Securities and Exchange Board of India (SEBI) has issued the Mutual Funds (Third Amendment) Regulations, 2024, which amend the Mutual Funds Regulations, 1996. Effective upon publication in the Official Gazette, some provisions will be implemented 90 days later, while others will take effect from April 1, 2025. A key addition is the introduction of “Specialized Investment Funds” (SIFs), defined as mutual funds catering to accredited investors with specific conditions. These funds can operate without requiring a separate trust for launching investment strategies. SEBI has clarified that the new chapter dedicated to SIFs applies exclusively to these funds, and other regulations, guidelines, and circulars will also govern them unless otherwise specified. The amendment includes changes in Regulation 11, integrating provisions for SIFs.
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 16th December, 2024
SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) (THIRD AMENDMENT)
REGULATIONS, 2024
Notification No. SEBI/LAD-NRO/GN/2024/221.—In exercise of the powers conferred by section 30 read with clause (c) of sub-section (2) of section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, namely—
1. These Regulations may be called the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2024.
2. They shall come into force on the date of their publication in the Official Gazette:
Provided that sub-regulations I, II and VI of regulation 3 of these amendment regulations shall come into force on the ninetieth day from the date of their publication in the Official Gazette:
Provided further that sub-regulations IV and V of regulation 3 of these amendment regulations shall come into force with effect from April 1, 2025.
3. In the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996,—
II. in Chapter II, in regulation 11, after the words and symbol “in regulation 7”, the words and symbol “or regulation 81” shall be inserted.
II. in Chapter IV, in regulation 23, after the words and symbol “in regulation 21”, the words and symbol “and regulation 86” shall be inserted.
III. In regulation 29A,-
(i) in sub-regulation (1), the words “in the manner specified in Fourth Schedule” shall be substituted with the words “in the manner as may be specified from time to time”.
(ii) the existing sub-regulation (2) shall be renumbered as sub-regulation (3).
(iii) after sub-regulation (1), the following sub-regulation shall be inserted, namely:
“(2) The unitholder shall have an option to nominate, in the manner as may be specified, a person who shall be authorized to conduct transactions on behalf of the unitholder in the event of the incapacitation of the unitholder.”
(iv) after sub-regulation (3), the following sub-regulation shall be inserted, namely:
“(4) An asset management company or its registrar to an issue and share transfer agent shall not be liable for any action taken on the basis of nomination made by the unitholder.”
IV. in Chapter VI, in regulation 43, after sub-regulation (7), the following sub-regulation shall be inserted, namely, —
“(8) Moneys collected under the investment strategies of a Specialized Investment Fund shall be invested in accordance with regulation 49Z.”
V. After chapter VI-B, the following chapter and regulations shall be inserted, namely,—
“CHAPTER VI-C
SPECIALIZED INVESTMENT FUND
Definitions:
49U. For the purposes of this Chapter, unless the context otherwise requires-
a) “Accredited Investor” shall have the same meaning as assigned to it in clause (ab) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012;
b) “Specialized Investment Fund” means a mutual fund as defined under clause (q) of sub-regulation (1) of regulation 2 of these regulations and subject to such other conditions as specified under this chapter:
Provided that a mutual fund registered under regulation 9 shall not be required to establish a separate trust for launching any Investment Strategy under the Specialized Investment Fund.
c) “Investment Strategy” means a scheme of mutual fund launched under the Specialized Investment Fund.
Applicability:
49V. (1) The provisions of this Chapter shall apply to a Specialized Investment Fund.
(2) Unless the context otherwise requires, all other provisions of these regulations and the guidelines and circulars issued thereunder shall apply to a Specialized Investment Fund and the investment strategies launched under it, the trustees and the asset management companies in relation to such investment strategies, except where specific provisions are made in relation thereto under this Chapter.
Approval requirements:
49W. (1) A mutual fund registered under regulation 9 may be granted an approval to establish a Specialized Investment Fund subject to fulfilling such eligibility criteria
and in the manner, as may be specified by the board.
Conditions for Specialized Investment Fund:
49X. (1) A Specialized Investment Fund shall not accept from an investor, an investment amount less than ten lakh rupees across all investment strategies in the manner as may be specified by the Board:
Provided that the requirement of minimum investment amount shall not apply to an accredited investor.
