaints redressed* during the bi-month Number of complaints pending at the end of the bi-month
* All complaints which have been fully resolved and a communication thereof has been sent to the complainant shall be deemed to have been redressed.
Place

Date
Signature of the Compliance Officer

 

CR 1

REPORT OF INVESTMENT IN COMPANIES IN EXCESS OF 10% OF THEIR PAID UP CAPITAL CARRYING VOTING RIGHTS

Date Name of the Company Purchase Price Value (Rs. lacs) Holding as % of company’s paid-up capital carrying voting rights.

 

Signature of the Compliance Officer

CR 2

INTER SCHEME TRANSFERS

Date Name of the Transferor Scheme Name of the Transferee Scheme Name of the Company and type of security Details of Transfer Market rate (if unquoted/unlisted and basis of rate) Reasons of transfer
Quantity Rate Value (Rs. lacs)

 

Signature of Compliance Officer

CR 3

INTRA AND INTER SCHEME INVESTMENTS

Investee Scheme Investor Scheme Total investments by schemes as % of net assets of the investee schemes*
Name Resources mobilised/net assets (Rs. lacs) Name Name Net assets (Rs. lacs) Investments (Rs. lacs) Investment as % of net assets

*Information to be given only in the case of intra scheme investments.

Signature of the Compliance Officer.

CR – 4

Details of investments in excess of the limits specified in Clause 10 of the Seventh Schedule of SEBI (Mutual Funds) Regulations 1996 read with SEBI Circular No.MFD/CIR/09/014/2000 dated January 05,2000.

(1) (2) (3) (4) (5) (6)* (7)
Sl. No Scheme Scrip Date/s of violation/s (First and each of the subsequent ones due to incremental investments, if any) Holding in the scrip as a % of the NAV of the scheme, consequent to the investment Applicable limit Name & closing value of the benchmark index/sub-index(if applicable)
1.
2.
3.
4.

(6)* For the sector /industry specific schemes, the applicable (upper) limit is the weightage of the scrip in the representative sectoral index/sub index or 10% of the NAV whichever is higher, as specifically disclosed in the offer document.

For index funds/schemes, the upper limits shall be in accordance with the weightage of the scrips as disclosed in the offer document

For all other schemes, the applicable upper limit for holding in each scrip is 10% of NAV.

 

Signature of the Compliance Officer

 

CR 5

REPORT ON BORROWINGS OF MUTUAL FUNDS

Name of the scheme and category Nature of instruments/

mode of borrowings

Source (Institutions

/banks/others)

Purpose Date of borrowing Date of repayment of borrowing (specify the period of borrowing) Rate of borrowing Amount borrowed as % of net assets Collateral used (if any

 

Signature of the Compliance Officer

 

CR 6

REPORT ON TRANSACTIONS THROUGH BROKERS

Name of the broker Value of business (Rs. lacs) Brokerage paid (Rs. lacs) Broker wise contracts outstanding for more than 60 days % of gross business done

 

Signature of Compliance Officer

CR 7

Statement of Interest paid to the investors for delays in despatch of redemption/ repurchase warrants6

Name of the Investor Date of Receipt of Redemption/Repurchase Request Date of Dispatch of Redemption/Repurchase Period of Delay Amount of Interest Paid (Rs.)

 

CR 8

Statement of interest paid to the investors for delays in dispatch of dividend7

Name of the Investor Date of Dividend Declaration Date of Despatch of Dividend Period of Delay Amount of Interest Paid (Rs.)

In addition to the above, the following may also be reported:

1.  Compliance of AMC with SEBI guidelines on minimum no. of investors8.

2.  Compliance by AMC of Regulation 25(2) of the Mutual Funds Regulations on selection of Benchmarks.

3.  The AMC(s) shall also report on the portfolio structure of Capital protection oriented scheme in its bimonthly CTR(s)9 to the Board10.

4.  The AMC(s) shall certify in its CTR(s) that provisions of the Mutual Funds Regulations pertaining to parking of funds in short term deposits pending deployment are complied with at all points of time11.

5.  Compliance with reconciliation procedure in investments in G-Secs – The reconciliation procedure shall be made part of internal audit and the auditors shall on a continuous basis, check the status of reconciliation and submit a report to the Audit Committee. These reports shall be placed in the meetings of the Board of the AMC and Board of Trustees. Mutual Funds shall submit, on a quarterly basis to the RBI, a certificate confirming compliance with these requirements and any other guidelines issued by the RBI from time to time in this regard12.

6.  Mutual Funds are required to monitor the activities of their distributors, agents, brokers to ensure that they do not indulge in any malpractice or unethical practice while selling or marketing Mutual Funds units. Any non compliance with the Mutual Funds Regulations and Guidelines pertaining to Mutual Funds especially guidelines on advertisements and/ or sales literature and/or Code of Conduct shall be reported in the periodic meetings of the Board of the AMC and the Board of Trustees and shall also be reported to the Board13.

7.  Comments of AMC on the adequacy of risk management systems14.

8.  The number of days, when mutual funds were not able to adhere to the stipulated time limit for uploading their NAVs on the AMFI website with reasons thereof and the corrective action taken by the AMC to reduce the number of such occurances15.

C. BROAD COVERAGE OF REPORT OF TRUSTEES TO SEBI16

Trustees shall submit reports for the half year ended September and March. Reports should reach SEBI within 2 months from the end of the half year.

The report of the Trustees should give specific comments on the following:

♦  Performance of schemes.

♦  Activities of the AMC with specific reference to transactions with affiliates, concentration of business with affiliate brokers, compliance with investment restrictions and inter scheme transfers, net worth of the AMC.

♦  Ability of the AMC/sponsor to honour the guaranteed returns in case of any Scheme guaranteeing returns.

♦  Deployment of funds of the scheme in accordance with investment objectives and not for any option trading or short selling or carry forward transactions.

♦  Valuation and pricing of units – whether in accordance with the Regulations.

♦  Publication of Annual Report and furnishing of half yearly and annual accounts statements to unit holders and SEBI.

♦  Listing of scheme on stock exchange as per terms of the offer document effecting of transfer and despatch of units to unit holders within 30 days and timely despatch of repurchase/redemption proceeds and dividend warrants.

♦  Action taken on deficiency and warning letters by SEBI.

♦  Before launch of scheme, AMC had systems in place for back office etc. appointed all key personnel, auditors, compliance officers, prepared manual, specified norms, etc.

♦  AMC shall appoint Registrar & Share Transfer Agents, who are registered with SEBI, provided that if the work is done in-house, then the rates charged must be competitive and for higher rates reasons for charging higher rates must be disclosed.

♦  AMC has been diligent in empanelling brokers in monitoring securities transactions and avoiding undue concentration with any broker.

♦  AMC has not given undue and unfair advantage to any associate.

♦  In case, any company has invested more than 5% of NAV scheme, an investment made by the scheme or by any other scheme of the same mutual fund in that company or its subsidiaries shall be justified.

♦  Whether the AMC has dealt with any associate broker more than 5% of the quarterly business done by a mutual fund.

♦  In case the AMC has dealt through any other broker other than a associate broker in excess of 5% or more of the aggregate purchase and sale of securities made by the mutual fund in all its schemes, the AMC has recorded in writing the justification for the same and all whether all such investments have been reported to the trustees on a quarterly basis.

♦  Utilisation of the services of the sponsor or any of its associates, employees, etc. by AMC – whether disclosure made in the annual accounts.

♦  Whether AMC submitted quarterly report on its activities and complied with Regulations.

♦  Transactions of mutual fund are in accordance with the trust deed.

♦  Funds pertaining to a scheme have been invested in accordance with the Regulations.

♦  All activities of AMC are in accordance with the Regulations

♦  Details of transaction in securities by key personnel in their own name or on behalf of the AMC.17

♦  Whether AMC filed with the trustees detailed bio-data of all directors of AMC along with their interest in other companies within 15 days of their appointment in any change in the interest of directors every six months.

♦  Whether directors of the AMC filed with the trustees, a statement of holding of securities at the end of each financial year along with dates of acquisition.

♦  No conflict of interest between the manner in which the AMC has deployed its networth and the interest of the unitholders.

♦  Remedial steps as necessary taken by the trustees, in case the conduct and business of the mutual fund is not in accordance with the Regulations.

♦  Certifying that they have satisfied themselves that there have been no instances of self-dealing or front running by any of the trustees, directors and key personnel of the AMC.

♦  Certifying that AMC has been managing the schemes independently of any other activities and the unitholders’ interest has been protected.

♦  Comments of the independent trustee on the report received from the AMC regarding the investments by the mutual fund in the securities of the group companies of the sponsor.

♦  Confirmation that the mutual fund has not made any investment in – any unlisted security of an associate or group company of the sponsor, any security issued by way of private placement by an associate or group company of the sponsor or listed securities of group companies of the sponsor which is in excess of 25% of the net assets of all the schemes of the mutual fund.

♦  In case the mutual fund has an aggregate of securities which are worth Rs.10 crore or more as on the latest balance sheet date, whether transactions on or after January 15, 1998 are only through dematerialised securities.

♦  Whether unit holders’ consent obtained wherever necessary in accordance with Regulations.

♦  Any other matter the trustees would like to report to SEBI including

■   A confirmation regarding adoption of SID and KIM format by AMC as per circular dated May 23, 2008.

■   Compliance of AMC with SEBI guidelines on minimum no. of investors 18.

■   Compliance by AMC of Regulation 25(2) of the Mutual Funds Regulations on selection of Benchmarks.

■   The Trustees shall continuously monitor the portfolio structure of the capital protection oriented scheme and report the same in the Half Yearly Trustee Reports19.

■   Trustee periodically review securities lending contract and offer their comments in this report.

■   Trustees20 shall report compliance of AMC with the Guidelines on recording of investment in this report and also check compliance with these guidelines through independent auditors or internal and/or statutory auditors or other systems developed by them.

■   Trustees shall, in the Half Yearly Trustee Reports certify that provisions of the Mutual Funds Regulations pertaining to parking of funds in short term deposits pending deployment are complied with at all points of time21.

■  Compliance with reconciliation procedure in investments in G-Secs – The reconciliation procedure shall be made part of internal audit and the auditors shall on a continuous basis, check the status of reconciliation and submit a report to the Audit Committee. These reports shall be placed in the meetings of the Board of the AMC and Board of Trustees. Mutual Funds shall submit, on a quarterly basis to the RBI, a certificate confirming compliance with these requirements and any other guidelines issued by the RBI from time to time in this regard22.

■   The Trustees shall offer their comments on the compliance of guidelines on overseas investments by Mutual Fund schemes23.

■   Mutual Funds are required to monitor the activities of their distributors, agents, brokers to ensure that they do not indulge in any malpractice or unethical practice while selling or marketing Mutual Funds units. Any non compliance with the Mutual Funds Regulations and Guidelines pertaining to Mutual Funds especially guidelines on advertisements and/ or sales literature and/or Code of Conduct shall be reported in the periodic meetings of the Board of the AMC and the Board of Trustees and shall also be reported to the Board24.

■   Comments by Trustees on the adequacy of risk management systems25.

■   In case of Gold26:

•   Whether the assets of Gold ETF are invested in gold as per the asset allocation mentioned in the Scheme Information document?, and

•   Whether physical verification of gold was conducted by statutory auditor?’

D. MONTHLY CUMULATIVE REPORT27

For format of MCR please click here

Instructions for Calculating AUM

1.  To have uniformity in calculating Net assets under management (NAUM) and average assets under management (AAUM), the following methodology should be adopted.

♦  The AUM as on the last calendar day of each month shall be included in NAUM. In liquid funds, purchases on the first day of the next month shall not be considered in calculating NAUM for the current month.

♦  AAUM of the mutual fund shall be the aggregate of the daily AUM of the Mutual Fund over calendar days in the relevant month irrespective of the date of allotment/maturity of the scheme.

Additional Reporting format28 on the overseas investment by Mutual Funds in ADRs/ GDRs, foreign securities and overseas Exchange Traded Funds (ETFs)

Instruments Amount Invested Redemption Value of overseas investments (as on last date of the month)
In terms of Rs. In terms of US $ In terms of Rs. In terms of US $ In terms of Rs. In terms of US $
ADR/GDR
Equity of overseas companies
Foreign debt securities
Government
Securities of AAA rated countires
Overseas ETFs
Units/securities issued by overseas Mutual Funds

 

Number of Schemes investing in foreign securities

 

Name of the country Amount invested
In terms of Rs. In terms of US $

* Conversion rate as on last date of the month. Adjustment of conversion of US $ into India Rupee as per the RBI reference rate by Foreign Exchange Dealer Association of India (FEDAI)

E. ANNUAL STATISTICAL REPORT (ASR)29

This report is to be submitted each financial year in order to reach SEBI latest by 30th of April.

NAME OF THE MUTUAL FUND: _________________

Unitholding Pattern of Mutual Fund as on March 31, _______

Category Number of Folios Net asset Value
(Rs. Crores)
Unit Capital
Individuals
NRIs/OCBs
FIIs
Corporates/Institutions/ Others
TOTAL

Note: Data is to be provided for all the schemes put together and not individual scheme-wise

F. REPORTING OF TRANSACTIONS

To monitor trends of investment, mutual funds are required to submit details of transactions in secondary market on daily basis in both soft and hard copies. Information must be submitted for the total repurchases/sales of equity/debt and not for each individual scrip. Information on total purchases/sales of sensitive index scrips need not be sent.

Format and Specification of the Daily Transaction Report30

Operational notes on Reporting of transactions by registered Mutual Funds

DAILY REPORTS

1.  The format of DTR, explanation of codes, field widths etc are enclosed in Annexure “A”.

2.  The data as per DTR would be submitted in “TEXT” format with fields separated by “|” (i.e. a pipe).

3.  All transaction will have a unique transaction identification number which would be given by the AMCs/custodians at their end.

4.  In case of any change in transaction already reported to SEBI, such change can be reported as amendment transaction with the following characteristics

 a.  Transaction type is to be reported as “A’

 b.  Transaction ID shall be the same as that of earlier reported transaction.

 c.  Correct details

In other words the system will cancel the earlier reported transaction and will only consider the amended transaction for processing.

REPORTING TYPE – R_TYPE

N – New Transaction

A – Amendment in earlier transaction.

D – Deletion of earlier reported transaction.

General Aspects:

1.  The date format to be used all the reports submitted to SEBI would be DD-MON-YYYY.

2.  All Transaction values are In CRORES.

3.  The file names to be used for submitting the report in soft copies are

DTR: D<ddmm><3 char of Custodian code No>.txt

For e.g. Custodian code No: 001 for the date Dec 02 The file name would be D0212001.TXT

Annexure “A”

DTR (List and field description of codes in DTR)

SR. NO. CODE EXPLANATION FIELD TYPE FIELD WIDTH
1 CUST_CODE CUSTODIAN CODE CHARACTER 3
2 TRN_ID UNIQUE IDENTIFICATION NUMBER CHARACTER 12
3 TRN_DATE TRANSACTION DATE DD-MON-YYYY CHARACTER 11
4 REPORT_DT DATE OF REPORT (DD-MON-YYYY CHARACTER 11
5 R_TYPE REPORTING TYPE CHARACTER 1
6 TOT_PUR_EQ TOTAL PURCHASE (EQUITY) NUMBER (12,2)
7 TOT_SAL_EQ TOTAL SALES (EQUITY) NUMBER (12,2)
8 TOT_PUR_DEBT TOTAL PURCHASE (DEBT) NUMBER (12,2)
9 TOT_SAL_DEBT TOTAL SALES (DEBT) NUMBER (12,2)
10 TOT_PUR_EQ_BSE TOTAL PURCHASE (SENSITIVE INDEX SCRIPTS) Out of (6) NUMBER (12,2)
11 TOT_SAL_EQ_BSE TOTAL SALES (SENSITIVE INDEX SCRIPTS) Out of (7) NUMBER (12,2)

(1) NUMBER (12,2) — Number with 10 integer and 2 decimal digits.

(2) All transaction values to be reported in crores.

Annexure “B”

Format of the text file:

File Name : D0212001

Cust_ Code MF Reg. No. Trn _ID Trn. _dt Report _Dt R_Type Tot_Pur_Eq Tot Sal _Eq
C (3) C (12) C(12) 02-DEC-1999 02-DEC-1999  C(1)  N(12,2)  N(12,2)

 

Tot_Pur_Debt Tot_Sal_Debt Tot_Pur_Eq_BSE Tot_Sale_Eq_ BSE
N(12,2) N(12,2) N(12,2) N(12,2)

 

A B C D E F

001|MF/001/93/1|ID01|02-DEC-1999|02-DEC-1999|N|2.25|5.23|20.55|66.12|39.1|2.3|

Amendment:

For e.g.

Original Record is

001|MF/001/93/1|ID01|02-DEC-1999|02-DEC-1999|N|2.25|5.23|20.55|66.12|39.1|2.3|

Suppose Tot_Pur_Eq has to be changed from 2.25 to 25.5 then the amended record would be

001|MF/001/93/1|ID01|02-DEC-1999|04-DEC-1999|A|25.5|5.23|20.55|66.12|39.1|2.3|

and reported on 4th December, 1999.

A: TOT_PUR_EQ

B: TOT_SAL_EQ

C: TOT_PUR_DEBT

D: TOT_SAL_DEBT

E: TOT_PUR_EQ_BSE (Sensitive Index out of A)

F: TOT_SAL_EQ_BSE (Sensitive Index out of B)

G. PORTFOLIO FORMAT FOR DEBT ORIENTED CLOSE ENDED AND INTERVAL SCHEMES/ PLANS31

MONTHLY PORTFOLIO DISCLOSURE

Portfolio as on

Name of the Scheme

Sr. No. Name of the Instrument Market Value (in Rs. lakh) % to Net Assets of the scheme
A Bonds & Debentures of :
(I) Private Corporate Bodies
(II)  PSUs
(III)  Banks/FI (including NBFC)
(IV)  Others
Sub Total

(A=I+II+III+IV)

B  Securitised Debt Instruments
(V)  Single Loan
(VI)  Pool
Sub Total

(B=V+VI)

C  Money Market Instruments
(VII)  CPs
(VIII)  CDs
(IX)  T Bills
(X)  CBLOs/Repos
(XI)  Bills Rediscounting/BRDS
(XII) Others
Sub Total

(C=VII+VIII+IX+X+XI+XII)

D  Government Securities
E  Fixed Deposits
F  Cash and Net Current Assets
G  Others (Pls specify)
Net Assets (A+B+C+D+E+F+G)

Any downgrading of securities after the last disclosure may be disclosed by way of

notes.