(2) The Fund Manager of Specialized Investment Funds shall have the relevant NISM certification as may be specified by the Board from time to time.
(3) All provisions applicable to the schemes of a mutual fund under these regulations shall also apply to the Investment Strategies launched under the Specialized Investment Fund, unless otherwise specified.
Procedure for launching of investment strategies:
49Y. (1) The investment strategies under the Specialized Investment Fund shall be launched in accordance with the procedure applicable to the schemes of the mutual funds, as laid down in regulation 28:
Provided that a Specialized Investment Fund may launch such investment strategies in the manner as may be specified by the Board from time to time.
(2) An investment strategy under the Specialized Investment Fund shall be launched as an open-ended investment strategy or close-ended investment strategy or interval investment strategy with subscription and redemption frequency appropriately disclosed in the offer document.
(3) The fees and expenses for the investment strategies launched under the Specialized Investment Fund shall be in accordance with regulation 52 of these regulations.
Permissible investments:
49Z. (1) Specialized Investment Fund may invest monies collected under any of its investment strategies in instruments permitted under sub-regulation (1) of regulation 43 for mutual funds schemes:
Provided that the manner of investment by a Specialized Investment Fund may be specified by the Board.
(2) Any investment to be made under sub-regulation (1) of regulation 49Z shall be invested subject to investment restrictions as specified under regulation 49AA.
Restrictions on investments:
49AA. (1) An investment strategy under Specialized Investment Fund shall not invest more than 20 per cent of its NAV in debt instruments comprising money market instruments and non-money market instruments issued by a single issuer which are rated not below investment grade by a credit rating agency authorised to carry out such activity under the Act. Such investment limit may be extended to 25 per cent of the NAV of the investment strategy with the prior approval of the Board of Trustees and Board of Directors of the asset management company:
Provided that such limit shall not be applicable for investments in Government Securities, treasury bills and triparty repo on Government securities or treasury bills:
Provided further that investments within such limit can be made in mortgaged backed securitised debt which are rated not below investment grade by a credit rating agency registered with the Board:
Provided further that such limit shall not be applicable for investments in case of debt exchange traded funds or such other funds as may be specified by the Board from time to time.
(2) No Specialized Investment Fund under all its investment strategies should own more than fifteen per cent of any company’s paid up capital carrying voting rights:
Provided that investment in the asset management company or the trustee company of a mutual fund shall be governed by clause (a) of sub-regulation (1) of regulation 7B:
Provided further that the limit mentioned in sub-regulation (2) above shall be inclusive of ten per cent limit for mutual fund schemes as specified under clause 2 of Seventh Schedule.
Explanation: If a mutual fund under all its schemes owns ten per cent of any company’s paid up capital carrying voting rights, then the Specialized Investment fund under all its investment strategies shall not own more than five per cent of that company’s paid up capital carrying voting rights.
(3) No investment strategy of a Specialized Investment Fund shall invest more than 10 per cent of its NAV in the equity shares and equity-related instruments of any company.
(4) A Specialized Investment Fund may invest in the units of REITs and InvITs subject to the following:
(a) No Specialized Investment Fund under all its investment strategies shall own more than 20 per cent of units issued by a single issuer of REIT and InvIT:
Provided that the limit mentioned in clause (a) of sub-regulation 4 above shall be inclusive of 10 per cent limit for mutual fund scheme as specified under clause 13 (a) of Seventh Schedule.
(b) An investment strategy under Specialized Investment Fund shall not invest –
(i) more than 20 per cent of its NAV in the units of REITs and InvITs; and
(ii) more than 10 per cent of its NAV in the units of REIT and InvIT issued by a single issuer:
Provided that the limits mentioned in sub-clauses (i) and (ii) above shall not be applicable for investments in case of index fund or sector or industry specific scheme pertaining to REIT and InvIT.
(5) All other investment restrictions applicable for schemes of mutual funds as specified under Seventh Schedule shall apply to investment strategies under the Specialized Investment Fund.
Duties of Asset Management Company:
49AB. (1) The asset management company shall ensure that the Specialized Investment Fund has distinct identification, separate from that of the Mutual Fund, to maintain clear differentiation between the offerings of the Specialized Investment Fund and that of a Mutual Fund.
(2) The asset management company shall comply with the provisions relating to branding, advertising, standard disclaimers, guidelines on usage of sponsor or asset management company or mutual fund’s brand name and maintenance of a separate website, as may be specified by the Board from time to time.
Duties of trustees:
49AC. (1) The trustees shall ensure that the asset management company has the necessary expertise, internal control systems and risk management mechanism to invest in and manage investments.
(2) The trustees shall ensure that the asset management company shall comply with such other requirements related to risk management, investor protection, disclosures and reporting, as may be specified by the Board from time to time.
(3) The trustees shall ensure that all activities of the Specialized Investment Fund are in accordance with the provisions of these regulations.
Disclosures in offer document and other disclosures:
49AD. (1) The offer documents of the Specialized Investment Fund shall contain disclosures which are adequate for investors to make informed investment decisions, highlighting the high-risk nature of the product, in the manner as may be specified by the Board.
(2) The portfolio disclosures in respect of a Specialized Investment Fund shall be made in the manner as may be specified by the Board.”
VI. After Chapter X, the following new chapter shall be inserted, namely, –
“CHAPTER XI
MUTUAL FUNDS LITE
Definitions
79. (1) For the purposes of this Chapter, unless the context otherwise requires-
(a) “trustee” means a debenture trustee registered with the Board under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993:
Provided that in case an existing sponsor transfers its eligible passive schemes from its existing mutual fund to a mutual fund lite in accordance with regulation 82, the MF Lite asset management company may appoint the existing trustee of the mutual fund as the trustee of the mutual fund Lite.
(b) “Mutual Fund Lite” or “MF Lite” means a mutual fund that has obtained registration under this Chapter and is having only such index funds, exchange traded funds, fund of funds or other mutual fund schemes as may be specified by the Board from time to time.
(c) “Mutual Fund Lite asset management company” or “MF Lite asset management company” or “MF Lite AMC” means an asset management company of a Mutual Fund Lite that has been granted approval under this Chapter.
(d) “Mutual Fund Lite scheme” or “MF Lite Scheme” means any scheme launched by a mutual fund lite or any other eligible passive scheme as may be specified by the Board from time to time.
Applicability
80. (1) The provisions of this Chapter shall be applicable to Mutual Funds Lite and Mutual Fund Lite Schemes.
(2) All other provisions of these regulations except the following provisions and the guidelines and circulars issues thereunder, unless the context otherwise requires, or is repugnant to the provisions of this Chapter, shall apply to a Mutual Fund Lite, Mutual Fund Lite schemes, and trustees and asset management companies in relation to such mutual funds and schemes:
i. regulation 7;
ii. regulation 14;
iii. regulation 15;
iv. regulation 16;
v. regulation 18;
vi. clause (f) and (g) of sub regulation (1) of regulation 21;
vii. clause (c) of regulation 22;
viii. regulation 24;
ix. regulation 25;
x. regulation 25A;
xi. sub regulation (1) of regulation 28;
xii. regulation 38A;
xiii. regulation 43A;
xiv. Chapter VIA;
xvii. Chapter VIB;
xvi. regulation 59;
xvii. regulation 59A;
xviii. Third Schedule;
xix. Fourth Schedule; and
xx. Twelfth Schedule.
Eligibility Criteria
81. For the purpose of grant of certificate of registration as a Mutual Fund Lite, the applicant has to fulfill the following requirements, namely
(a) the sponsor should have a sound track record and general reputation of fairness and integrity in all business transactions.