* For items A – E issuer wise details may be given as per the Annexure by providing a link

ANNEXURE

Details of Portfolio as on

A Bonds & Debentures
Category of Issuer Name of the Issuer Market Value (in Rs. lakh) Rating % to Net Assets of the Scheme
(I)
(II)
(III)
(IV)

 

B Securitized Debt Instruments
(V) Single Loan
Obligor Originator Trust Details Name of Guarantor/ Details of underlying Security Level of guarantee (as % of loan) Market Value (in Rs. lakh) Rating
(VI) Pool
Originator Seller Trust Details Type of Pool Credit enhancement (as % of loan) Market Value (in Rs. lakh) Rating

 

C Money Market Instruments
Name of the Issuer Market Value (in Rs. lakh) Rating % to Net Assets of the scheme
(VII)
(VIII)
(IX)
(X)
(XI)
(XII)

 

D Government Securities
Details of Securities Market Value (in Rs. lakh) % to Net Assets of the scheme

 

E Fixed Deposits
Bank Name Amount (in Rs. lakh) % to Net Assets of the scheme

 

H. REPORT TO TRUSTEES BY AMC32

The Compliance certificate to be submitted by the AMC to the Trustees on an half yearly basis should contain specific comments on the following:

♦   If the AMC is carrying on other activities whether the same are conducted as per the Regulations and whether it continues to meet capital adequacy requirements for each of the activities.

♦   Net worth of the AMC

♦   Change in the directors on the Board of Directors of the AMC.

♦   The investments have been made in accordance with the Regulations, Trust Deed and investment objectives of the scheme.

♦   Utilisation of services of the sponsor or of any of its associates, employees or their relatives for any securities transaction is in accordance with the offer document and the brokerage and commission paid to such affiliates.

♦   Details of change in the interests of directors on the Board of directors of the AMC.

♦   Borrowings of the mutual fund giving details of date, nature of instrument, source, amount borrowed, purpose of borrowing, interest rate, security offered for the borrowing, percent of borrowing to net assets on date of borrowing, date of repayment or proposed manner of liquidation of the debt; if borrowing is from any associate of the sponsor or AMC reasons for borrowing from such entity and competitiveness of the terms.

♦   Investments/redemption by the AMC, Sponsor any associate of the Sponsor in any of the Schemes and inter-scheme investments giving details of name of the schemes, date, price, value, charges levied.

♦   Transactions in securities by the key personnel of the AMC in their own name or on behalf of the AMC giving details of names of the personnel, name of the security, purchase/sale details like quantity, rate, value, name of broker, whether transaction is on personal account or immediate family or fiduciary.

♦   Valuation and pricing of the units.

♦   Maintenance of proper books of accounts records and documents for each scheme.

♦   Identification and appropriation of expenses to individual schemes and conformity of expenses as per limits laid down by SEBI.

♦   Ability to honour guarantee commitment in respect of any guaranteed return scheme.

♦   Deficiency/ warning letters if any, received from SEBI and corrective action taken.

♦   Transactions (during preceding 2 quarters) with brokers associated with the sponsor which shall not in the average of 5% or more during any block of 3 months in all of its schemes.

♦   Transactions (during preceding 2 quarters) with non-associate brokers in the average of 5% or more during any block of 3 months together with justification for exceeding the limits.

♦   Justification about the purchase and sale of securities of group companies of the sponsor or the AMC by the mutual fund during preceding 2 quarters.

♦   Details of investments in listed securities of group companies of the sponsor (not to exceed 25% of the net assets of all the schemes of the mutual fund).

The Compliance certificate to be submitted by the AMC to the Trustees on a Bi-monthly basis should contain specific comments on the following:

♦   Investments made in excess of 10% of the paid up capital of a company, giving details of the date of purchase, name of the company, purchase price, value and holding percent in the capital carrying holding rights, whether any of such companies are associates of the sponsor/AMC, justification for making the investment.

♦   Inter scheme transfers – detailing dates, name of transferor and transferee schemes, securities transferred and price, value of transfer and reasons for the transfer.

♦   Investments by any company amounting to more than five per cent of the net asset value of a scheme indicating names of companies/schemes and their association with the Sponsor or the AMC, if any

♦   Concentration of business with brokers in excess of 5% of quarterly gross business of the mutual fund, giving details of date, name of broker, value of business, brokerage paid, percent of business to total business for the day, whether the broker is associated with the sponsor or through a firm which is an associate of the sponsor and justification for such transactions.

♦   Transactions that resulted in short sales or carry forward giving details of date, scrip, name of the broker, rate, quantity in custody.

♦   Despatch of repurchase/ redemption proceeds within 10 days and transfer of units within 30 days to unit holders, status of redressal of investors’ complaints giving ageing schedule and reasons.

♦   Details of investments in unrated debt instruments as approved by the Board of the AMC and Board of Trustees shall be communicated along with clear indication as to how the parameters set for investments have been complied with.

♦   Investments made in short term deposits pending deployment of funds33 shall be recorded34 and reported including the reasons for the investment especially comparisons with interest rates offered by other scheduled commercial banks.35

FINANCIALS

A.  FORMAT FOR HALF YEARLY DISCLOSURE OF UNAUDITED FINANCIAL RESULTS

B.  ABRIDGED SCHEME-WISE ANNUAL REPORT FORMAT

C.  HALF YEARLY PORTFOLIO DISCLOSURE

A. HALF YEARLY FINANCIAL RESULTS FOR THE YEAR ENDED36

FORMAT FOR HALF YEARLY DISCLOSURE OF UNAUDITED FINANCIAL RESULTS – (For Newspaper Publication)

HALF YEARLY FINANCIAL RESULTS FOR THE PERIOD ENDED ____________

SR.NO PARTICULARS SCHEME NAMES
1.1

1.2

Unit Capital at the beginning of the half year period [Rs. in Crores]

Unit Capital at the end of the period [Rs. in Crores]

2 Reserves & Surplus [Rs. In Crores]
3.1

3.2

Total Net Assets at the beginning of the half year period [Rs. in Crores]

Total Net Assets at the end of the period [Rs. in Crores]

4.1

4.2

4.3

NAV at the beginning of the half year period [Rs.]

NAV at the end of the period [Rs.]

Dividend paid per unit during the half-year [Rs.]

5.1

5.2

5.3

5.4

5.5

5.6

Income

Dividend [Rs. in Crores]

Interest [Rs. in Crores]

Profit/(Loss) on sale/redemption of investments (other than inter scheme transfer/sale) [Rs. in Crores]

Profit/(Loss) on inter-scheme transfer/sale of investments [Rs. in Crores]

Other Income (indicating nature) [Rs. in Crores]

Total Income (5.1 to 5.5) [Rs. in Crores]

6.1

6.2

6.3

6.4

6.5

Expenses

Management Fees [Rs. in Crores]

Trustee Fees [Rs. in Crores]

Total Recurring Expenses (including 6.1 and 6.2) [Rs. in Crores]

Percentage of Management Fees to daily/weekly average net assets [%]

Total Recurring expenses as a percentage of daily/weekly average net assets [%]

7.1

7.2

Returns during the half-year * [ (+) (-) ]

Compounded Annualised yield in case of schemes in existence for more than 1 Year **

Last 1 year [%]

Last 3 years [%]

Last 5 years [%]

Since launch of the scheme (date of launch to be given) [%]

8 Provision for Doubtful Income/Debts [Rs. in Crores]
9 Payments to associate/group companies (if applicable) [Rs. in Crores]
10 Investments made in associate/group companies (if applicable) [Rs. in Crores]

*Considering the movement of NAV during the half year and after adjustment of dividend, bonus, etc.

** For the calculation of compounded annualized yield, the procedure prescribed in Standard Offer Document shall be followed. All performance calculations shall be based only on NAV and the payouts to the unit holders. The calculation of returns shall assume that all payouts during the period have been reinvested in the units of the scheme at the then prevailing NAV. The type of plan/option of the scheme for which yield is given shall also be mentioned.

Notes:

1.  Effect of changes in the accounting policies on the above items to be disclosed by way of notes.

2.  Details of transactions with associates in terms of Regulation 25(8), if applicable, to be given by way of note.

3.  Details of investments made in companies which have invested more than 5% of the NAV of a scheme in terms of Regulation 25(11), if applicable, to be given as a note.

4.  Details of large holdings (over 25% of the NAV of the scheme), if applicable, including information about the no. of such investors and total holdings by them in percentage terms, to be given as a note.

5.  Any bonus declared during the half-year in respect of any of the schemes to be disclosed by way of a note.

6.  Details of Deferred Revenue Expenditure, if any, to be disclosed by giving a note.

7.  Borrowings if any, above 10% of the net assets of any scheme of a mutual fund to be disclosed.

8.  Exposure if any, of more than 10% of the net assets of any scheme of a mutual fund investing in derivative products to be disclosed.

9.  All other disclosures as specifically stipulated in the SEBI (Mutual Funds) Regulations, 1996, amended from time to time.

10. Performance of benchmark indices shall be disclosed below the returns of specific schemes for the same period. Mutual Funds can give the performance of more than one benchmark index also, if they so desire. Mutual funds may also give the perception of the management on the performance of their schemes37.

11. Schemewise percentage of investments made in foreign securities shall be disclosed as a footnote38.

B. ABRIDGED SCHEME-WISE ANNUAL REPORT FORMAT39

Auditors’ Report

Append the Auditors’ Report to the financial statements of schemes, drawn up in conformity with SEBI (Mutual Funds) Regulations, 1996.

ABC Mutual Fund

Address

Trustee Report

1  Scheme Performance, Future Outlook and Operations of the Schemes

Brief commentary on the scheme’s one year and since inception performance vis-à-vis the benchmark. Performance to be as of the period / year end. Future Outlook of the Fund and Operations of the Schemes.

2  Brief background of Sponsors, Trust, Trustee Co. and AMC Co.

a. ________ Mutual Fund

______Mutual Fund (________MF) was set up as a Trust by the Settlers, ____ on ________ with _____ Trustee Company (the Trustee Company) as a Trustee in accordance with the provisions of the Indian Trust Act, 1882 and is duly registered under the Indian Registration Act, 1908. The Trustee has entered into an Investment Management Agreement dated _____ with ____ Ltd. (the AMC) to function as the Investment Manager for all the Schemes of ___MF. ____MF was registered with SEBI on _____ .

b. ________ Trustee Company

The Trustee is the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustee has been discharging its duties and carrying out the responsibilities as provided in the Regulations and the Trust Deed. The Trustee seeks to ensure that the Fund and the Schemes floated there under are managed by the AMC in accordance with the Trust Deed, the Regulations, directions and guidelines issued by the SEBI, the Stock Exchanges, the Association of Mutual Funds in India and other regulatory agencies

  3   Investment Objectives of the Schemes

  4  Significant Accounting Policies: a Note confirming that “Accounting policies are in accordance with Securities Exchange Board of India (Mutual Fund) Regulations 1996.” Deviation, if any, should be reported.

  5  Unclaimed Dividends & Redemptions

Summary of No. of Investors & Corresponding amount schemewise

Unclaimed Dividends Unclaimed Redemptions
Scheme Amount (Rs.) No. of Investors Amount (Rs.) No. of Investors
Scheme A
Scheme B

  6  Statutory Information:

a. The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond their initial contribution (to the extent contributed) of Rs. ____ for setting up the Fund, and such other accretions / additions to the same.

b. The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments.

c. Full Annual Report shall be disclosed on the website (www …… ) and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the full Annual Report of the Fund / AMC at a price.

For ____ Trustee Company

Director

Place:

Date:

ABC MUTUAL FUND

Address

Abridged Balance Sheet as at

________

Rupees in Lakhs

Scheme A Scheme B Scheme C
As at Current Year As at Previous Year As at Current Year As at Previous Year As at Current Year As at Previous Year
LIABILITIES
1 Unit Capital
2 Reserves & Surplus
2.1 Unit Premium Reserves Unrealised Appreciation
2.2 Reserve
2.3 Other Reserves
3 Loans & Borrowings
4 Current Liabilities & Provisions
4.1 Provision for doubtful
4.2 Income/Deposits Other Current Liabilities & Provisions
TOTAL
ASSETS
1 1.1 Investments
Listed Securities:
1.1.1 Equity Shares
1.1.2 Preference Shares
1.1.3 Equity Linked Debentures
1.1.4 Other Debentures & Bonds
1.1.5 Securitised Debt securities
1.2 Securities Awaited Listing:
1.2.1 Equity Shares
1.2.2  Preference Shares
1.2.3  Equity Linked Debentures
1.2.4  Other Debentures & Bonds
1.2.5  Securitised Debt securities
1.3  Unlisted Securities
1.3.1  Equity Shares
1.3.2  Preference Shares
1.3.3  Equity Linked Debentures
1.3.4  Other Debentures & Bonds
1.3.5  Securitised Debt securities
1.4  Government Securities
1.5  Treasury Bills
1.6  Commercial Paper
1.7  Certificate of Deposits
1.8  Bill Rediscounting
1.9  Units of Domestic Mutual Fund
1.10  Foreign Securities
Total Investments
2  Deposits
3  Other Current Assets
3.1  Cash & Bank Balance
3.2  CBLO/ Reverse Repo Lending
3.3  Others
4  Deferred Revenue Expenditure (to the extent not written off)
TOTAL

 

Notes to Accounts – Annexure I

ABC MUTUAL FUND

Address

Abridged Revenue

Account For The Year / Period Ended_____

Rupees in Lakhs

Scheme A Scheme B Scheme C
Current Year / Period ended  Previous Year / Period Ended Current Year / Period ended Previous Year / Period ended Current Year / Period ended Previous Year / Period ended
1 INCOME
1.1  Dividend
1.2  Interest
1.3  Realised Gain / (Loss) on Foreign Exchange Transactions
1.4  Realised Gains / (Losses) on Interscheme sale of investments
1.5  Realised Gains / (Losses) on External sale / redemption of investments
1.6  Realised Gains / (Losses) on Derivative Transactions
1.7  Other Income1
(A)
2 EXPENSES2
2.1  Management fees
2.2  Service tax on Management fees
2.3  Transfer agents fees and expenses
2.4  Custodian fees
2.5  Trusteeship fees
2.6  Commission to Agents
2.7  Marketing & Distribution expenses
2.8  Audit fees
2.9  Other operating expenses
(B)
3  NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A -B = C)
4  Change in Unrealised Depreciation in value of investments (D)3
5  NET GAINS / (LOSSES) FOR THE YEAR / PERIOD (E=(C-D))
6  Change in unrealised appreciation in the value of investments (F)4
7  NET SURPLUS/ (DEFICIT) FOR THE YEAR / PERIOD ( E + F = G )/
7.1  Add: Balance transfer from Unrealised Appreciation Reserve
7.2  Less: Balance transfer to Unrealised Appreciation Reserve
7.3  Add / (Less): Equalisation
8  Total
9  Dividend appropriation
9.1  Income Distributed during the year / period
9.2  Tax on income distributed during the year / period
10  Retained Surplus / (Deficit) carried forward to Balance sheet

Notes to Accounts –

Annexure I

Guidance Note

1.  Provide details of significant items indicating nature & corresponding amount in Notes to accounts

2.  State in the notes to accounts that expenses other than management fee is inclusive of service tax where applicable.

3.  Unrealised Depreciation to be computed by each asset category and shown on an aggregated basis. This should take into account change in unrealised depreciation for the year/period and write back of unrealised depreciation provided in the previous year end.

4.  Unrealised Appreciaiton to be computed by each asset category and shown on an aggregated basis. This should take into account change in unrealised appreciaiton for the year/period and write off of unrealised appreciation provided in the previous year end.

ABC Mutual Fund Address

Notes to Accounts – Annexure I to the Abridged Balance Sheet and Revenue Account for the Year / Period ended ______

 1 Investments:-

1.1. Note confirming that Investments of the Schemes are registered in the name of the Trustees for the benefits of the Schemes Unitholders.

1.2  Open Position of derivatives (outstanding market value & % to Net Assets as of the Year end).

1.3. Investments in Associates and Group Companies: Provide details of issuer, nature of instruments, amount, aggregate investments by all schemes.

1.4  Open position of Securities Borrowed and / or Lend by the scheme.

1.5  Details of NPA: Aggregate market value and provision thereof.

1.6  Aggregate Unrealised Gain / Loss as at the end of the Financial Year / Period and percentage to net assets.

1.7  Aggregate Value of Purchase and Sale with Percentage to average assets.

1.8  Non-Traded securities in the portfolio: Provide Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets.

  2  Details of Transaction with Associates under regulation 25(8). Provide details of name of associate, nature of payment and amount

  3  “Large Holdings in the Scheme (i.e. in excess of 25% of the net assets). Provide details of No. of Investors and total holdings by them in percentage terms.”

 4   Unit Capital movement during the year ended / period ended. Planwise details of movement in units – opening, subscription, redemption, closing. Indicate plan wise face value of units.

 5   Prior Year Comparison – a suitable statement that prior year figures have been reclassified wherever necessary to conform to current years’ presentation.

 6.  Contingent Liability. Provide details of nature and amount.

Guidance Note: Provide corresponding previous year/period figures for all the above disclosures.

ABC MUTUAL FUND

Address

Key Statistics for the year / period ended ____

Scheme A Scheme B Scheme C
Current Year/ Period ended Previous year/ Period ended Current Year/ Period ended Previous year/ Period ended Current Year/ Period ended Previous year/ Period ended
1. NAV per unit (Rs.):
Open
High
Low
End
2. Closing Assets Under Management (Rs. in Lakhs)
End
Average (AAuM)
3.Gross income as % of AAuM1
4. Expense Ratio:
a. Total Expense as % of AAuM (plan wise)
b. Management
Fee as % of AAuM (plan wise)
5. Net Income as a percentage of AAuM2
6. Portfolio turnover ratio4
7. Total Dividend per unit distributed during the year / period (plan wise)
8. Returns:
a. Last One Year
Scheme
Plan ____
Plan ____
Benchmark
b. Since Inception
Scheme
Plan ____
Plan ____
Benchmark
1. Gross income = amount against (A) in the Revenue account i.e. Income.
2. Net income = amount against (C) in the Revenue account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD
3. Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year/period.
4. AAuM=Average daily net assets

C. HALF YEARLY PORTFOLIO DISCLOSURES40

Name of the Mutual Fund:

Name of the scheme:

Half-yearly Portfolio Statement for the period ended __

Name of the instrument Quantity Mkt value (Rs in lakhs) % to NAV
Equity & Equity related –

(a) listed / awaiting listing on Stock Exchanges

1

2

3

Total

(b) Unlisted

1

2

3

Total

Debt Instruments –

(a) listed/awaiting listing on stock exchanges

Rating

1

2

3

Total (b) Privately Placed/Unlisted

Rating

1

2

3

(C) Securitized Debt Instruments41

Total

Money Market Instruments

1

2

3

Total

Others – cash etc. (please specify)
Grand Total

The portfolio disclosure for derivative positions shall be made as follows:

Hedging Positions through Futures as on …

Underlying Long /Short Futures Price when
purchased
Current price of
the contract
Margin maintained
in Rs. Lakhs

Total %age of existing assets hedged through futures For the period ended … specify the following for hedging transactions through futures which have been squared off/expired

Total Number of contracts where futures were bought Total Number of contracts where futures were sold Gross Notional Value of contracts where futures were bought Gross Notional Value of contracts where futures were sold Net Profit/Loss value on all contracts combined

Exposure created due to over hedging through futures (quantity of hedging position exceeding the quantity of existing position being hedged) shall be reported in the next table.

Other than Hedging Positions through Futures as on…

Underlying Long /Short Futures Price
when purchased
Current price of
the contract
Margin maintained
in Rs. Lakhs

Total exposure due to futures (non hedging positions) as a %age of net assets

For the period ended … specify the following for non-hedging transactions through futures which have been squared off/expired

Total Number of contracts where futures were bought Total Number of contracts where futures were sold Gross Notional Value of contracts where futures were bought Gross Notional Value of contracts where futures were sold Net Profit/Loss Value on all contracts combined

Hedging Positions through Put Options as on …

Underlying Number of Contracts Option Price when purchased Current Option Price

Total %age of existing assets hedged through put options For the period ended … specify the following for hedging transactions through options which have already been exercised/expired

Total Number of contracts entered into

Gross Notional Value of contracts

Net Profit/Loss on all contracts (treat premium paid as loss)

Exposure created due to over hedging through options (quantity of hedging position exceeding the quantity of existing position being hedged) shall be reported in the next table.

Other than Hedging Positions through Options as on …

Underlying Call / Put Number of contracts Option Price when purchased Current Price

Total Exposure through options as a %age of net assets For the period ended … with regard to non-hedging transactions through options which have already been exercised/expired specify:

Total Number of contracts entered into

Gross Notional Value of contracts

Net Profit/Loss on all contracts (treat premium paid as loss)

Hedging Positions through swaps as on …

Swaps should be disclosed separately as two notional positions in the underlying security with relevant maturities. For example, an interest rate swap under which a mutual fund is receiving floating rate interest and paying fixed rate will be treated as a long position in a floating rate instrument of maturity equivalent to the period until the next interest fixing and a short position in a fixed rate instrument of maturity equivalent to the residual life of the swap.

The aforementioned provisions for disclosure on derivatives shall be applicable for all new schemes launched post the issue of the circular42. For all existing schemes, compliance with the circular shall be effective from October 01, 2010.

The following guidelines should be observed by the AMC when preparing the half yearly portfolio statement for the unitholders:-

1.  Entire portfolio irrespective of the quantity, market value and percentage to NAV of any scrip should be disclosed in descending order of weightage within each sub-group. If percentage to NAV of any security is less than 0.01%, it may be indicated by giving asterisk or any other mark instead of showing 0.00.

2.  An asterisk/ suitable mark should be given against debt instruments which are NPAs in accordance with SEBI Regulations and guidelines.

3.  A double asterisk mark should be given against thinly traded/ non traded securities and illiquid securities as defined in SEBI Regulations and guidelines.

4.  The following information may be given by way of footnotes :

a.  Total NPAs provided for and its percentage to NAV.

b.  Total value and percentage of illiquid equity shares.

c.  NAV at the beginning and end of the half-year period and any dividend, bonus etc declared during the period.

d.  Total outstanding exposure in derivative instruments at the end of the period.

e.  Total investments in foreign securities/ADRs/GDRs at the end of the period.

5.  For Equity Oriented Schemes, in addition to the above, the following are required to be disclosed:

a.  Portfolio Turnover Ratio to be disclosed as a footnote.

b. The name of the industry against the name of each security in accordance with industry classification as recommended by AMFI. The same industry classification may also be followed by the Mutual Funds while making disclosures of portfolios to investors, distributors and others, which are non statutory in nature.

6.  For Debt Oriented Schemes, in addition to the above, the following are required to be disclosed

a.  Average maturity period to be disclosed as a footnote.

7.  Half Yearly portfolio statements shall disclose all funds parked in short term deposit(s) under a separate heading. Details shall also include name of the bank, amount of funds parked, percentage of NAV43.

Further, all term deposits placed as margins for trading in cash and derivatives market shall be disclosed under a separate heading. Details shall include name of the bank, amount of term deposits, duration of term deposits, percentage of NAV44.

8.  Investments in foreign securities shall be disclosed in the prescribed format under a separate heading “Foreign Securities and/or overseas ETF(s)”45.

4. APPLICATION FOR OVERSEAS INVESTMENTS

PROPOSAL FOR INVESTMENTS IN ADRs/GDRs/ FOREIGN SECURITIES / OVERSEAS ETFs46

Name of the Mutual Fund:
SEBI Registration No.:
Amount Proposed to be Invested in ADRs /GDRs /Foreign Securities / Overseas ETFs (in US $)
Schemes of the Mutual Fund through which investment is proposed Name and Type of scheme(s)
Whether the investment is consistent with the Investment Objectives of the Scheme (s);
Whether the offer document(s) provides for Overseas Investments and discloses the attendant risks
Name and Address of the branch of the bank through which Foreign Currency Transactions are to be routed:
Details of all overseas service providers proposed to be engaged including custodians, specialised agencies etc.

(Details must include name & address, services to be rendered, details of fee arrangement proposed, whether their track record of performance and regulatory compliance considered, their valid registration with overseas regulators details of experience/expertise, assets under management/custody, etc.)

Declaration:

1.  Boards of AMC and Trustees have exercised due diligence as required under Regulation 25(2) and Guidelines issued in this regard.

2.  Board of AMC and Trustees are satisfied that

  i.  The proposed investments in ADRs/GDRs issued by Indian or foreign companies or foreign securities or overseas ETFs are consistent with the investment objectives of the above mentioned scheme(s) and are in the interest of investors.

 ii.  The systems and procedures adopted by the AMC including the arrangements made with the overseas service providers are adequate to support such investments and to safeguard the interest of investors.

iii. The overseas service providers have sufficient experience, competence and a satisfactory track record of performance and regulatory compliance.

3.  A resolution to the above effect has been passed by the Boards of AMC and Trustees on…(dates)

Place: Signatures
Name:
Date: Designation:
(Authorised by Trustees)

 

5. STANDARD OFFER DOCUMENT47

A.  SCHEME INFORMATION DOCUMENT (SID)

B.  STATEMENT OF ADDITIONAL INFORMATION (SAI)

C.  KEY INFORMATION MEMORANDUM (KIM)

A. SCHEME INFORMATION DOCUMENT (SID)

Front Cover Page

SCHEME INFORMATION DOCUMENT

NAME OF THE SCHEME

(Type of Scheme – Open /Closed/Interval/Equity/Balanced/Income/Debt/Liquid/ETF etc.)

Offer of Units of Rs. — each for cash (subject to applicable load) during the New Fund Offer and Continous offer for Units at NAV based prices

New Fund Offer Opens on: ________

New Fund Offer Closes on: ________

Scheme re-opens on: ________

Name of Mutual Fund :

Name of Asset Management Company :

Name of Trustee Company :

Addresses, Website of the entities

The particulars of the Scheme have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, (herein after referred to as SEBI (MF) Regulations) as amended till date, and filed with SEBI, along with a Due Diligence Certificate from the AMC. The units being offered for public subscription have not been approved or recommended by SEBI nor has SEBI certified the accuracy or adequacy of the Scheme Information Document.

The Scheme Information Document sets forth concisely the information about the scheme that a prospective investor ought to know before investing. Before investing, investors should also ascertain about any further changes to this Scheme Information Document after the date of this Document from the Mutual Fund/Investor Service Centres/Website/Distributors or Brokers.

The investors are advised to refer to the Statement of Additional Information (SAI) for details of Mutual Fund, Tax and Legal issues and general information on www._____. (webside address).

SAI is incorporated by reference (is legally a part of the Scheme Information Document). For a free copy of the current SAI, please contact your nearest Investor Service Centre or log on to our website.
The Scheme Information Document should be read in conjunction with the SAI and not in isolation.

This Scheme Information Document is dated__________.

Note:

The wording in italics is explanatory commentary/instructions.

The words in Arial font are the text to be used in the Scheme Information Document, as applicable.

Instructions:

 i.  A Mutual Fund is free to add any other disclosure, which in the opinion of the Trustees of the Mutual Fund (Trustees) or the Asset Management Company (AMC) is material for the investor, provided that such information is not presented in an incomplete, inaccurate or misleading manner. Care should be taken to ensure that inclusion of such information does not, by virtue of its nature, or manner of presentation, obscure or impede understanding of any information that is required to be included under the Scheme Information Document.

 ii.  Since investors who rely on the Scheme Information Document may not be sophisticated in legal or financial matters, care should therefore be taken to present the information in the Scheme Information Document in simple language and in a clear, concise and easily understandable manner.

iii. The scheme shall not have a name or title which may be deceptive or misleading. Scheme’s name should be consistent with its statement of investment policy.

iv. The type of the scheme would mean whether the scheme is a growth scheme, income scheme, balanced scheme etc. and whether the scheme is open-ended, close-ended, an interval fund etc.

TABLE OF CONTENTS:

HIGHLIGHTS/SUMMARY OF THE SCHEME – This section shall include the following:

♦ Investment objective

♦ Liquidity

♦ Benchmark

♦ Transparency/NAV Disclosure

♦ Loads

♦ Minimum Application Amount

(Highlights/summary of the scheme, irrespective of whether they appear on the Cover Page or not, shall make a specific disclosure in case of assured return schemes48 regarding the guarantee given either by the AMC or by the Sponsor to distribute income at the assured rate, and to redeem the capital invested, to the unit holder. This statement shall be in bold, legible fonts.)

I. INTRODUCTION

RISK FACTORS

Standard Risk Factors:

♦  Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.

♦  As the price/value/interest rates of the securities in which the scheme invests fluctuates, the value of your investment in the scheme may go up or down (Mutual Funds may also provide factors affecting capital market in general and not limited to the aforesaid)

♦  Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the scheme.

♦  The name of the scheme does not in any manner indicate either the quality of the scheme or its future prospects and returns.

♦  The sponsor is not responsible or liable for any loss resulting from the operation of the scheme beyond the initial contribution of made by it towards setting up the Fund.

♦  The present scheme is the first scheme being launched under its management. (Applicable, if the AMC has no previous experience in managing a Mutual Fund).

♦  The present scheme is not a guaranteed or assured return scheme (applicable to all schemes except assured return schemes)

Scheme Specific Risk Factors

  ♦  Schemes investing in Equities – Describe briefly risks associated with investment in equity

  ♦  Schemes investing in Bonds – Describe briefly risks associated with fixed income products like Credit Risk, Prepayment Risk, Liquidity Risk etc.

  ♦  Risks associated with Investing in Foreign Securities – (if the scheme invests in these instruments)

  ♦  Risks associated with Investing in Derivatives – (if the scheme invests in these instruments)

  ♦  Risks associated with Investing in Securitised Debt – (if the scheme invests in these instruments)

  ♦  Risks associated with Short Selling and Securities Lending – (if the scheme intends to participate in short selling and securities lending)

B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME

(Applicability for an open-ended scheme)

The Scheme/Plan shall have a minimum of 20 investors and no single investor shall account for more than 25% of the corpus of the Scheme/Plan(s). However, if such limit is breached during the NFO of the Scheme, the Fund will endeavour to ensure that within a period of three months or the end of the succeeding calendar quarter from the close of the NFO of the Scheme, whichever is earlier, the Scheme complies with these two conditions. In case the Scheme/Plan(s) does not have a minimum of 20 investors in the stipulated period, the provisions of Regulation 39(2)(c) of the SEBI (MF) Regulations would become applicable automatically without any reference from SEBI and accordingly the Scheme/Plan(s) shall be wound up and the units would be redeemed at applicable NAV. The two conditions mentioned above shall also be complied within each subsequent calendar quarter thereafter, on an average basis, as specified by SEBI. If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25 % limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15th day of the notice period. The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard.

(Applicability for a Close ended scheme/Interval scheme)

The Scheme(s) and individual Plan(s) under the Scheme(s) shall have a minimum of 20 investors and no single investor shall account for more than 25% of the corpus of the Scheme(s)/Plan(s). These conditions will be complied with immediately after the close of the NFO itself i.e. at the time of allotment. In case of non-fulfillment with the condition of minimum 20 investors, the Scheme(s)/Plan(s) shall be wound up in accordance with Regulation 39 (2)(c) of SEBI (MF) Regulations automatically without any reference from SEBI. In case of non-fulfillment with the condition of 25% holding by a single investor on the date of allotment, the application to the extent of exposure in excess of the stipulated 25% limit would be liable to be rejected and the allotment would be effective only to the extent of 25% of the corpus collected. Consequently, such exposure over 25% limits will lead to refund within 6 weeks of the date of closure of the New Fund Offer.

For interval scheme the aforesaid provision will be applicable at the end of NFO and specified transaction period.

C. SPECIAL CONSIDERATIONS, if any

D. DEFINITIONS All terms used in the Scheme Information Document shall be defined in this Section.

Instructions:

  i.  Language and terminology used in the Scheme Information Document shall be as provided in the Regulations. Any new term if used shall be clearly defined.

 ii.  All terms shall be used uniformly throughout the text of the Scheme Information Document e.g. the terms ‘sale price’ and ‘repurchase price’ shall be used uniformly to indicate ‘offer price’ and ‘bid price’ of units.

 iii. The term ‘scheme’ shall be used uniformly to indicate the different schemes of a Mutual Fund.

E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY

The Asset Management Company shall confirm that a Due Diligence Certificate duly signed by the Compliance Officer/Chief Executive Officer/Managing Director/Whole time Director/Executive Director of the Asset Management Company has been submitted to SEBI, which reads as follows:

It is confirmed that:

(i)  the draft Scheme Information Document forwarded to SEBI is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time.

(ii)  all legal requirements connected with the launching of the scheme as also the guidelines, instructions, etc., issued by the Government and any other competent authority in this behalf, have been duly complied with.

(iii) the disclosures made in the Scheme Information Document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the proposed scheme.

(iv) the intermediaries named in the Scheme Information Document and Statement of Additional Information are registered with SEBI and their registration is valid, as on date.

II. INFORMATION ABOUT THE SCHEME

A. TYPE OF THE SCHEME – (open/close/interval, Equity/Debt/ Income/Liquid/Balanced/ETF etc.)

B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME?

The scheme’s investment objective and policies (including the types of securities in which it will invest) shall be clearly and concisely stated in the Scheme Information Document so that they may be readily understood by the unit holder/investor.

C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS?

This includes asset allocation table giving the broad classification of assets and indicative exposure level in percentage terms specifying the risk profile. If the scheme’s name implies that it will invest primarily in a particular type of security, or in a certain industry or industries, the scheme shall have an investment policy that requires that, under normal circumstances, at least 65 percent of the value of its total assets be invested in the indicated type of security or industry. The asset allocation should be consistent with the investment objective of the scheme.

Instruments Indicative allocations (% of total assets) Risk Profile
Maximum Minimum High/Medium/Low

Percentage of investment in foreign securities, derivatives, stock lending, securitized debt etc. to be indicated.

D. WHERE WILL THE SCHEME INVEST?

This includes a brief narration on the types of instruments in which the scheme will invest and the concerned regulations and limits applicable shall also be mentioned.

Investment in overseas securities shall be made in accordance with the requirements stipulated by SEBI and RBI from time to time.

Brief narration on the various derivative products specifying (i) the instruments to be used (ii) the applicable limits.

E. WHAT ARE THE INVESTMENT STRATEGIES?

Information about investment approach and risk control should be included in simple terms. In case the scheme proposes to invest in derivatives, disclosures on the various strategies to be adopted by the fund manager shall be made.

In case of assured return schemes, the Scheme Information Document shall disclose:

1.  how many schemes have assured returns, their number and corpus size;

2.  the justification as to how the net worth and liquidity position of the guarantor would be adequate to meet the shortfall in these schemes;

3.  details of the schemes which did not pay assured returns in the past and how the shortfall was met.

Further, Portfolio turnover policy, particularly for equity oriented schemes shall also be disclosed. In discussing the investment strategies, the scheme shall briefly discuss in the Scheme Information Document the probable effect of such strategies on the rate of the total portfolio turnover of the scheme, if such effects are significant and also other consequences which will result from the higher portfolio turnover rate e.g. higher brokerage and transaction cost.

F: FUNDAMENTAL ATTRIBUTES

Following are the Fundamental Attributes of the scheme, in terms of Regulation 18 (15A) of the SEBI (MF) Regulations:

(i)  Type of a scheme

•  Open ended/Close ended/Interval scheme

•  Sectoral Fund/Equity Fund/Balance Fund/Income Fund/Index Fund/Any other type of Fund

(ii)  Investment Objective

•   Main Objective – Growth/Income/Both.

•   Investment pattern – The tentative Equity/Debt/Money Market portfolio break-up with minimum and maximum asset allocation, while retaining the option to alter the asset allocation for a short term period on defensive considerations.

(iii) Terms of Issue

•  Liquidity provisions such as listing, repurchase, redemption.

•  Aggregate fees and expenses charged to the scheme.

•  Any safety net or guarantee provided.

In accordance with Regulation 18(15A) of the SEBI (MF) Regulations, the Trustees shall ensure that no change in the fundamental attributes of the Scheme(s) and the Plan(s)/Option(s) thereunder or the trust or fee and expenses payable or any other change which would modify the Scheme(s) and the Plan(s)/Option(s) thereunder and affect the interests of Unitholders is carried out unless:

•  A written communication about the proposed change is sent to each Unitholder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and

•  The Unitholders are given an option for a period of 30 days to exit at the prevailing Net Asset Value without any exit load.

Instruction

It shall be ensured that the advertisement is published and written communication is dispatched appropriately in advance of the commencement of 30 days period.

G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE ?

The name and the justification (specific to the scheme objective) for the use of benchmark index with which the performance of the scheme can be compared with.

H. WHO MANAGES THE SCHEME?

Name, age, qualification and experience of the fund manager to the scheme to be disclosed. The experience of the fund manager should include last 10 years experience and also the name of other schemes under his /her management.

I. WHAT ARE THE INVESTMENT RESTRICTIONS?

All the investment restrictions as contained in the Seventh Schedule to SEBI (Mutual Funds) Regulations, 1996 and applicable to the scheme should be incorporated. Further in case the fund follows any internal norms vis-à-vis limiting exposure to a particular scrip or sector, etc. apart from the aforementioned investment restrictions the same needs to be disclosed

In case of equity schemes disclose only equity related investment restriction though the scheme would be investing a portion of the assets in bonds for liquidity or for other purposes. In case of fixed income/debt schemes disclose only the investment restriction applicable to bonds. In case of balanced schemes all investment restrictions are to be disclosed.