Explanation: For the purposes of this clause “sound track record” shall mean the sponsor should, —
(i) ensure that the networth is positive in all the immediately preceding fiveyears; and
(ii) ensure that the positive liquid networth is more than the proposed capital contribution of the sponsor in the MF Lite asset management company and ensure that in case of change in control of the existing asset management company due to acquisition of shares, the positive liquid net worth of the sponsor or funds tied up by the sponsor is to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher; and
(iii) have net profit after providing for depreciation, interest and tax in three out of immediately preceding five years including the fifth year; and
(iv) have average net annual profit after depreciation, interest and tax during the immediately preceding five years of at least rupees five crore:
Provided that if the requirements specified under Explanation to clause (a) are not fulfilled, the sponsor shall,-
(i) adequately capitalize the MF Lite asset management company such that the net worth of the said asset management company is not less than rupees seventy five crore; and
(ii) ensure that the initial shareholding of sponsor equivalent to capital contributed to the MF Lite asset management company to the extent of not less than rupees seventy five crore is locked-in for a period of three years; and
(iii) appoint experienced personnel in the MF Lite asset management company such that the total combined experience of Chief Executive Officer, Chief Operating Officer, Chief Compliance Officer and Chief Investment Officer shall be at least twenty years; and
(iv) ensure that in case of acquisition of existing MF Lite asset management company, the sponsor shall have minimum positive liquid net worth equal to incremental capitalization required to ensure minimum capitalization of the MF Lite asset management company and the positive liquid net worth of the sponsor or the funds tied up by the sponsor are to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher;
(v) ensure that in case of acquisition of stake in an existing MF Lite asset management company, the shareholding equivalent to at least rupees seventy five crore shall be locked in for three years.
(vi) ensure that other conditions in this regard as may be specified by the Board from time to time are adhered to:
Provided further that a private equity fund or a pooled investment vehicle or a pooled investment fund may also be permitted to sponsor mutual funds lite subject to such other conditions as may be specified by the Board from time to time.
(b) applicant is a fit and proper person by taking into account the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
(c) in the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has been approved by the Board;
(d) the sponsor has contributed or contributes at least 40% to the net worth of the MF Lite asset management company:
Provided that any person who holds 40% or more of the net worth of a MF Lite asset management company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in these regulations;
(e) the sponsor or any of its directors or the principal officer to be employed by the MF Lite should not have been guilty of fraud or has not been convicted of an offence involving moral turpitude or has not been found guilty of any economic offence;
(f) appointment of debenture trustees to act as trustees for the MF Lite in accordance with the provisions of the regulations;
(g) appointment of MF Lite asset management company to manage the MF Lite and operate the scheme of such funds in accordance with the provisions of these regulations;
(h) appointment of custodian in order to keep custody of the securities and such other assets held by the Mutual Fund Lite as may be specified by the Board, and provide such other custodial services as may be required for managing a Mutual Fund Lite.
Norms for shareholding.
82. (1) Notwithstanding anything contained under regulation 7B of these regulations, a sponsor shall be permitted to obtain a registration as a mutual fund under Chapter II of these regulations and a separate registration as a Mutual Fund Lite under this Chapter subject to conditions specified by the Board from time to time.
(2) Notwithstanding anything contained under regulation 7B of these regulations, an existing sponsor under these regulations may transfer its passive scheme which is eligible as a mutual fund lite scheme from an existing mutual fund to a mutual fund lite belonging to a group entity of the same sponsor, subject to conditions as specified by the Board from time to time:
Provided that if an existing sponsor transfers its passive schemes from its existing mutual fund to a mutual fund lite, the existing mutual fund shall not launch any passive schemes that are eligible as mutual fund lite schemes after such transfer.
(3) Notwithstanding anything contained under regulation 7B of these regulations, an existing shareholder holding 10% or more shareholding or voting rights in an existing asset management company of the mutual fund may be allowed to hold 10% or more shareholding or voting rights in a mutual fund lite asset management company belonging to a group entity of the same sponsor.
(4) An existing mutual fund that intends to only launch mutual fund lite schemes may surrender its existing registration and migrate as a mutual fund lite under this Chapter subject to the conditions and the manner specified by the Board.
Trust deed to be registered under the Registration Act
83. A mutual fund lite shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, as specified by the Board, duly registered under the provisions of the Registration Act, 1908 (16 of 1908), executed by the mutual fund lite asset management company in favor of the trustees named in such an instrument:
Provided that in case of disassociation of the sponsor, the signatory to the trust deed shall be as specified by the Board.
Appointment of trustee.
84. (1) Notwithstanding anything contained under regulation 7B of these regulations, a debenture trustee may be appointed as a trustee of more than one mutual fund lite.
(2) The trustee of a mutual fund lite shall be an independent entity and not an associate of the sponsor or manager of the concerned mutual fund lite asset management company.
(3) No debenture trustee shall be eligible to be appointed as a trustee under this Chapter unless it meets the criteria for a fit and proper person specified under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993.
Rights and obligations of the trustees.
85. (1) The trustees and the MF Lite asset management company shall enter into an investment management agreement.
(2) The investment management agreement shall contain such clauses as may be specified by the Board and such other clauses as are necessary for the purpose of making investments.
(3) The trustees shall be accountable for, and be the custodian of, the funds and property of the respective mutual fund lite schemes and shall hold the same in trust for the benefit of the unitholders in accordance with this chapter and the provisions of trust deed.
(4) The trustee shall have satisfactory wherewithal with respect to infrastructure, personnel, systems etc. as may be required for the proper discharge of its duties under these regulations.
(5) The trustee shall oversee activities of the mutual fund lite asset management company in the interest of the unitholders and obtain periodic reports on its activities and status of compliance with applicable regulations in the manner as may be specified by the Board.
(6) The trustees shall have the right to seek information from the mutual fund lite asset management companies in accordance with the trust deed.
(7) Where the trustees have reason to believe that the conduct of the business of the mutual fund lite is not in accordance with these regulations or detrimental to the interest of the unitholders, they shall forthwith take such remedial steps, as are necessary and shall immediately inform the Board of such conduct and the action taken by them.
(8) The trustees shall periodically review the status of unit holders’ complaints and the redressal of the same by the mutual fund lite asset management company.
(9) The trustee shall provide consent in case of change in control of the mutual fund lite asset management company.
(10) The trustees shall ensure that mutual fund lite asset management company has not given any undue or unfair advantage to any associates or dealt with any of the associates of the mutual fund lite asset management company in any manner detrimental to interest of the unitholders.
(11) Each trustee shall file the details of his transactions of dealing in securities with the Mutual Fund Lite within the time and manner as may be specified by the Board from time to time.
(12) The trustees shall take steps to ensure that the transactions of the mutual fund lite are in accordance with the provisions of the trust deed.
(13) The trustees shall obtain the consent of the unitholders—
(a) whenever required to do so by the Board in the interest of the unitholders; or
(b) whenever required to do so on the requisition made by three-fourths of the unit-holders of any mutual fund lite scheme; or
(c) when the majority of the trustees decide to wind up a scheme in terms of clause (a) of sub regulation (2) of regulation 39 or prematurely redeem the units of a close ended scheme.
(14) The trustees shall call for the details of transactions in securities by the key personnel of the mutual fund lite asset management company in his own name or on behalf of the mutual fund lite asset management company and shall report to the Board, as and when required.
(15) The trustees shall quarterly review all transactions carried out between the mutual fund lite, mutual fund lite asset management company and its associates.
(16) The trustees shall ensure that there is no conflict of interest between the manner of deployment of its networth by the mutual fund lite asset management company and the interest of the unit- holders.
(17) The trustees shall abide by the Code of Conduct as specified in PART-A of the Fifth Schedule.
(18) The trustees shall give their comments on the report received from the mutual fund lite asset management company regarding the investments by the mutual fundlite in the securities of group companies of the sponsor.
(19) The trustee shall ensure that the trust property is properly protected, held and administered by proper persons and by a proper number of such persons.
(20) The trustees shall also exercise due diligence on such matters as may be specified by the Board from time to time.
(21) Notwithstanding anything contained in sub-regulations (1) to (20), the trustees shall not be held liable for acts done in good faith if they have exercised adequate due diligence and acted as per the terms of the trust deed.
Networth requirement for the mutual fund lite asset management company.
86. (1) The mutual fund lite asset management company shall have a networth of not less than rupees thirty five crore deployed in assets as may be specified by the Board:
Provided that the mutual fund lite asset management company may bring down the networth to rupees twenty five crore in case it has profits for five consecutive years.
(2) Where the sponsor does not fulfil the requirements provided in part (i) to (iv) of the Explanation to clause (a) of regulation 81 of these regulations at the time of making application, the mutual fund lite asset management company shall have a networth of not less than rupees fifty crore deployed in assets as may be specified by the Board:
Provided that the mutual fund lite asset management company may bring down the networth to rupees twenty five crore in case it has profits for five consecutive years.