J. HOW HAS THE SCHEME PERFORMED?

[In case of a new scheme, this is not applicable hence give the statement-“This scheme is a new scheme and does not have any performance track record”]

Or

[In case of a scheme in existence, the return figures shall be given for that scheme only, as per the For a scheme which is in existence for more than 1 year, the returns given will be Compounded Annualised Returns and for scheme which is in existence for less than 1 year, the returns would be absolute returns since inception.

Absolute returns for each financial year for the last 5 years shall be represented by means of a bar diagram as per the adjacent format]

Compounded Annualised Returns Scheme Returns % Benchmark Returns %
Returns for the last 1 year
Returns for the last 3 years
Returns for the last 5 years
Returns since inception
Absolute Returns for each financial year for the last 5 years

III. UNITS AND OFFER

This section provides details you need to know for investing in the scheme.

A. NEW FUND OFFER (NFO)

New Fund Offer Period

This is the period during which a new scheme sells its units to the investors.

NFO opens on:

NFO closes on:

(mention provision, if any, for extension and/or early closure)

New Fund Offer Price:

This is the price per unit that the investors have to pay to invest during the NFO.

Minimum Amount for Application in the NFO Minimum Target amount

This is the minimum amount required to operate the scheme and if this is not collected during the NFO period, then all the investors would be refunded the amount invested without any return. However, if AMC fails to refund the amount within 6 weeks, interest as specified by SEBI (currently 15% p.a.) will be paid to the investors from the expiry of six weeks from the date of closure of the subscription period.

Rs. ____________
Maximum Amount to be raised (if any)

This is the maximum amount which can be collected during the NFO period, as decided by the AMC.

Rs. ___________
Plans/Options offered Dividend, Growth, Bonus etc.
Dividend Policy
Allotment Mention, the procedure for allotment and dispatch of account statements/unit certificates. Indicate the time period.
Refund If application is rejected, full amount will be refunded within 6 weeks of closure of NFO. If refunded later than 6 weeks, interest @ 15% p.a. for delay period will be paid and charged to the AMC.
Who can invest

This is an indicative list and you are requested to consult your financial advisor to ascertain whether the scheme is suitable to your risk profile.

Mention category of applicants, who are eligible to invest in the scheme.

The AMC may also want to mention if there are any specific categories who are prohibited from investing in the scheme.

Where can you submit the filled up applications. Provide name, address and contact no. of Registrar and Transfer Agent (R&T), email id of R&T, website address of R&T, official points of acceptance, collecting banker details etc. on back cover page.
How to Apply Please refer to the SAI and Application form for the instructions.
Listing Mention, if applicable, the name of the Stock Exchange and the time frame by which the listing will be done.
Special Products/facilities available during the NFO Briefly describe the facilities/products available.

Facilities like:

Systematic Investment Plan

Systematic Transfer Plan

Systematic Withdrawal Plan

The policy regarding reissue of repurchased units, including the maximum extent, the manner of reissue, the entity (the scheme or the AMC) involved in the same.
 Restrictions, if any, on the right to freely retain or dispose of units being offered.

B. ONGOING OFFER DETAILS

Ongoing Offer Period

This is the date from which the scheme will reopen for subscriptions/redemptions after the closure of the NFO period.

W.e.f ____ (date) or within ____ days of the date of Closure of the NFO.
Ongoing price for subscription (purchase)/switch-in (from other schemes/plans of the mutual fund) by investors.

This is the price you need to pay for purchase/switch-in.

Example: If the applicable NAV is Rs. 10, entry load is 2% then sales price will be:

Rs. 10* (1+0.02) = Rs. 10.20

At the applicable NAV subject to prevailing entry load
Ongoing price for redemption (sale)/switch outs (to other schemes/plans of the Mutual Fund) by investors. This is the price you will receive for redemptions/switch outs. Example: If the applicable NAV is Rs. 10, exit load is 2% then redemption price will be:

Rs. 10* (1-0.02) = Rs. 9.80

At the applicable NAV subject to prevailing exit load.
Cut off timing for subscriptions/ redemptions/ switches

This is the time before which your application (complete in all respects) should reach the official points of acceptance.

Where can the applications for purchase/redemption switches be submitted? Provide the details of official points of acceptance, collecting banker details etc. on back cover page.
Minimum amount for purchase/redemption/switches
Minimum balance to be maintained and consequences of non maintenance.
Special Products available Systematic Investment Plan

Systematic Transfer Plan

Systematic Withdrawal Plan

Accounts Statements For normal transactions (other than SIP/STP) during ongoing sales and repurchase:

•   The AMC shall issue to the investor whose application (other than SIP/STP) has been accepted, an account statement specifying the number of units allotted (state the service standard for the same)

•   For those unitholders who have provided an e-mail address, the AMC will send the account statement by email.

•   The unitholder may request for a physical account statement by writing/calling the AMC/ISC/R&T. (state procedure).

For SIP/STP transactions;

•   Account Statement for SIP and STP will be despatched once every quarter ending March, June, September and December within 10 working days of the end of the respective quarter.

•   A soft copy of the Account Statement shall be mailed to the investors under SIP/STP to their e-mail address on a monthly basis, if so mandated.

•   However, the first Account Statement under SIP/STP shall be issued within 10 working days of the initial investment/transfer.

•   In case of specific request received from investors, Mutual Funds shall provide the account statement (SIP/STP) to the investors within 5 working days from the receipt of such request without any charges.

Annual Account Statement:

•   The Mutual Funds shall provide the Account Statement to the Unitholders who have not transacted during the last six months prior to the date of generation of account statements. The Account Statement shall reflect the latest closing balance and value of the Units prior to the date of generation of the account statement,

•   The account statements in such cases may be generated and issued along with the Portfolio Statement or Annual Report of the Scheme.

•   Alternately, soft copy of the account statements shall be mailed to the investors’ e-mail address, instead of physical statement, if so mandated.

Dividend The dividend warrants shall be dispatched to the unitholders within 30 days of the date of declaration of the dividend.
Redemption The redemption or repurchase proceeds shall be dispatched to the unitholders within 10 working days from the date of redemption or repurchase.
Delay in payment of redemption/repurchase proceeds The Asset Management Company shall be liable to pay interest to the unitholders at such rate as may be specified by SEBI for the period of such delay (presently @ 15% per annum).

C. PERIODIC DISCLOSURES

Net Asset Value

This is the value per unit of the scheme on a particular day. You can ascertain the value of your investments by multiplying the NAV with your unit balance.

The Mutual Fund shall declare the Net asset value of the scheme on every business day on AMFI’s website www.amfiindia.com by (time limit for uploading NAV as per applicable guidelines) and also on their website.

In case of open ended schemes, the NAV shall be calculated for all business days and released to the Press. In case of closed ended schemes, the NAV shall be calculated at least once a week (on Wednesday) and released to the Press.

In case of Fund of Fund and investments in foreign securities, the applicable NAV disclosure policy may be indicated.

Half yearly Disclosures: Portfolio/Financial Results

This is a list of securities where the corpus of the scheme is currently invested. The market value of these investments is also stated in portfolio disclosures.

The mutual fund shall publish a complete statement of the scheme portfolio and the unaudited financial results, within one month from the close of each half year (i.e. 31st March and 30th September), by way of an advertisement at least, in one National English daily and one regional newspaper in the language of the region where the head office of the mutual fund is located.

The mutual fund may opt to send the portfolio to all unit holders in lieu of the advertisement (if applicable).

Half Yearly Results The mutual fund and Asset Management Company shall before the expiry of one month from the close of each half year that is on 31st March and on 30th September, publish its unaudited financial results in one national English daily newspaper and in a regional newspaper published in the language of the region where the Head Office of the mutual fund is situated.
Annual Report Scheme wise Annual Report or an abridged summary thereof shall be mailed to all unitholders within six months from the date of closure of the relevant accounts year i.e. 31st March each year.
Associate Transactions Please refer to Statement of Additional Information (SAI).
Taxation

The information is provided for general information only. However, in view of the individual nature of the implications, each investor is advised to consult his or her own tax advisors/authorised dealers with respect to the specific amount of tax and other implications arising out of his or her participation in the schemes.

(mention the tax rates as per the applicable tax laws)

Resident Investors Mutual Fund
Equity Fund

Tax on Dividend

Capital Gains:

Long Term

Short Term

Equity scheme will also attract securities transaction tax (STT) at applicable rates.
For further details on taxation please refer to the clause on Taxation in the SAI
 Investor services Name, address and telephone number and email of the contact person/grievances officer who would take care of investor queries and complaints.

D. COMPUTATION OF NAV

Describe briefly the policies of the Mutual Fund with regard computation of NAV of the scheme in accordance with SEBI (Mutual Funds) Regulations, 1996.

Rounding off policy for NAV as per the applicable guidelines shall be disclosed.

Policy on computation of NAV in case of investment in foreign securities shall be disclosed.

IV. FEES AND EXPENSES

This section outlines the expenses that will be charged to the schemes.

A. NEW FUND OFFER (NFO) EXPENSES

These expenses are incurred for the purpose of various activities related to the NFO like sales and distribution fees paid marketing and advertising, registrar expenses, printing and stationary, bank charges etc. Details of source for meeting these expenses may be disclosed.

B. ANNUAL SCHEME RECURRING EXPENSES

These are the fees and expenses for operating the scheme. These expenses include Investment Management and Advisory Fee charged by the AMC, Registrar and Transfer Agents’ fee, marketing and selling costs etc. as given in the table below:

The AMC has estimated that upto % of the weekly average net assets of the scheme will be charged to the scheme as expenses (Give slab wise break up depending on the assets under management. Give plan/option wise break up if the expense structures are different). For the actual current expenses being charged, the investor should refer to the website of the mutual fund.

Particulars % of Net Assets
Retail Plan (the name of the plan as applicable) Institutional Plan (the name of the plan as applicable)
 Investment Management & Advisory Fee
 Custodial Fees
Registrar & Transfer Agent Fees including cost related to providing accounts statement, dividend/redemption cheques/warrants etc.
Marketing & Selling Expenses including Agents Commission and statutory advertisement
Brokerage & Transaction Cost pertaining to the distribution of units
Audit Fees/Fees and expenses of trustees
Costs related to investor communications
Costs of fund transfer from location to location
Other Expenses*
Total Recurring Expenses

(*To be specified as permitted under the Regulation 52 of SEBI (MF) Regulations)

These estimates have been made in good faith as per the information available to the Investment Manager based on past experience and are subject to change inter-se. Types of expenses charged shall be as per the SEBI (MF) Regulations. (The regulatory limits on Annual Recurring Expenses and Investment Management & Advisory fees in terms of Regulation 52 shall be disclosed).

The mutual fund would update the current expense ratios on the website within two working days mentioning the effective date of the change.

C. LOAD STRUCTURE

Load is an amount which is paid by the investor to subscribe to the units or to redeem the units from the scheme. This amount is used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Load amounts are variable and are subject to change from time to time. For the current applicable structure, please refer to the website of the AMC (www.—–) or may call at (toll free no.) or your distributor.

Type of Load Load chargeable (as %age of NAV)
Entry
Exit *

*The load on other types of transaction could be Dividend Reinvestment, Switch in/out, SIP/SWP/STP (which shall be disclosed in the table above as applicable)

Load exemptions, if any: (e.g. Fund of Funds)

Bonus units and units issued on reinvestment of dividends shall not be subject to entry and exit load.

All loads including Contingent Deferred Sales Charge (CDSC) for the Scheme shall be maintained in a separate account and may be utilised towards meeting the selling and distribution expenses. Any surplus in this account may be credited to the scheme, whenever felt appropriate by the AMC.

The investor is requested to check the prevailing load structure of the scheme before investing.

For any change in load structure AMC will issue an addendum and display it on the website/Investor Service Centres.

Note: Wherever quantitative discounts are involved the following shall be disclosed – The Mutual Fund may charge the load within the stipulated limit of 7% and without any discrimination to any specific group of unit holders. However, any change at a later stage shall not affect the existing unit holders adversely.

D. WAIVER OF LOAD FOR DIRECT APPLICATIONS

Disclose detailed procedure for direct applications as per the applicable SEBI guidelines in order to provide the waiver of load to the investors.

V. RIGHTS OF UNITHOLDERS

Please refer to SAI for details.

VI. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY

This section shall contain the details of penalties, pending litigation, and action taken by SEBI and other regulatory and Govt. Agencies.

1.  All disclosures regarding penalties and action(s) taken against foreign Sponsor(s) may be limited to the jurisdiction of the country where the principal activities (in terms of income/revenue) of the Sponsor(s) are carried out or where the headquarters of the Sponsor(s) is situated. Further, only top 10 monetary penalties during the last three years shall be disclosed.

2.  In case of Indian Sponsor(s), details of all monetary penalties imposed and/or action taken during the last three years or pending with any financial regulatory body or governmental authority, against Sponsor(s) and/or the AMC and/or the Board of Trustees/Trustee Company; for irregularities or for violations in the financial services sector, or for defaults with respect to share holders or debenture holders and depositors, or for economic offences, or for violation of securities law. Details of settlement, if any, arrived at with the aforesaid authorities during the last three years shall also be disclosed.

3.  Details of all enforcement actions taken by SEBI in the last three years and/ or pending with SEBI for the violation of SEBI Act, 1992 and Rules and Regulations framed there under including debarment and/or suspension and/or cancellation and/or imposition of monetary penalty/adjudication/enquiry proceedings, if any, to which the Sponsor(s) and/or the AMC and/or the Board of Trustees /Trustee Company and/or any of the directors and/or key personnel (especially the fund managers) of the AMC and Trustee Company were/are a party. The details of the violation shall also be disclosed.

4.  Any pending material civil or criminal litigation incidental to the business of the Mutual Fund to which the Sponsor(s) and/or the AMC and/or the Board of Trustees /Trustee Company and/or any of the directors and/ or key personnel are a party should also be disclosed separately.

5.  Any deficiency in the systems and operations of the Sponsor(s) and/ or the AMC and/ or the Board of Trustees/Trustee Company which SEBI has specifically advised to be disclosed in the SID, or which has been notified by any other regulatory agency, shall be disclosed.

Notwithstanding anything contained in this Scheme Information Document, the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the guidelines there under shall be applicable.

B. STATEMENT OF ADDITIONAL INFORMATION (SAI)

This Statement of Additional Information (SAI) contains details of _______ Mutual Fund, its constitution, and certain tax, legal and general information. It is incorporated by reference (is legally a part of the Scheme Information Document).

This SAI is dated ___________.

I. INFORMATION ABOUT SPONSOR, AMC AND TRUSTEE COMPANIES

A. Constitution of the Mutual Fund

ABC (the “Mutual Fund”) has been constituted as a trust on __________ in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) with XYZ, as the Sponsor and DEF as the Trustee. The Trust Deed has been registered under the Indian Registration Act, 1908. The Mutual Fund was registered with SEBI on _________ under Registration Code MF-

B. Sponsor

ABC Mutual Fund is sponsored by XYZ. The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs.______ to the Trustee as the initial contribution towards the corpus of the Mutual Fund.

Financial Performance of the Sponsor (past three years):

Particulars Year 1 Year 2 Year 3
Net Worth
Total Income
Profit after tax
Assets Under Management (if applicable)

C. The Trustee

DEF (the “Trustee”), through its Board of Directors, shall discharge its obligations as trustee of the ABC Mutual Fund. The Trustee ensures that the transactions entered into by the AMC are in accordance with the SEBI Regulations and will also review the activities carried on by the AMC.

Details of Trustee Directors :

Name Age/Qualification Brief Experience
PQR 45/CA PQR is a fellow member of the Institute of Chartered Accountant and is in practice from 1978. He is a Senior Partner with a firm of Chartered Accountants in India. He is also a director on the Board of various companies and trustee of charitable institutions

State the responsibilities and duties of the Trustee as well as the specific and general due diligence.

D. Asset Management Company

STP Ltd. is a private limited company incorporated under the Companies Act, 1956 on ____________________, having its Registered Office at _________________. STP Ltd. has been appointed as the Asset Management Company of the ———Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated ____________, and executed between DEF and STP.

Details of AMC Directors:

Name Age/Qualification Brief Experience
UVT 45/CA UVT is a fellow member of the Institute of Chartered Accountant and is in practice from 1978. He is a Senior Partner with a firm of Chartered Accountants in India. He is also a director on the Board of various companies and trustee of charitable institutions

State the Duties and obligation of the AMC as specified in the SEBI Mutual Fund Regulations on www.sebi.gov.in.

Information on Key Personnel:

Name/Designation Age/Qualification Brief Experience
CEO CIO
Operations Head
Compliance Officer
Sales Head
Risk Manager
Investor Relations Officer

(The AMC may decide on the key personnel it wants to mention in the SAI in addition to the persons mentioned above.)

E. Service providers

Custodian

Name, Address and SEBI Registration Number of the Custodian for the scheme

Transfer agent

Name and principal business address of the Registrars, Transfer Agents and the dividend paying agent. A statement to the effect that the Board of the Trustees and the AMC have ensured that the Registrar has adequate capacity to discharge responsibilities with regard to processing of applications and dispatching unit certificates to unitholders within the time limit prescribed in the Regulations and also has sufficient capacity to handle investor complaints. Also state the SEBI Registration Number of Registrars, Transfer Agents.

Statutory auditor

Name and Address of the statutory auditor for Mutual Fund.

Legal counsel

Name and Address of the Legal Counsel

Fund Accountant

Name and Address of the fund accountant

Collecting Bankers

Name, Address and SEBI Registration Number

F. Condensed financial information (CFI) for all the schemes launched by MF during the last three fiscal years (excluding redeemed schemes) in the format given below:

HISTORICAL PER UNIT STATISTICS SCHEME NAME
YR. 1 YR. 2 YR. 3
NAV at the beginning of the year (as on April 1)
Dividends*
NAV at the end of the year (as on March 31)
Annualised return**
Net Assets end of period (Rs. Crs.)
Ratio of Recurring Expenses to net assets

* Excluding dividend details of liquid scheme.

** Only for growth option. Explanation to be given for not providing annualised return for options other than growth option. Absolute returns to be provided for schemes less than one year.

III. HOW TO APPLY?

Describe briefly the manner in which the units of the scheme being offered under the scheme information document may be purchased by the prospective investor. The descriptions should emphasise the procedures to be followed. Also provide the details of KYC requirement for unit holders.

IV. RIGHTS OF UNITHOLDERS OF THE SCHEME

1.  Unit holders of the Scheme have a proportionate right in the beneficial ownership of the assets of the Scheme.

2.  When the Mutual Fund declares a dividend under the Scheme, the dividend warrants shall be despatched within 30 days of the declaration of the dividend. Account Statement reflecting the new or additional subscription as well as Redemption/Switch of Units shall be despatched to the Unit holder within 10 business days of the Specified Redemption Date. Provided if a Unit holder so desires the Mutual Fund shall issue a Unit certificate (non- transferable) within 30 days of the receipt of request for the certificate.

3.  The Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request.

4.  The Trustee is bound to make such disclosures to the Unit holders as are essential in order to keep the unitholders informed about any information known to the Trustee which may have a material adverse bearing on their investments.

5.  The appointment of the AMC for the Mutual Fund can be terminated by majority of the Directors of the Trustee Board or by 75% of the Unit holders of the Scheme.

6.  75% of the Unit holders of a Scheme can pass a resolution to wind- up a Scheme.

7.  The Trustee shall obtain the consent of the Unit holders:

–   whenever required to do so by SEBI, in the interest of the Unit holders.

–   whenever required to do so if a requisition is made by three- fourths of the Unit holders of the Scheme.

–   when the Trustee decides to wind up the Scheme or prematurely redeem the Units.

–   The Trustee shall ensure that no change in the fundamental attributes of any Scheme or the trust or fees and expenses payable or any other change which would modify the Scheme and affects the interest of Unit holders, shall be carried out unless :

(i)  a written communication about the proposed change is sent to each Unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and

(ii) the Unit holders are given an option to exit at the prevailing Net Asset Value without any Exit Load.

9.  In specific circumstances, where the approval of unitholders is sought on any matter, the same shall be obtained by way of a postal ballot or such other means as may be approved by SEBI.

V. INVESTMENT VALUATION NORMS FOR SECURITIES AND OTHER ASSETS

This section shall disclose the Valuation of Assets and properties of the scheme in accordance with Eighth Schedule of Regulation 47 of SEBI (Mutual Funds) Regulations, 1996 and applicable guidelines.

Real Estate Mutual Fund Schemes shall disclose Valuation of Assets and properties of the scheme in accordance with Schedule IXB of Regulation 49 (F) (1) of SEBI (Mutual Funds) Regulations, 1996 and applicable guidelines.

V. TAX & LEGAL & GENERAL INFORMATION

A. Taxation on investing in Mutual Funds

This section shall disclose the applicable tax provisions for Mutual Fund and for investments in Mutual Fund scheme.

B. Legal Information

This section may include information on Nomination Facility, KYC Requirements, Requirements of Prevention of Money Laundering Act, Transfer and transmission of units, Duration of the scheme/Winding up, Procedure and manner of winding up etc.

C. General Information

In addition to the following,, this section may include information on Underwriting, Securities Lending and Borrowing by the Mutual Funds etc.:

Inter-Scheme Transfer of Investments:

Transfers of investments from one scheme to another scheme in the same mutual fund shall be allowed only if –

(a)  such transfers are done at the prevailing market price for quoted instruments on spot basis.

Explanation : “spot basis” shall have same meaning as specified by stock exchange for spot transactions.

(b)  the securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made.

Associate Transactions

The following disclosures, summarising historical information pertaining to the last three fiscal years of the schemes of the Mutual Fund under the management of the Asset Management Company reflecting associate transactions and the manner in which such transactions affected the performance of schemes of the Mutual Fund should be made. The disclosures shall include any underwriting obligations undertaken by the schemes of the Mutual Fund with respect to issues of associate companies, devolvement if any, of such commitments, subscription by the schemes in issues lead managed by associate companies, total business given to associate brokers and the percentage of brokerage commission paid to them and any distribution of units performed by associate companies.

This section shall also disclose:

(a)  the policy for investing in group companies of the sponsor of a Mutual Fund that is followed/to be followed by the Mutual Fund, including the aggregate market value of investments in group companies of the Sponsor and asset Management Company by all the schemes of the Mutual Fund and its percentage of the aggregate net asset value of the Mutual Fund,

(b)  in case any scheme of the Mutual Fund has invested more than 25% of its net assets in group companies, this shall be disclosed.

(c)  names of associates of the Sponsor or the Asset Management Company with which the Mutual Fund proposes to have dealings, transactions and those whose services may be used for marketing and distributing the scheme and the commissions that may be paid to them.

Documents Available for Inspection

The following documents will be available for inspection at the office of the Mutual Fund at ___________________________ during business hours on any day (excluding Saturdays, Sundays and public holidays):

♦   Memorandum and Articles of Association of the AMC

♦   Investment Management Agreement

♦   Trust Deed and amendments thereto, if any

♦   Mutual Fund Registration Certificate

♦   Agreement between the Mutual Fund and the Custodian

♦   Agreement with Registrar and Share Transfer Agents

♦   Consent of Auditors to act in the said capacity

♦   Consent of Legal Advisors to act in the said capacity

♦   Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments from time to time thereto.

♦   Indian Trusts Act, 1882.

Investor Grievances Redressal Mechanism

Describe briefly the investors’ complaints history for the last three fiscal years of existing schemes and the redressal mechanism thereof. The SAI should include data updated every two months on the number of complaints received, redressed and pending with the Mutual Fund.

Notwithstanding anything contained in this Statement of Additional Information, the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the guidelines thereunder shall be applicable.

*****

Instruction:

A Mutual Fund is free to add any other disclosure, which in the opinion of the Trustees of the Mutual Fund (Trustees) or the Asset Management Company (AMC) is material, provided that such information is not presented in an incomplete, inaccurate or misleading manner. Care should be taken to ensure that inclusion of such information does not, by virtue of its nature, or manner of presentation, obscure or impede understanding of any information that is required to be included under the Scheme Information Document and Statement of Additional Information.

Note:

The wording in italics is explanatory commentary/instructions.

The words in Arial font are the text to be used in the Statement of Additional Information, as applicable.

C. KEY INFORMATION MEMORANDUM (KIM)49

Name of AMC & MF

(Type of scheme)

KEY INFORMATION MEMORANDUM

…….. Scheme

(———————–)

Offer for Units of Rs. — Per Unit for cash during the New fund Offer Period and at NAV based prices upon re-opening

 

New Fund Offer Opens on:

New Fund Offer Closes on:

Scheme Re-opens for continuous sale and repurchase on:

This Key Information Memorandum (KIM) sets forth the information, which a prospective investor ought to know before investing. For further details of the scheme/Mutual Fund, due diligence certificate by the AMC, Key Personnel, investors’ rights & services, risk factors, penalties & pending litigations etc. investors should, before investment, refer to the Scheme Information Document and Statement of Additional Information available free of cost at any of the Investor Service Centres or distributors or from the website www. —— .

The Scheme particulars have been prepared in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations 1996, as amended till date, and filed with Securities and Exchange Board of India (SEBI). The units being offered for public subscription have not been approved or disapproved by SEBI, nor has SEBI certified the accuracy or adequacy of this KIM.

Investment Objective
Asset Allocation Pattern of the scheme Types of Instruments Normal Allocation (% of Net Assets)
Risk Profile of the Scheme Mutual Fund Units involve investment risks including the possible loss of principal. Please read the SID carefully for details on risk factors before investment. Scheme specific Risk Factors are summarized below:
Plans and Options
Applicable NAV (after the scheme opens for repurchase and sale)
Minimum Application Amount/ Number of Units Purchase Additional Purchase Repurchase
Despatch of Repurchase (Redemption) Request Within 10 working days of the receipt of the redemption request at the authorised centre of the ——– Fund.
Benchmark Index
Dividend Policy
Name of the Fund Manager
Name of the Trustee Company
Performance of the scheme :

[In case of a new scheme, the statement should be given “This scheme does not have any performance track record”]

Or

[In case of a scheme in existence, the return figures shall be given for that scheme only, as per the For a scheme which is in existence for more than 1 year, the returns given will be Compounded Annualised Returns and for scheme which is in existence for less than 1 year, the returns would be absolute returns since inception.

Absolute returns for each financial year for the last 5 years shall be represented by means of a bar diagram as per the adjacent format.]

Compounded Annualised Returns Scheme Returns %  Benchmark Returns %
Returns for the last 1 year
Returns for the last 3 years
Returns for the last 5 years
Returns since inception
Absolute Returns for each financial year for the last 5
Expenses of the Scheme

(i) Load Structure

New Fund Offer Period Continuous Offer
Entry load :

Exit load :

CDSC (if any):

Entry load :

Exit load :

CDSC (if any):

(ii) Recurring expenses First Rs. 100 crores of the average weekly net assets :

Next Rs. 300 crores of the average weekly net assets :

Next Rs. 300 crores of the average weekly net assets :

Balance :

Actual expenses for the previous financial year: —-

(Not Applicable in case of a new scheme)

Waiver of Load for Direct Applications The applicable procedure should be given in brief.
Tax treatment for the Investors (Unitholders) Investor will be advised to refer to the details in the Statement of Additional Information and also independently refer to his tax advisor.
Daily Net Asset Value (NAV) Publication The NAV will be declared on all ——- days and will be published in 2 newspapers. NAV can also be viewed on www._____ and www.amfiindia.com [You can also telephone us at ——– (optional)].
For Investor Grievances please contact Name and Address of Registrar Name, address, telephone number, fax number, e-mail i.d. —–
Unitholders’ Information Give the frequency and the policy of the fund house for the providing the Accounts Statement, Annual Financial results and Half yearly portfolio to the investors.

 

Date:

N.B. Data and information shall be up-to-date but in no case older than 30 days from the date of KIM

6. STANDARD OBSERVATIONS50

 A.  STANDARD OBSERVATIONS FOR SCHEME INFORMATION DOCUMENT (SID)

 B.  STANDARD OBSERVATIONS FOR STATEMENT OF ADDITIONAL INFORMATION (SAI)

 

A. STANDARD OBSERVATION FOR SCHEME INFORMATION DOCUMENT (SID)

 

While filing the Statement of Additional Information (SAI) and the Scheme Information Document (SID) for launching a new scheme/revising and filing existing SAI and SID with SEBI, the mutual funds should highlight and clearly mention the page number of the SAI and SID on which each of the following observation has been incorporated. In case of any amendment to Regulations, the new provisions should be incorporated in the SAI/SID.

STANDARD OBSERVATIONS FOR SID

Standard Observation Remarks
1. The AMC shall not invest in any of the schemes unless full disclosure of its intention to invest has been made in the Scheme Information Document and that the AMC shall not be entitled to charge any fees on such investments may be disclosed.
2. All Risk Factors including general and scheme specific risk factors should appear at a single place in the Scheme Information Document instead of giving at different places.
3. In case the mutual fund intends to invest in ADRs/GDRs and foreign securities, the risk factors associated with such investments including currency risk should be disclosed.
4. If the scheme proposes to invest in securitised debt, the table on investment pattern should disclose the maximum limit up to which such investment in securitised debt would be made.
5. In case the mutual fund intends to trade in derivatives, the strategies and risks associated with such activities should be disclosed at relevant places in the Scheme Information Document. The Scheme Information Document shall contain disclosures as communicated vide our circular no. DNPD/Cir-29/2005 dated September 14, 2005

Following risk factor pertaining to investments in derivatives may also be given (except in case where the scheme is investing in derivatives for only for the purpose of hedging and portfolio rebalancing):

“Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies”.

“The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments”.

Mention clearly specific risk factors pertaining to derivative strategies.

6. In case the mutual fund intends to engage in stock lending/short selling, concepts and risks associated with stock lending/short selling shall be provided as per the applicable guidelines.
7. A note of the investment strategy followed for the scheme shall be given in the Scheme Information Document.
8. The fundamental attributes of the scheme shall be disclosed in the Scheme Information Document. The note shall also include the steps to be followed by the Trustee for change in fundamental attributes, as required by the SEBI regulations.

The trustees shall ensure that no change in the fundamental attributes of any scheme or the trust or fees and expenses payable or any other change which would modify the scheme and affects the interest of the unitholders, shall be carried out unless, (i) a written communication about the proposed change is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the mutual fund is situated; and (ii) the unitholders are given an option to exit at the prevailing Net Asset Value without any exit load.

9. The name(s) of index/indices with which the AMC and trustees would compare the performance of the scheme should be disclosed. The benchmark index/indices may be chosen on the basis of the investment pattern/objective of the scheme and the composition of the index, as approved by the Boards of AMC and trustees
10. The details pertaining to the fund manager of the scheme shall inter-alia include the age of the person, educational qualification, total number of years’ experience, type and nature of past experience including assignments held during the last 10 years, etc.
11. All the investment restrictions under SEBI (Mutual Funds) Regulations, 1996 and applicable to the scheme should be incorporated.
12. In case the scheme intends to invest substantially in debt and/or money market instruments, one para highlighting the features of Debt Market and Instruments available may also be included alongside the asset allocation.
13. Clarify whether, apart from the investment restrictions prescribed under SEBI (MF) Regulations, does the fund follow any internal norms vis-à-vis limiting exposure to a particular scrip or sector, etc.
14. Indicate the asset allocation pattern under normal circumstances and to what extent that would be allowed to rise or fall before a review and rebalancing would be called for. From the disclosures, prospective investors should be able to gather an idea on the investment strategy of a scheme at any point of time.
15. The Scheme Information Document shall Indicate the types of securities/instruments in which the scheme would invest and a brief narration on the same.
16. Any imposition or enhancement in the load shall be applicable on prospective investments only. However, AMC shall not charge any load on issue of bonus units and units allotted on reinvestment of dividend for existing as well as prospective investors. At the time of changing the load structure, the mutual funds may consider the following measures to avoid complaints from investors about investment in the schemes without knowing the loads:
(i) The addendum detailing the changes may be attached to Scheme Information Documents and key information memorandum. The addendum may be circulated to all the distributors/brokers so that the same can be attached to all Scheme Information Documents and key information memoranda already in stock.
(ii) Arrangements may be made to display the addendum in the Scheme Information Document in the form of a notice in all the investor service centres and distributors/brokers office.
(iii) The introduction of the exit load/ CDSC alongwith the details may be stamped in the acknowledgement slip issued to the investors on submission of the application form and may also be disclosed in the statement of accounts issued after the introduction of such load/CDSC.
(iv) A public notice shall be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated.
(v) Any other measures which the mutual funds may feel necessary.
17. NAV Information/ Sale and Repurchase price:
(a) Disclosure to the effect that NAV shall be published at least in two daily newspapers at intervals of not exceeding one week in case of close ended schemes and on daily basis in case of open ended schemes (alongwith sale and repurchase prices).
(b) Disclosure to the effect that the repurchase price shall not be lower than 93% of the NAV and the sale price shall not be higher than 107% of the NAV and the difference between the repurchase price and sale price shall not exceed 7% on the sale price. In the case of close-ended scheme the repurchase price shall not be lower than 95% of the NAV.
18. SID shall disclose the number of days within which the statement shall be dispatched to the unitholders who subscribe to the units when the scheme is open for continuous subscription after NFO as per the applicable guidelines.
19. Disclosure to the effect that it shall be mandatory for the investors of mutual fund schemes to mention their bank account numbers in their applications/requests for redemption.
20. Disclosure on Pending Penalties and Pending Litigations shall be provided as per the relevant clause as prescribed in the SID format.
21. The Scheme Information Document shall have no clause, which in effect limits the jurisdiction for settlement of claims of the investors to a specific place/region.
22. A statement should be incorporated on the last page of the Scheme Information Document as follows “Notwithstanding anything contained in the Scheme Information Document the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the Guidelines thereunder shall be applicable.”
23. All information in the Scheme Information Document and KIM shall be updated, considering the above observations, 30 days before the launch of the scheme.
24. You are required to give a due diligence certificate stating that the draft Scheme Information Document is in accordance with the SEBI (Mutual Funds) Regulations. You are again advised to specifically confirm whether there are any deviations from the regulations or whether subjective interpretations have been applied to the provisions of the regulations or where the AMC feels that any matter is required to be brought to the notice of SEBI.
Further you are also advised to confirm that the contents of the SID including figures, data, yields, etc. have been checked and are factually correct.
25. Trustees shall provide certification as required under circular SEBI/IMD/CIR No. 5/ 70559 /06 dated June 30, 2006
26. The schemes are required to be approved by the trustees. While approving the scheme, the trustees may also review the systems, adequacy of key personnel, compliance mechanism, etc. as required under Regulation 18 (4). A letter from the Trustees should be submitted while filing a new Scheme Information Document, confirming that the trustees have ensured that the asset management company complies with the requirements of Regulation 18(4).

 

B. STANDARD OBSERVATIONS FOR STATEMENT OF ADDITIONAL INFORMATION (SAI)

STANDARD OBSERVATIONS FOR SAI

Standard Observation Remarks
1. If the AMC is undertaking other business activities as provided in Regulation 24(2) brief details of the same giving SEBI registration particulars, if applicable, and certification that there is no conflict of interest.
2. The details of sponsor shall also include a brief note on their activities.
3. The details pertaining to the key personnel of the AMC shall inter-alia include the age of the person, educational qualification, total number of years’ experience, type and nature of past experience including assignments held during the last 10 years, etc. The number of persons involved in equity research and fund management and their past experience must be mentioned. If any of the key personnel is based elsewhere and not in the registered/corporate office of the AMC, must be disclosed.
4. The detailed procedures followed for investment decisions, whether an individual or committee takes decisions, role of chief executive of AMC in investment decisions, recording of the each investment decision, how these decisions and performance of schemes are monitored by the AMC Board and the trustees, should be explained by way of a separate paragraph in the Statement of Additional Information.
5. A brief note on the supervisory role performed by the Trustees, the number of meetings held during the last year, systems set up by the trustees for monitoring the activities of the AMC.
6. Disclosure that no amendments to the trust deed shall be carried out without the prior approval of SEBI and unitholders approval would be obtained where it affects the interests of unitholder.
7. Share holding pattern of the AMC specifying the percentage holding of various groups/companies.
8. The appointment of the AMC can be terminated by majority of the trustees or by seventy five percent of the unitholders of the scheme.
9. The despatch of dividend warrants shall be made within 30 days of the declaration of the dividend and despatch of redemption or repurchase proceeds shall be made within 10 working days from the date of redemption or repurchase.
10. Suspension or restriction of repurchase/redemption facility under any scheme of the mutual fund shall be made applicable only after the approval from the Board of Directors of the Asset Management Company and the Trustees. The approval from the AMC Board and the Trustees giving details of circumstances and justification for the proposed action shall also be informed to SEBI in advance.
11. If the work relating to transfer of units is processed in-house, disclosure that the charges are at competitive rates and if the rates are higher, reasons for charging higher rates should be disclosed.
12. Disclosure as to the procedure for seeking approval of the unitholders in specified circumstances.
13. The SAI shall fully disclose the fund’s policy for dealing with unclaimed redemption amounts in line with SEBI Circular No. MFD/CIR/ 9 /120 /2000 dated 24/11/2000.
14. The disclosure in respect of tax benefits to the mutual fund and the unit holders shall be in accordance with prevailing tax laws.
15. The SAI shall have no clause, which in effect limits the jurisdiction for settlement of claims of the investors to a specific place/region.
16. The application inviting subscription to the scheme should mention about the availability of the facility of Multiple nominations and how the same can be availed. Necessary details in this regard may also be disclosed in the SAI.
17. The table on Condensed Financial Information shall be provided as per the relevant clause as prescribed in the SAI format.
18. A statement should be incorporated on the last page of the Statement of Additional Information as follows “Notwithstanding anything contained in the Statement of Additional Information the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the Guidelines thereunder shall be applicable.”

 

7. Brokerage and Commission paid to Associates

Brokerage paid to associates/related parties/group companies of Sponsor/AMC51

Name of associate /related parties/group companies of Sponsor/AMC Nature of Association/Nature of relation Period covered* Value of transaction (in Rs. Cr. & % of total value of transaction of the fund ) Brokerage (Rs Cr & % of total brokerage paid by the fund)

Commission paid to associates/related parties/group companies of sponsor/AMC

Name of associate /related parties/ group companies of Sponsor/ AMC Nature of Association/Nature of relation Period covered * Business given (Rs. Cr. & % of total business received by the fund) Commission paid (Rs & % of total commission paid by the fund)

* The period covered shall be as following:

♦   SAI – Past three financial years including the current year

♦   Half Yearly Unaudited Financial Results – Current half year and previous half year

♦   Abridged Scheme wise Annual Report – Current year and previous year

The disclosures for the aforementioned period shall be furnished for each period in separate tables.

 

8. Role of Mutual Funds in Corporate Governance of Public Listed Companies52

Management Proposals

Date Type of Meeting (AGM / EGM) Proposal Management Recommendation Vote (For / Against / Abstain)

Shareholder Proposals

Date Type of Meeting (AGM / EGM) Proposal Management Recommendation Vote (For / Against / Abstain)

 

9. Disclosure of investor complaints with respect to Mutual Funds

Redressal of Complaints received against Mutual Funds (MFs) during 20xx-xx: (In excel sheet)53

Name of Mutual Fund and total number of folios

Complaint code Type of complaint # (a) No. of complaints pending at the beginning of the year  Action on (a) and (b)
(b) No of complaints received during the year Resolved Non-

Actionable*

Pending
With in 30 days 30 – 60 days  60-180 days Beyond 180 days 0-3 months 3-6 months 6-9 months 9-12months
IA  Non-receipt of Dividend on Units
IB  Interest on delayed payment of Dividend
IC Non-receipt of Redemption Proceeds
ID Interest on delayed payment of Redemption
IIA  Non-receipt of Statement of Account/ Unit Certificate
IIB Discrepancy in Statement of Account
IIC Non-receipt of Annual Report/Abridged Summary
IIIA Wrong switch between Schemes
IIIB Unauthorized switch between Schemes
IIIC Deviation from Scheme attributes
IIID Wrong or excess charges/load
IIIE  Non-updation of changes viz. address, PAN, bank details, nomination, etc
IV  Others
TOTAL

# including against its authorized persons/ distributors/ employees. etc.

*Non-actionable means the complaint that are incomplete / outside the scope of the mutual fund

Classification of complaints

Type of Complaint
TYPE I
I A  Dividend on Units
I B  Interest on delayed payment of Dividend
I C  Redemption Proceeds
I D  Interest on delayed payment of Redemption
TYPE II Statement of Account/Unit Certificate/Annual Report
II A  Non receipt of Statement of Account/Unit Certificate
II B  Discrepancy in Statement of Account
II C  Non-receipt of Annual Report/Abridged Summary
TYPE III  Service related
III A  Wrong switch between Schemes
III B Unauthorized switch between Schemes
III C Deviation from Scheme attributes
III D Wrong or excess charges/load
III E Non-updation of changes viz. address, PAN, bank details, nomination, etc
TYPE IV  Others

 

10. Format for daily data on QFI Investment in Mutual Funds54

Annexure –1 (Refer paras 3.4, 3.5, 3.6 and 3.7 of the circular)55

A) QFI investments in equity schemes

Date Name of the Mutual Fund Net Investment at the end of the previous business day (A) Subscription (B) Redemption (C ) Net Investment at the end of the business day (A+B-C)
Amount in US $ millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore

 

B) QFI investments in debt schemes

Date Name of the Mutual Fund Net Investment at the end of the previous business day (A) Subscription (B) Redemption (C ) Net Investment at the end of the business day (A+B-C)
Amount in US $ millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore

 

C) Total QFI investments in equity and debt schemes

Date Name of the Mutual Fund Net Investment at the end of the previous business day (A) Subscription (B) Redemption (C ) Net Investment at the end of the business day (A+B-C)
Amount in US $ millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore Amount in US $ Millions Amount in Rs Crore

 

♦   Mutual Funds shall report on actual receipt and payment basis (cash system)

♦   Mutual Funds shall aggregate the data received from Custodian and Depositories on a daily basis and report

♦   The RBI reference rate may used for reporting the amounts in US $.

11. Format for reporting of all transaction in debt and money market securities56

Format for reporting of all transaction in debt and money market securities57

S. No Name of the Security IS IN Fund House Scheme Name Maturity Date Residual days Settlement type Trade Date Valuation Date Settlement Date Quantity trade Value of the Trade Price at which valued Yield at which value Type of trade

*Inter-scheme/ off market trade/market trade

■■

______________

1.  MFD/CIR /11/354/2001 dated 20/12/2001 & MFD/CIR/13/16799/2002 dated 29/8/2002

2.  SEBI/IMD/CIR No.14 /84243/07 dated January 15, 2007

3.  IIMARP/MF/CIR/05/788/97 dated April 28, 1997

4. SEBI/ MFD/CIR/ 09/247/02 dated July 23, 2002, SEBI/ MFD/CIR/ 12/ 16588 /02 dated August 28,2002 & SEBI/IMD/CIR No. 13/118899/08 dated February 29,2008

5.  MFD/CIR/5/360/2000 dated July ,4 2000 and SEBI/ IMD/CIR No. 11 /36222/2005 dated March 16, 2005

6.  SEBI/MFD/CIR/2/266/2000 dated May 19, 2000.

7.  SEBI / IMD / CIR No 14 / 187175/ 2009 dated December 15, 2009.

8.  SEBI/IMD/CIR NO. 10/22701/03 dated December 12, 2003.

9.  For format of bimonthly CTR please refer Chapter on Formats.

10. SEBI/IMD/CIR No.9/74364/06 dated August14, 2006.

11. SEBI/IMD/CIR No. 1/ 91171 /07 dated April 16, 2007.

12. MFD/CIR/19/22474/2002 dated November 20, 2002.

13. MFD/CIR/ 06/210/2002 dated June 26, 2002.

14. MFD/CIR/15/19133/2002 dated September 30, 2002.

15. SEBI/IMD/CIR No.5 /96576/2007 dated June 25, 200.

16. SEBI Cir No MFD/CIR/09/014/2000 January 5, 2000.

17. SEBI Cir No – IIMARP/MF/Cir/01/294/98 dated February 4, 1998.

18. SEBI/IMD/CIR NO. 10/22701/03 dated December 12, 2003.

19. SEBI/IMD/CIR No.9/74364/06 dated August 14, 2006

20. For Half Yearly Trustee Report please refer to the chapter on Formats.

21. SEBI/IMD/CIR No. 1/91171 /07 dated April 16, 2007.

22. MFD/CIR/19/22474/2002 dated November 20, 2002.

23. SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007.

24. MFD/CIR/ 06/210/2002 dated June 26, 2002.

25. MFD/CIR/15/19133/2002 dated September 30, 2002.

26. SEBI Circular No. Cir/IMD/DF/20/2010 dated December 06, 2010. This shall come into effect from the half yearly report ending April 2011 by trustees to SEBI.

27. SEBI Cir SEBI/IMD/CIR No 3/124444/08 dated April 30,2008.

28. SEBI/IMD/CIR No. 15/87045/2007 dated February 22, 2007.

29. IIMARP/CIR /08/845/97 DATED May 7,1997, MFD/CIR/02/110/02 dated April 26,2002, SEBI Cir No- IMD/CIR No 6/72245/06 dated July 20, 2006.

30. SEBI Cir No – MFD/CIR/07/384/99 dated December 17, 1999 and MFD/CIR/08/23026/99 dated December 23, 1999.

31. SEBI Circular No – SEBI/IMD/Cir No 15/157701/2009 dated March 19, 2009.

32. SEBI Circular MFD/CIR/09/014/2000 dated January 5, 2000.

33. Clause 8, Schedule Seven of SEBI (Mutual Funds) Regulations, 1996.

34. SEBI Circular No. MFD/CIR/6/73/2000 dated July 27, 2000.

35. SEBI Circular No. SEBI/IMD/CIR No.9/20306/03 dated November 12, 2003.

36. MFD/CIR/1/200/2001 dated April 20,2001

38. SEBI Circular – SEBI/MFD/CIR No. 6 / 12357 /03 June 26, 2003

38. SEBI Circular – SEBI/IMD/Cir No 7/104753/07 dated September 26, 2007

39. SEBI Circular No. IMD/CIR No.8/132968/2008 dated July 24, 2008

40. MFD/CIR/9/120/2000 dated November 24, 2000, MFD/CIR/14/18337/2002 dated September 19, 2002

41. SEBI Circular No. IMD/CIR No 8/132968/2008 dated July 24, 2008

42. SEBI Circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010

43. SEBI/IMD/CIR No.1/91171/07 dated April 16, 2007

44. SEBI Circular No. SEBI/IMD/Cir No.7/129592/08 dated June 23, 2008.

45. SEBI Cir SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007

46. SEBI Cir No- IMD/CIR No 7/104753/07 dated September 26, 2007

47 SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008

48 SEBI Circular No – IIMARP/MF/Cir/07/844/97 dated May 5, 1997

49 SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008.

50 SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008.

51 SEBI/IMD/CIR No 18/198647 /2010 dated March 15, 2010.

52 SEBI/IMD/CIR No 18/198647 /2010 dated March 15, 2010.

53. SEBI Cir no Cir/IMD/DF/2/2010 dated May 13, 2010

54. SEBI circular no. CIR/ IMD /DF / 14 /2011 dated August 9, 2011

55. SEBI circular no. CIR/ IMD /DF / 14 /2011 dated August 9, 2011

56. SEBI circular no. Cir/IMD/DF/6/2012 dated February 28, 2012

57 SEBI circular no. Cir/IMD/DF/6/2012 dated February 28, 2012

 

 

ANNEXURES

 

ANNEXURE 1

Code of Conduct for Intermediaries of Mutual Funds1

1. Take necessary steps to ensure that the clients’ interest is protected.

2. Adhere to SEBI Mutual Fund Regulations and guidelines issued from time to time related to selling, distribution and advertising practices. Be fully conversant with the key provisions of the Scheme Information Document (SID), Statement of Additional Information (SAI) and Key Information Memorandum (KIM) as well as the operational requirements of various schemes.

3. Provide full and latest information of schemes to investors in the form of SID, performance reports, fact sheets, portfolio disclosures and brochures and recommend schemes appropriate for the client’s situation and needs.

4. Highlight risk factors of each scheme, avoid misrepresentation and exaggeration and urge investors to go through SID/KIM before deciding to make investments.

5. Disclose to the investors all material information including all the commissions (in the form of trail or any other mode) received for the different competing schemes of various Mutual Funds from amongst which the scheme is being recommended to the investors.

6. Abstain from indicating or assuring returns in any type of scheme, unless the SID is explicit in this regard.

7. Maintain necessary infrastructure to support the AMCs in maintaining high service standards to investors, and ensure that critical operations such as forwarding forms and cheques to AMCs/registrars and despatch of statement of account and redemption cheques to investors are done within the time frame prescribed in the SID/SAI and SEBI Mutual Fund Regulations.

Note: SID should be read in conjunction with SAI and not in isolation.

8. Avoid colluding with clients in faulty business practices such as bouncing cheques, wrong claiming of dividend/redemption cheques, etc.

9. Avoid commission driven malpractices such as :

(a)  recommending inappropriate products solely because the intermediary is getting higher commissions therefrom.

(b)  encouraging over transacting and churning of Mutual Fund investments to earn higher commissions, even if they mean higher transaction costs and tax for investors.

10. Avoid making negative statements about any AMC or scheme and ensure that comparisons if any, are made with similar and comparable products.

11. Ensure that all investor related statutory communications (such as changes in fundamental attributes, loads, exit options and other material aspects) are sent to investors reliably and on time.

12. Maintain confidentiality of all investor deals and transactions.

13. When marketing various schemes, remember that a client’s interest and suitability to their financial needs is paramount and that extra commission or incentive earned should never form the basis for recommending a scheme to the client.

14. Intermediaries will not rebate commission back to investors and avoid attracting clients through temptation of rebate/gifts etc.

15. A focus on financial planning and advisory services ensures correct selling and also reduces the trend towards investors asking for passback of commission.

16. All employees engaged in sales and marketing should obtain AMFI certification. Employees in other functional areas should also be encouraged to obtain the same certification.

ANNEXURE 2

Operating Manual for Risk Management2

I. Introduction

Risk management can be defined as the “overall process of identifying and understanding the full spectrum of an organization’s risk and taking informed actions to help it achieve its strategic objectives, reduce the likelihood of failure and decrease the uncertainty of overall business performance”.

This document sets out an enterprise-wide risk management framework for a Mutual Fund in India. For the purpose of this document, the term “Mutual Fund” is used colloquially to refer to the whole group of entities that constitute the mutual fund organization; i.e. the AMC (including its Board of Directors and employees) and the Board of Trustees. It is not used to refer to a Mutual Fund as per the definition in the SEBI Regulations.

The framework manual is intended to serve as a model which will help Mutual Funds monitor and mitigate all the risks faced by them, and also use risk management to increase value for investors. The risk management practices described are based on current exemplary practices and international best practice as identified in our “Survey of Risk Management Practices in the Indian Mutual Fund Industry”, March 2002. It also takes into account the recommendations in the same survey document, duly modified based on feedback from AMFI members and finally approved by the AMFI Board on 3 July 2002. Some of the recommendations are to be mandated by SEBI (Appendix A, Part 1), others will be issued by AMFI as best practice guidelines (Appendix A, Part 2). The mandatory and best practice recommendations have been incorporated in the framework manual.

All measures described in the manual have been categorised as follows:

♦  to be mandated by SEBI (as per Appendix A, Part 1)

♦  recommended best practice (as per Appendix A, Part 2)

♦  existing industry practice (exemplary practices followed by some/ most Mutual Funds in India as identified in the “Survey of Risk Management Practices in the Indian Mutual Fund Industry, March 2002).

II. Risk Management Framework Overview

The risk management framework described in this document covers all aspects of a Mutual Fund’s operations. Risks have been broadly categorised into five areas:

♦  Fund Management

♦  Operations

♦  Customer Service

♦  Sales and Marketing

♦  Other Business Risks.

Risk management measures have been described for each of these areas across three dimensions: policies and procedures, systems and organisation. Additionally, measures for specific risks in each area have also been described.

1. Policies and Procedures

Risk management is most effective when it follows a top-down approach. In this approach, the senior management of the Mutual Fund is the main center of power and responsibility. Based on various factors like the risk appetite and business strategy of the organisation, the philosophy regarding risk should be developed. This philosophy should then be transmitted throughout the organisation in the form of concrete and detailed policies, procedures and guidelines. The policy and procedures documents should build a framework for the effective and efficient management of the fund and should include:

♦  Investment Policy, including Risk Philosophy (existing industry practice)

♦  Operating Procedures (existing industry practice)

♦  Compliance Manual (existing industry practice)

♦  Code of Conduct (existing industry practice)

♦  Disaster Recovery and Business Contingency Plan (to be mandated by SEBI)

♦  Reporting Framework (existing industry practice)

2. Systems

The establishment of an enterprise-wise integrated systems architecture will substantially reduce operational risk. The systems of a Mutual Fund should include the following applications:

♦  Integrated front and back office systems for fund management, dealing, trade confirmation and settlement (recommended best practice)

♦  Fund accounting system for calculation of net asset values (NAVs) (existing industry practice)

♦  Unit-holder administration and servicing systems for customer service (existing industry practice)

♦  Financial accounting and reporting system for the AMC (existing industry practice)

Systems should ideally be integrated and developed using open platform architecture. They should facilitate straight-through processing and also be capable of generating the necessary reports to monitor and manage risks. Security features such as access control, firewalls and virus protection measures should also be established.

3. Organisation

The Mutual Fund organisation should be designed taking into account the following risk management principles:

♦  Segregation of front office and back office in the AMC (existing industry practice)

♦  Independent verification of data input (existing industry practice)

♦  Establishment of Committees for Investment, Valuation and Audit (existing industry practice)

♦  Development of a second line for key positions (existing industry practice)

♦  Establishment of a risk management function (to be mandated by SEBI)

The responsibility of understanding the risks run by the Mutual Fund and ensuring that they are appropriately managed ultimately rests with the Board of Trustees. The Board of Trustees must approve all the risk management and should delegate to the AMC the responsibility of the day-to-day execution of these policies.

Risk Management Function (To be Mandated by SEBI)

The Mutual Fund should have an independent risk management function consisting of one or more risk managers. This function will be responsible for identifying, evaluating or measuring all risks inherent in a mutual fund organisation, as well as establishing controls to mitigate such risks. The risks include:

♦  Fund Management: volatility in performance, style drift and portfolio concentration, interest rate movements, liquidity issues, credit risk

♦  Operations: deal errors, settlement problems, NAV and fund pricing errors, inaccurate financial reporting, fraud, failure of mission critical systems and infrastructure, obsolete systems

♦  Customer Service: errors in deal processing, other investor services, fraud

♦  Marketing and Distribution: new product development, selling and distribution

♦  Other Business Risks: critical knowledge loss, skills shortage, non- compliance, third party risks.

The function should be separate from fund management and should report to the Chief Executive Officer of the AMC. The function could be carried out in a number of ways:

♦  As an additional function of an existing employee of the AMC, e.g. the Compliance Officer or Internal Auditor;

♦  Through a Risk Management Committee;

♦  Outsourced to an external agency; or

♦  As the Trustees of the mutual fund may deem fit.

III. Fund Management

Policies and Procedures
Existing Industry Practice

The Mutual Fund should have a documented investment policy. This should:

■  articulate its investment strategy and risk philosophy (i.e. its attitude towards risk, and the amount of risk it is willing to take as part of its investment strategy)

■  define the objectives of the Mutual Fund schemes, asset allocation targets and model portfolios (if used)

■  define the investment process

■  define limits and mechanisms for monitoring limits at various levels : asset class, industry sector, security, counterparty (these should be consistent with SEBI Regulations, where applicable)

■  define exceptions and their monitoring

■  include an approved list of brokers

■  provide guidelines for transactions with associate companies and inter-scheme transfers

■  define investment norms for debt instruments based on credit ratings.

 

Systems
Recommended Best Practice

The Mutual Fund should ideally implement a front office system which is integrated with the back office system. This will facilitate:

■  setting up of parameters such as asset allocation limits, counter parties, securities, associate classifications and authority levels

■  straight-through processing (i.e. the flow of order and trade information from the front office to the back office without any manual intervention) to allow one time capture of investment decisions

■  system check on preset parameters and reporting of breaches e.g. whether investments have been made in permitted securities or limits on deal size, etc. have been exceeded

■  automatic time-stamping of deals

■  maker-checker authorisations

■  exception reporting

■  monitoring of outstanding confirmations, settlements and payments

■  access controls and firewall

■  decision support capabilities and portfolio modelling (e.g. scenario analysis, what-if analysis)

■  risk-adjusted performance measurement (e.g., Value at Risk (VaR) analysis)

■  reporting on target vs. actual portfolio.

 

Organisation
Existing Industry Practice

■  The Mutual Fund should establish an Investment Committee. This committee will be responsible for:

•  laying down the Mutual Fund’s investment policy and philosophy with regard to different asset classes, sectors, counterparties, etc., as defined in the Investment Policy Manual o reviewing performance and positions with regard to the objectives of the schemes

•  researching and reviewing counterparties and debt issuers with regard to credit risk.

■  The front office (fund management) and back office functions must be segregated.

Recommended Best Practice

■  The Mutual Fund should ideally have segregated research, portfolio management and dealing teams in the front office.

To be Mandated by SEBI

■  The risk management function should be responsible for risk measurement, management and monitoring.

Specific Risk Management Measures for Fund Management

Risks Impact Risk Management Measures
a. Volatility in performance   ♦  Inconsistent or low returns leading to loss of investor confidence.

♦  Erosion of assets under management leading to loss of revenue.

i. Unexpected change in market conditions Existing Industry Practice

♦  The Mutual Fund should, at the minimum, adhere to all SEBI regulations relating to investment limits.

♦  The Mutual Fund should carry out daily or weekly performance measurement, comparing Mutual Fund performance to a specified benchmark or peer group.

♦  The Trustees should review the portfolio on a quarterly basis as required by SEBI Regulations.

Recommended Best Practice

♦  Funds should consider using portfolio management tools for risk measurement, in keeping with international trends. These tools should be used to manage risks more effectively, and should be capable of carrying out the following analytics:

♦  Quantification of exposure using measures such as Value at Risk (VaR), duration, and tracking error

♦  Risk adjusted performance measurement using Sharpe Ratios, Treynor Measures and Sortino Ratios

♦  Risk benchmarking, i.e. the exposure arising between the actual managed portfolio and the benchmark portfolio

♦  Stress testing and back testing of exposure calculations.e.g., Sharpe’s Ratio, Treynor Measures, beta, FAMA decomposition, VaR, etc).

♦  The mutual funds should consider using equity derivatives for hedging and rebalancing.

i. Quality of investment research, facilities, people, procedures Existing Industry Practice

♦  The Mutual Fund should document the rationale for an investment decision as required by the SEBI regulations.

♦  Ideally, the Mutual Fund should have a dedicated research team.

♦  The Mutual Fund should hire qualified and experienced portfolio managers, research analysts and dealers with adequate experience in the industry. They should be provided continuous training to understand new products, skills, markets and sectors.

♦  The fund management and research teams should have access to research from multiple sources: both internal and external.

i. Execution of deals at sub optimal prices Recommended Best Practice

♦  As the industry matures and the volumes increase, the Mutual Fund should consider having a dedicated dealing function.

♦  The Mutual Fund should ideally establish clear guidelines for best execution. Independent verification procedures for all deals should be established. Rates and prices for verification should be obtained from independent sources.

  i.  “Back to back” transactions in debt securities of associates or associate companies (as defined in the SEBI (Mutual Funds) Regulations, 1996

 ii.  Internal deals between schemes or portfolios

iii.  Investments in securities issued by associates; purchases of securities owned by associates; sales of securities to associates.

iv.  Joint ventures with associates

Existing Industry Practice

♦  All SEBI regulations regarding restrictions on associate transactions and investments as well as requirements for disclosure must be adhered to.

♦  All SEBI regulations regarding the execution of the deal at the market price and the documentation of justification for the inter-scheme deal must be adhered to.

♦  The inter-scheme deal should be independently verified by Compliance.

a. Style drift and portfolio concentration   ♦  Inconsistent/low returns vis-à-vis similar schemes in the market leading to low investor confidence.

♦  Non-compliance with SEBI regulations.

Existing Industry Practice

♦  All SEBI regulations with regard to investment limits must be adhered to at the time of making the investment.

♦  The Investment Committee should review the portfolio on a regular basis to ensure compliance with regulations.

♦  The compliance officer should monitor the portfolio and review all exceptions.

♦  The Investment Committee should review on a daily or weekly basis the actual portfolio vis-à-vis the model portfolio.

♦  The Investment Committee should have a stated strategy and action plan for rebalancing the portfolio.

a. Interest rate movements   ♦  Inconsistent/low returns vis-à-vis similar schemes in the market Existing Industry Practice

♦  The Mutual Fund should have daily profit-and-loss reporting at securities and portfolio levels to the Investment Committee.

Recommended Best Practice

♦  The Mutual Fund should consider using interest rate derivatives to manage risk and rebalance portfolios.

a. Liquidity issues   ♦  Delays or inability to meet redemptions leading to non-compliance with SEBI regulations

♦  Low investor confidence leading to erosion of assets under management.

Existing Industry Practice

♦  All SEBI regulations with regard to redemption periods for different scheme types must be adhered to.

♦  The Investment Committee should monitor the portfolio on a daily basis and periodically review it to track illiquid assets and take corrective action.

♦  The Mutual Fund should segregate corporate and retail investors and require the corporate investors to give prior notice of redemptions.

♦  The Registrar & Transfer (R&T) agent should promptly inform the Mutual Fund of any large redemption.

♦  The Mutual Fund should use tools such as stress-testing of redemptions on portfolios and asset-liability matching to assess liquidity risks.

♦  With due allowance for the Mutual Fund’s particular characteristics, the Mutual Fund’s marketing efforts should strive to broaden its base so as to reduce its vulnerability to redemption surges.

Recommended Best Practice

♦  Funds should make suitable in-principle arrangements in advance for borrowing to deal with unexpected redemptions, in order to avoid delays and difficulties in resorting to borrowing when the need arises. The borrowing should not exceed SEBI limits of 20% of net assets under management.

a. Credit risk   ♦  The issuer may default on principal/interest

♦  Defaults may lead to low investor confidence and hence erosion of assets under management.

Existing Industry Practice

♦  The Investment Committee should research and review issuers with regard to credit risk.

♦  The Mutual Fund must adhere to all SEBI restrictions regarding investments in rated and unrated debt securities.

♦  The Investment Committee should monitor the ratings of all debt issuers that the Mutual Fund has invested in.

IV. Operations Risks

Policies and Procedures
To be mandated by SEBI

♦  The Mutual Fund must buy insurance cover against third party losses arising from errors and omissions. Third party liabilities refer to liabilities arising out of financial loss to investors or any other third party, incurred due to errors and omissions of directors, officers, employees, trustees, R&T agents, etc. The level and type of cover should be determined by the Trustees, subject to a minimum level of Rs 5 crores. However, Mutual Funds with assets of less than Rs.100 Cr may take insurance cover for an amount of less than Rs.5 Cr as determined by their trustees. The premium for this cover may be paid for in accordance with SEBI regulations.

♦  Custodians must also buy separate insurance cover for errors and omissions.

Existing Industry Practice

♦  The Mutual Fund should purchase insurance to cover first party losses. First party losses are those which impact the insured and include asset based losses (due to natural or unnatural disasters such as fire, flood, burglary, etc.) as well as financial or data losses. They also include losses due to acts of infidelity by employees of the insured and computer based crimes such as hacking or virus attacks that may impact the data of the Mutual Fund.

♦  Compliance should review all trading activities at frequent intervals.

♦  Operating procedures should lay down reconciliation activities and their frequency:

•  End-of-day broker confirmations with records of deals

•  End-of-day reconciliation of positions with custodian data

•  At least once a week complete reconciliation of fund accounting system records with custodian records

•  Daily reconciliation between Mutual Fund and others (banks, counterparty, etc).

♦  The Mutual Fund should establish a personal trading policy and a code of conduct for employees.

Systems
Recommended Best Practice

♦  The Mutual Fund should consider implementing integrated front and back office systems which will facilitate:

•  Straight-through processing to allow one-time capture of trade details

•  Pre-trade compliance checking

•  Automatic time-stamping of deals

•  Maker-checker authorisations

•  Exception reporting

•  Generation of deal confirmations

•  Monitoring of outstanding confirmations, settlements and payments

•  Cash management

•  Access controls and firewalls, virus protection and other security functionality such as locking of trade data

•  Integrated reporting across the Mutual Fund.

Existing Industry Practice

♦  The Mutual Fund should ensure that the fund accounting systems used (in-house or by the fund accountant to whom this activity has been outsourced) facilitate:

•  Validation of NAV calculations

•  Automated and manual price feeds

•  Identification of missing prices

•  Flagging of price variances beyond pre-established tolerance levels.

Organisation
Existing Industry Practice

♦  The Mutual Fund should segregate duties to ensure that an independent person or department carries out matching of trade confirmations.

♦  The Mutual Fund should appoint a Valuation Committee which meets periodically to review valuation policies.

Specific Risk Management Measures for Operations

Risks Impact Risk Management Measures
a. Deal errors   ♦  Incorrect execution of deals in terms of price, volume or asset class, potentially leading to failure of settlement, financial loss or non-compliance with regulations. Recommended Best Practice

♦  The back office system should be integrated with the front office system to facilitate:

♦  straight-through processing

♦  one-time capture of trade details •

♦  maker-checker authorisations

♦  in-built checks and validations.

Existing Industry Practice

♦  The Mutual Fund should not allow dealing through personal cell phones of dealers.

♦  The Mutual Fund should have recording facilities in the dealing room.

a. Settlement problems   ♦  Failure to provide securities or payment for securities leading to financial loss and/or reputation loss.

♦  Unsettled deals can have an adverse impact on portfolio performance.

Existing Industry Practice

♦  The Mutual Fund and its Investment Committee should maintain and proactively monitor credit information on all counterparties and establish counterparty lists and limits to avoid default on settlements.

♦  The Mutual Fund should receive daily position reports from the custodian.

♦  The Mutual Fund should establish service level agreements with custodians, including clauses that protect the fund and its investors from settlement errors by the custodian.

♦  The Mutual Fund should move towards trading on the Negotiated Dealing System (NDS) for government securities.

Recommended Best Practice

♦  The back office system should facilitate daily fund projections to ascertain liquidity and settlement requirements.

a. NAV and fund pricing errors   ♦  Incorrect NAV’s lead to units being bought and sold at the wrong price and investors may be disadvantaged.

♦  Misleading performance information to the investors.

♦  Non-compliance with regulations.

Existing Industry Practice

♦  The Mutual Fund must adhere to all SEBI regulations relating to valuation norms and daily or weekly disclosure of NAVs.

♦  The Mutual Fund should appoint a Valuation Committee which meets periodically to review valuation policies.

♦  The Mutual Fund should maintain documentation of all NAV procedures and methodologies and ensure that the documentation identifies all elements critical to NAV calculation.

♦  The Mutual Fund should should ensure that the fund accounting systems used (in-house or by the fund accountant to whom this activity has been outsourced) facilitate:

•  validation of NAV calculations

•  automated and manual price feeds

•  identification of missing prices

•  flagging of price variances beyond pre-established tolerance levels.

♦  The Mutual Fund should carry out periodic compliance and audit checks on the NAV calculation methodology to ensure accuracy of calculations and their compliance with the regulatory requirements.

a. Inaccurate financial reporting   ♦  Non-compliance with regulations and loss of investor confidence on account of incorrect projection of financial health. Existing Industry Practice

♦  All financial reporting should be subject to audits by internal and external auditors as well as the compliance officer, at quarterly intervals.

♦  The Trustees should review all financial reporting to ensure transparency and accuracy.

♦  The Mutual Fund should ensure that adequate disclosure is made with regard to derivative transactions, off-balance sheet items and contingent liabilities.

a. Fraud   ♦  Non-compliance with regulations, financial loss, reputation loss. Existing Industry Practice

♦  The Mutual Fund should adhere to all SEBI regulations and guidelines with regard to personal trading, insider trading and front-running.

♦  The Mutual Fund should establish a personal trading policy and code of conduct, which should be signed off by all employees at regular intervals.

♦  The Mutual Fund should send continuous reminders about personal trading policies and possible action in case of violation of these policies, to its employees.

♦  The Mutual Fund ideally should consider mandating use of a designated broker or its own dealing room for execution of personal trades of employees.

♦  All customer assets must be maintained with the custodian.

♦  The Mutual Fund should periodically provide training and information to all employees on compliance issues and policies on personal trading and fraud.

a. Failure of mission critical systems and infrastructure   ♦  Failure to complete critical end-of-day operations such as NAV calculation, redemptions and settlement of trades leading to noncompliance and loss of reputation. To be Mandated by SEBI

♦  The Mutual Fund, and its Registrar and Transfer (R&T) agents and custodians, should have an off-site back up facility and a Business Contingency Plan that is tested and evaluated on a regular basis. The business contingency plan should be comprehensive and should cover information technology, infrastructure and personnel requirements. Such a contingency plan should allow the AMC to perform, at the bare minimum, the critical functions of mutual fund operations on “Day 1”. These should include:

•  Calculation of daily NAVs

•  Redemption processing

•  Outstanding trade settlements.

Existing Industry Practice

♦  The Mutual Fund should address issues of security and virus protection by using firewalls, access controls and appropriate virus control procedures for its systems and servers.

♦  The Mutual Fund should carry out due diligence on all third- party systems before engaging them and ensure that they have appropriate business contingency plans in place.

a. Obsolete systems   ♦  Operational errors, delay in meeting regulatory requirements, inefficient processing of customer related processes. Existing Industry Practice

♦  The Mutual Fund should carry out a periodic systems audit to ensure required functionality vis-à-vis products and regulatory requirements.

♦  The Mutual Fund should carry out periodic stress testing of systems to ensure the ability to process large volumes at acceptable speeds.

♦  The Mutual Fund should implement applications that are developed using open architecture in order to facilitate interfacing and integrating with other applications.

V. Customer Service

Policies and Procedures
Existing Industry Practice

♦  The Mutual Fund should define service levels with regard to investors and incorporate these in the service level agreements with the R&T agent.

♦  The Mutual Fund should establish reconciliation procedures with regard to:

•  matching of cash receipts to issue of units and cash payments to redemption of units

•  end-of-day reconciliation to ensure correct allotment, transfer, or redemption of units to investors

•  end-of-day reconciliation to ensure payment of commissions to all agents

•  periodic reconciliation between the fund accounting system, R&T system and bank account.

♦  The Mutual Fund should purchase insurance to cover customer litigation.

♦  The service level clauses with the R&T agent should include a liability clause in case of errors and omissions.

♦  The Mutual Fund should have documented policies with regard to complaints handling.

♦  The Mutual Fund should conduct a periodic audit of all investorrelated activities, carried out both by the Mutual Fund and the R&T agent, to ensure that all allotments, redemptions, income distributions and commission distributions have been accurate and timely. This audit should also include the dispatch of statements and annual reports.

To be Mandated by SEBI

♦  The R&T agent should be required to take separate cover for errors and omissions.

Systems
Existing Industry Practice

♦  The R&T system should ideally have the following functionality:

•  imaging and bar-coding of applications

•  automatic generation of customer confirmations

•  maker-checker authorizations

•  workflow based processing

•  in-built checks on price and units

•  flagging units that are pledged

•  interface capabilities with fund accounting system

•  automatic calculation of income and redemption amounts

•  automatic calculation of agent commissions with in-built checks for accuracy

•  automatic printing of confirmations, statements, income and commission vouchers

•  exception generation and reporting

•  auto-update of account information

•  interface capabilities with sales and marketing database

•  support of customer and account relationship data model

•  in-built checks to ensure all statements are printed.

♦  The Mutual Fund should ideally establish electronic interfaces its with banking systems to allow for automatic instructions for payment and reconciliation.

Specific Risk Management Measures for Customer Service

Risks Impact Risk Management Measures
a. Errors in deal processing   ♦  Failure to correctly and timely process customer transactions leading to loss of investor confidence and non-compliance. Existing Industry Practice

♦  The Mutual Fund should establish procedures for accepting applications and sending out end-of-day confirmations for transactions.

Procedures should include scanning of all customer applications. The Mutual Fund should also consider tools such as bar-coding, optical character recognition (OCR), intelligent character recognition (ICR) and the use of pre-filled forms.

♦  The R&T system should facilitate maker-checker authorizations.

♦  The R&T system should facilitate reconciliation of cash and units.

♦  The Mutual Fund should establish controls for alternate channels of distribution such as the telephone and Internet, if used. For transactions carried out over the telephone, call scripts should include confirmations of transaction details. Transactions via the Internet will transfer the responsibility of data entry and its accuracy to the investor.

a. Other investor services   ♦  Failure to meet with regulatory standards leading to non-compliance.

♦  Failure to satisfactorily meet investor complaints and queries, to calculate correct income and distribute it on time, and to provide comprehensive and accurate financial information leading to loss of investor confidence.

♦  Failure to correctly calculate commissions for agents or to make payments to agents leading to loss of agent confidence in the Mutual Fund.

Existing Industry Practice

♦  All SEBI regulations with regard to investor servicing and complaint resolution, and its reporting, must be adhered to.

♦  The complaint resolution system should facilitate:

•  tracking of complaint resolution

•  automatic update of complaints log and forwarding of complaints to the compliance officer.

♦  All complaint resolution processes should be controlled by the compliance officer and the complaint log should be regularly reviewed for assessing the quality and timeliness of resolution.

♦  The Mutual Fund should carry out an audit of all income calculations and commission calculations to ensure accuracy of payments.

♦  The Mutual Fund should adopt the practice of direct debits to customers’ and agents’ bank accounts.

a. Fraud   ♦  Financial loss to the Mutual Fund leading to erosion of per unit NAV. Existing Industry Practice

♦  All investor units should only be issued in dematerialized form.

♦  The Mutual Fund should conduct periodic audits of customer account set-up and credit checks on customer accounts to prevent the setting-up of fraudulent accounts.

♦  In instances where physical unit certificates are issued, the Mutual Fund should consider the use of bar coding, invisible ink or other tools to prevent the possibility of fraudulent certificates being redeemed.

Recommended Best Practice

♦  Cash applications should not be permitted

♦  Redemptions should only be made to a bank account

For any change in address request, the R&T agent should confirm the change to both the old and new addresses.

VI. Marketing & Distribution

Specific Risk Management Measures for Marketing and Distribution

Risks Impact Risk Management Measures
a. New product Development   ♦  Non-compliance with regulations, loss of market reputation and poor customer service leading to loss of investor confidence. Existing Industry Practice

♦  A new scheme should adhere to all required SEBI regulations which require every new scheme to be approved by the Trustees and the Board of Directors, and the offer document to be reviewed by SEBI.

♦  The Mutual Fund should have a new product process in place.

♦  All new schemes have to obtain clearance of the compliance officer and the regulator before they are launched.

♦  Comprehensive market research should be undertaken by the Mutual Fund before the launching of a new product in order to assess the product’s viability in the market.

♦  The launch of a new product should have close involvement of the R&T agent and the IT teams, to enable evaluation of all infrastructure for its capacity to handle unexpectedly large volumes generated by a new scheme. Contingency arrangements should be made to handle overflow volumes.

a. Selling and distribution   ♦  Financial loss or delayed returns to investors due to misselling, loss of reputation to the Mutual Fund. Existing Industry Practice

♦  The Mutual Fund should continuously pursue training and certification of all its distributors. It should adopt strict polices and guidelines with regard to selling of its products and enforce these policies by getting the distributor to sign a declaration of adherence to a code of conduct.

♦  The compliance officer should vet all marketing material and brochures given to the distributor.

♦  The Mutual Fund should follow AMFI’s Three Part Program for Distributors, comprising Training, Certification and Registration.

♦  The Mutual Fund should use the services of only those distributors who have obtained certification. The Mutual Fund should empanel brokers based on specific criteria, including certification criteria.

♦  The Mutual Fund should use techniques such as “mystery shoppers” and investor surveys to evaluate the adherence of distributors to the code of conduct. It should continuously carry out such checks on its distributors.

VII. Other Business Risks

Policies and Procedures
Existing Industry Practice

♦  The Mutual Fund should have documented Human Resources (HR) policies and procedures. The policies and procedures should address issues such as:

•  attracting and retaining key skilled staff

•  succession planning

•  career development plan

•  training plan to equip new employees with relevant skills and to update skills of existing employees; training could be delivered in-house or through external institutions.

♦  The Mutual Fund should have a well documented and comprehensive compliance manual as required by SEBI regulations, and an operations manual, which are accessible to all employees.

Organisation
Existing Industry Practice

♦  The Mutual Fund should have qualified HR and administration staff with a sound knowledge of HR.

♦  The Trustees Board composition should have a majority of independent Trustees as specified by the SEBI regulations.

♦  The compliance officer should have a direct reporting line to the Trustees.

Specific Risk Management Measures for Other Business Risks

Risks Impact Risk Management Measures
a. Critical knowledge loss   ♦  Poor performance of the Mutual Fund in the market vis-à-vis other mutual funds. Existing Industry Practice

♦  The Mutual Fund should have documented HR policies and procedures addressing issues such as attracting and retaining key skilled staff. Incentives such as stock options, performance bonuses and competitive salaries should be considered.

♦  The Mutual Fund should have well documented policies and procedures.

♦  The HR plan should aim to identify and build a second line for key positions.

♦  The HR plan should also cover holiday planning in case of key employees going on leave.

a. Skills shortage   ♦  Low growth and poor performance vis-à-vis other mutual funds in the market.

♦  Lack of knowledgeable personnel in the organisation leading to a lackluster or negative image of the Mutual Fund in the market.

Existing Industry Practice

♦  The Mutual Fund should have a training plan for employees to update their existing skills and equip them with new skills. The training plan should identify both in-house and external institutions training requirements.

♦  The Mutual Fund should ideally have a dedicated knowledge management function within the organization to disseminate knowledge on new products, markets and developments. This function should maintain links to important information sources relevant for the industry.

a. Non-compliance   ♦  Inability to meet with regulatory requirements leading to a loss of reputation and loss of investor confidence. Existing Industry Practice

♦  The compliance officer should adhere to all SEBI regulations with regard to the immediate reporting to SEBI of any instance of non-compliance by the Mutual Fund as well as periodic reporting to Trustees.

♦  The Mutual Fund should have a well documented and comprehensive compliance manual, as required by SEBI regulations. This manual should be accessible to all employees.

♦  All new employees should be made to undergo compliance training.

♦  Trustees should adhere to all SEBI regulations regarding their responsibilities.

♦  The Independent directors on the Mutual Fund Board and the Audit Committee should actively review functioning of the Mutual Fund.

♦  The Compliance Department of the Mutual Fund should be staffed with people having legal, regulatory, accounting and other required expertise.

♦  The compliance officer should have a direct reporting line to the Trustees.

Recommended Best Practice

♦  Trustees should update themselves with the general and specific roles and responsibilities expected of them, including the proposed Risk Management Framework.

a. Third party risks (R&T agent misuses access to client information , R&T agent gets bought by a customer or goes out of business, custodian goes out of business).   ♦  Customer information gets shared with competitors.

♦  Disruption to operations

♦  Financial loss to investors.

Existing Industry Practice

♦  The Mutual Fund should carry out due diligence on R&T agent and custodians before selection. The service level agreements (SLA) should prohibit the misuse of client information. The Mutual Fund should conduct periodic audits of R&T and custodian activities.

♦  The Mutual Fund should periodically review the arrangement with the R&T agent and the custodian, and also survey other service providers in the market.

APPENDIX A: FINAL RECOMMENDATIONS AS APPROVED BY THE AMFI BOARD ON 3 JULY 2002

PART 1: RECOMMENDATIONS TO BE MANDATED BY SEBI

1. Risk Management Function

We recommend that all funds should have an independent risk management function. This function will be responsible for identifying, evaluating or measuring all risks inherent in a mutual fund organisation, as well as establishing controls to mitigate such risks. The risks include:

♦  Fund Management: volatility in performance, style drift and portfolio concentration, interest rate movements, liquidity issues, credit risk

♦  Operations: deal errors, settlement problems, NAV and fund pricing errors, inaccurate financial reporting, fraud, failure of mission critical systems and infrastructure, obsolete systems

♦  Customer Service: errors in deal processing, other investor services, fraud

♦  Marketing and Distribution: new product development, selling and distribution

♦  Other Business Risks: critical knowledge loss, skills shortage, non- compliance, third party risks.

The function should be separate from fund management and should report to the Chief Executive Officer of the AMC. The function could be carried out in a number of ways:

♦  As an additional function of an existing employee of the AMC, e.g. the Compliance Officer or Internal Auditor;

♦  Through a Risk Management Committee;

♦  Outsourced to an external agency; or

♦  As the Trustees of the mutual fund may deem fit.

A Risk Management Framework manual detailing the policies and procedures, systems, organisation controls and specific risk management measures for the above risks will be prepared by AMFI.

The creation of such a function should be mandated by SEBI, with an implementation time frame of 3 months from the date of such mandate, or 1st January 2003, whichever is later.

1. Disaster Recovery and Business Contingency Plans

All funds, and their Registrar and Transfer (R&T) agents and custodians, should have an off-site back up facility and a Business Contingency Plan that is tested and evaluated on a regular basis. The business contingency plan should be comprehensive and should cover information technology, infrastructure and personnel requirements. Such a contingency plan should allow the AMC to perform, at the bare minimum, the critical functions of mutual fund operations on “Day 1”. These should include:

1.  Calculation of daily NAVs

2.  Redemption processing

3.  Outstanding trade settlements.

SEBI should mandate the above with an implementation time frame of 6 months from the date of such mandate.

1. Insurance

We recommend that funds should be required to buy insurance cover against third party losses arising from errors and omissions. The level and type of cover should be determined by the Trustees, subject to a minimum level of Rs 5 crores. However, Mutual Funds with assets of less than Rs.100 crores may take insurance cover for an amount of less than Rs.5 crore as determined by their trustees. The premium for this cover may be paid for in accordance with Chapter VII, Section 52 (4) (b) (x) of the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. R&T agents and custodians should also be required to take separate cover for errors and omissions.

PART 2: RECOMMENDATIONS TO BE ISSUED AS BEST PRACTICE

GUIDELINES BY AMFI

These are recommended best practice measures that should be adopted as the industry matures and the operations of individual players grow in size and complexity.

1. Liquidity Risks

Funds should make suitable in-principle arrangements in advance for borrowing to deal with unexpected redemptions, in order to avoid delays and difficulties in resorting to borrowing when the need arises.

2. Use of Risk Measurement Tools in Portfolio Management

Mutual Funds should consider using one or more of the following portfolio management tools for risk measurement, in keeping with international trends. These tools should be used to manage risks more effectively, and should be capable of carrying out the following analytics:

♦  Quantification of exposure using measures such as Value at Risk (VaR), duration, and tracking error

♦  Risk adjusted performance measurement using Sharpe Ratios, Treynor Measures and Sortino Ratios

♦  Risk benchmarking, i.e. the exposure arising between the actual managed portfolio and the benchmark portfolio

♦  Stress testing and back testing of exposure calculations.

1. Front Office and Dealing Systems

Funds should consider implementing integrated front and back office systems which will facilitate straight-through processing, thereby reducing the possibility of input errors at any stage in the investment, dealing and settlement process. More importantly, a front office system with a robust compliance module will facilitate pre-trade compliance checks, thereby reducing the possibility of regulatory or internal limits being breached.

2. Dealing and Best Execution

Currently, most players are too small to warrant a segregation of duties between fund managing and dealing. However, as the industry matures and volumes increase, this will be an area that should be looked at more closely, with a view to setting clear guidelines for best execution.

3. Money Laundering

In the absence of any money laundering regulation in India, funds should, at a minimum, adopt the following measures:

♦  Cash applications should not be permitted

♦  Redemptions should only be made to a bank account

♦  For any change in address request, the R&T agent should confirm the change to both the old and new addresses.

ANNEXURE 3

Investment Valuation Norms for Mutual Funds3

All mutual funds shall provide transaction details of various types of debt securities like NCDs, Mibor linked floaters and CPs on daily basis in the format below to the agency recommended by AMFI. Submission of data would help in daily matrix generation, would improve uniformity and accuracy of valuation in the mutual funds industry.

Date of Transaction Coupon Security Name Security Type Staggered Redemption/ Maturity Dates Staggered Redemption/ Maturity Values Rating Put/ Call Option Dates Put/ Call Option Values Interest Payment Dates Volume (in Rs. Crs) Clean Price YTM (Annualised)
NCD
Mibor Linked
CP

ANNEXURE 4

List of Million Plus Cities for investments by REMF4

Census of India 2001 (Provisional)

S. No. Name of City Civic Status State/Union Territory
1 2 3 4
1 Greater Mumbai Delhi Municipal Corporation M.Corp. Maharashtra
2 (Urban) M.Corp. Delhi
3 Kolkata M.Corp. West Bengal
4 Bangalore M.Corp. Karnataka
5 Chennai M.Corp. Tamil Nadu
6 Ahmedabad M.Corp. Gujarat
7 Hyderabad M.Corp. Andhra Pradesh
8 Pune M.Corp. Maharashtra
9 Kanpur M.Corp. Uttar Pradesh
10 Surat M.Corp. Gujarat
11 Jaipur M.Corp. Rajasthan
12 Lucknow M.Corp. Uttar Pradesh
13 Nagpur M.Corp. Maharashtra
14 Indore M.Corp. Madhya Pradesh
15 Bhopal M.Corp. Madhya Pradesh
16 Ludhiana M.Corp. Punjab
17 Patna M.Corp. Bihar
18 Vadodara M.Corp. Gujarat
19 Thane M.Corp. Maharashtra
20 Agra M.Corp. Uttar Pradesh
21 Kalyan-Dombivli M.Corp. Maharashtra
22 Varanasi M.Corp. Uttar Pradesh
23 Nashik M.Corp. Maharashtra
24 Meerut M.Corp. Uttar Pradesh
25 Faridabad M.Corp. Haryana
26 Haora M.Corp. West Bengal
27 Pimprichinchwad M.Corp. Maharashtra

 

Total :
Note:
M. Corp. stands for Municipal Corporation

List of Million Plus UAs Cities for investments by REMF

Urban Agglomerations/Cities having population of more than one million in 2001

Rank in 2001 Urban Agglomeration/City

(1,000,000 + population)

Civic Status
1 2 3
1 Greater Mumbai UA
2 Kolkata UA
3 Delhi UA
4 Chennai UA
5 Bangalore UA
6 Hyderabad UA
7 Ahmadabad UA
8 Pune UA
9 Surat UA
10 Kanpur UA
11 Jaipur M.Corp.
12 Lucknow UA
13 Nagpur UA
14 Patna UA
15 Indore UA
16 Vadodara UA
17 Bhopal UA
18 Coimbatore UA
19 Ludhiana M.Corp.
20 Kochi UA
21 Visakhapatnam UA
22 Agra UA
23 Varanasi UA
24 Madurai UA
25 Meerut UA
26 Nashik UA
27 Jabalpur UA
28 Jamshedpur UA
29 Asansol UA
30 Dhanbad UA
31 Faridabad M.Corp.
32 Allahabad UA
33 Amritsar UA
34 Vijayawada UA
35 Rajkot UA
TOTAL

ANNEXURE 5

SECURITIES AND EXCHANGE BOARD OF INDIA

SEBI INVESTOR EDUCATION PROGRAMME5

(INVESTMENTS IN MUTUAL FUNDS)

Introduction

Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.

With an objective to make the investors aware of functioning of mutual funds, an attempt has been made to provide information in question-answer format which may help the investors in taking investment decisions.

What is a 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.

Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unitholders.

The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

What is the history of Mutual Funds in India and role of SEBI in mutual funds industry?

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type.

How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

What is Net Asset Value (NAV) of a scheme?

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).

Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis – daily or weekly -depending on the type of scheme.

What are the different types of mutual fund schemes?

Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth/Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income/Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as “tracking error” in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

What are sector specific funds/schemes?

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

What are Tax Saving Schemes?

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

What is a Fund of Funds (FoF) scheme?

A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. An FoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe.

What is a Load or no-load Fund?

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads.

A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents?

Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments.

What is a sales or repurchase/redemption price?

The price or NAV a unitholder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable.

Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if applicable.

What is an assured return scheme?

Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme.

A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document.

Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds of investors?

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.

How to invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.

Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.

Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.

How much should one invest in debt or equity oriented schemes?

An investor should take into account his risk taking capacity, age factor, financial position, etc. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.

How to fill up the application form of a mutual fund scheme?

An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at a later date should be informed to the mutual fund immediately.

What should an investor look into an offer document?

An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.

When will the investor get certificate or statement of account after investing in a mutual fund?

Mutual funds are required to despatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.

How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?

According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.

As a unitholder, how much time will it take to receive dividends/repurchase proceeds?

A mutual fund is required to despatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unitholder.

In case of failures to despatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).

Can a mutual fund change the nature of the scheme from the one specified in the offer document?

Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor.

How will an investor come to know about the changes, if any, which may occur in the mutual fund?

There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unitholders.

Apart from it, many mutual funds send quarterly newsletters to their investors.

At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.

How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.

The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.

How to know where the mutual fund scheme has invested money mobilised from the investors?

The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unitholders.

The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.

Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes.

Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company?

Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.

If schemes in the same category of different mutual funds are available, should one choose a scheme with lower NAV?

Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs. 10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc. This is explained in an example given below.

Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the factors for making investment decision. Likewise, if a new equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision making by the investor. Similar is the case with income or debt-oriented schemes.

On the other hand, it is likely that the better managed scheme with higher NAV may give higher returns compared to a scheme which is available at lower NAV but is not managed efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as much as inefficiently managed scheme with lower NAV. Therefore, the investor should give more weightage to the professional management of a scheme instead of lower NAV of any scheme. He may get much higher number of units at lower NAV, but the scheme may not give higher returns if it is not managed efficiently.

How to choose a scheme for investment from a number of schemes available?

As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.

Are the companies having names like mutual benefit the same as mutual funds schemes?

Investors should not assume some companies having the name “mutual benefit” as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.

Is the higher net worth of the sponsor a guarantee for better returns?

In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.

Where can an investor look out for information on mutual funds?

Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also published useful literature for the investors.

Investors can log on to the web site of SEBI www.sebi.gov.in and go to “Mutual Funds” section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given.

There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.

Can an investor appoint a nominee for his investment in units of a mutual fund?

Yes. The nomination can be made by individuals applying for/holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate.

If mutual fund scheme is wound up, what happens to money invested?

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.

How can the investors redress their complaints?

Investors would find the name of contact person in the offer document of the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. Investors should approach the concerned Mutual Fund/Investor Service Centre of the Mutual Fund with their complaints,

If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with it regularly. Investors may send their complaints to:

Securities and Exchange Board of India

Office of Investor Assistance and Education (OIAE)

Exchange Plaza, “G” Block, 4th Floor,

Bandra-Kurla Complex,

Bandra (E), Mumbai – 400 051.

Phone: 26598510-13

What is the procedure for registering a mutual fund with SEBI?

An applicant proposing to sponsor a mutual fund in India must submit an application in Form A along with a fee of Rs.1lakh. The application is examined and once the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two-thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25 lakhs. For details, see the SEBI (Mutual Funds) Regulations, 1996.

ANNEXURE 66

THE GAZETTE OF INDIA EXTRAORDINARY PART – III – SECTION 4 PUBLISHED BY AUTHORITY NEW DELHI, MAY 31, 2010

SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION

Mumbai, the 31st May, 2010

Notification under regulation 3 of the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007.

In terms of sub-regulation (1) of regulation 3 of the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 (the Regulations), the Board is empowered to require, by notification, any category of associated persons as defined in the Regulations to obtain requisite certification.

Accordingly, it is notified that with effect from June 01, 2010, the following category of associated persons, i.e., distributors, agents or any persons employed or engaged or to be employed or engaged in the sale and/or distribution of mutual fund products, shall be required to have a valid certification from the National Institute of Securities Markets (NISM) by passing the certification examination as mentioned in the NISM communiqué NISM/Certification/Series-V-A: MFD/2010/01 dated May 05, 2010.

Provided that if the said associated person possesses a valid certificate by passing before June 01, 2010, the AMFI Mutual Fund (Advisors) Module, he shall be exempted from the requirement of the aforementioned NISM certification examination.

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1.  SEBI Cir no – MFD/CIR/06/210/2002 dated June 26, 2002 and SEB/IMD/CIR No. 8/174648/2009 dated August 27, 2009

2.  SEBI Cir – MFD/CIR/15/19133/2002 dated September 30, 2002

3.  SEBI Cir No – MFD/CIR.No 23/066 /2003 dated March 7, 2003

4.  SEBI/IMD/CIR No.4/124477/08 dated May 2, 2008

5.  MFD/CIR No.13/370/02 dated January 16, 2002

6.  SEBI Cir No. Cir/IMD/DF/5/2010 dated June 24, 2010.

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