Explanation: Any loans and advances given by a mutual fund lite asset management company to either sponsor, associates or group company of sponsor and associates or group company of mutual fund lite asset management company shall be excluded while computing the networth of the mutual fund lite asset management company.
(3) The networth of the mutual fund lite asset management company as required under sub-regulation (1) or (2) of this regulation shall be maintained on a continuous basis and it shall be the responsibility of the sponsor to ensure the same.
(4) Notwithstanding anything contained in sub-regulations (1) to (3), if the total assets under management of the mutual fund lite asset management company exceeds the specified thresholds, the mutual fund lite asset management company shall abide by the net worth requirements under Chapter IV of these Regulations.
Mutual fund lite asset management company and its obligations
87. (1) The directors of a mutual fund lite asset management company shall be appointed by the sponsor and the sponsor shall exercise diligence while making such appointments.
(2) The mutual fund lite asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any mutual fund lite scheme is not contrary to the provisions of these regulations and the trust deed.
(3) The mutual fund lite asset management company shall obtain, wherever required under these regulations, prior in-principle approval from the recognized stock exchange(s) where units are proposed to be listed.
(4) The mutual fund lite asset management company shall be responsible for the acts of commission or omission by its employees or the persons whose services have been procured by the asset management company.
(5) Notwithstanding anything contained in any contract or agreement or termination, the mutual fund lite asset management company or its directors or other officers shall not be absolved of liability to the mutual fund lite for their acts of commission or omission, while holding such position or office.
(6) The Chief Executive Officer (whatever be the designation) of the mutual fund lite asset management company shall ensure that the mutual fund lite complies with all the provisions of these regulations and the guidelines or circulars issued in relation thereto from time to time and that the investments made by the fund managers are in the interest of the unit holders and shall also be responsible for the overall risk management function of the mutual fund lite.
(7) Chief Executive Officer (whatever be the designation) shall also ensure that the mutual fund lite asset management company has adequate systems in place to ensure that the Code of Conduct for Fund Managers and Dealers specified in PART – B of the Fifth Schedule of these regulations are adhered to in letter and spirit. Any breach of the said Code of Conduct shall be brought to the attention of the board of directors of the mutual fund lite asset management company and trustees.
(8) The Fund Managers (whatever be the designation) shall abide by the Code of Conduct for Fund Managers and Dealers specified in PART – B of the Fifth Schedule of these regulations and submit a quarterly self-certification to the trustees that they have complied with the said code of conduct or list exceptions, if any.
Explanation:– For the purposes of this sub-regulation, the phrase
“Fund Managers” shall include Chief Investment Officer (whatever be the designation).
(9) The Dealers (whatever be the designation) shall abide by the Code of Conduct for Fund Managers and Dealers specified in PART – B of the Fifth Schedule of these regulations and submit a quarterly self-certification to the trustees that they have complied with the said code of conduct or list exceptions, if any.
(10) The board of directors of the mutual fund lite asset management company shall ensure that all the activities of the mutual fund lite asset management company are in accordance with the provisions of these regulations.
(11) A mutual fund lite asset management company shall not:
(a) through any broker associated with the sponsor, purchase or sell securities, which is average of 10 per cent or more of the aggregate purchases and sale of securities made by the mutual fund lite in all its schemes:
Provided that for the purpose of this clause, the aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund lite and such other transactions as may be specified by the Board:
Provided further that the aforesaid limit of 10 per cent shall apply for a block of any three months.
(b) purchase or sell securities through any broker other than a broker referred to
in clause (a) of sub-regulation (11) which is average of 25 per cent or more of the aggregate purchases and sale of securities made by the mutual fund lite in all its schemes, unless the mutual fund lite asset management company has recorded in writing the justification for exceeding the limit of 25 per cent and reports of all such investments are sent to the trustees on a quarterly basis:
Provided that for the purpose of this clause, the aggregate purchase and sale of securities shall exclude such transactions as may be specified by the Board:
Provided further that the aforesaid limit of 25 per cent shall apply for a block of three months.
(12) In case the mutual fund lite asset management company enters into any securities transactions with any of its associates a report to that effect shall be sent to the trustees at its next meeting.
(13) In case any company has invested more than 5 per cent of the net asset value of a scheme, the investment made by that scheme or by any other scheme of the same mutual fund lite in that company or its subsidiaries shall be brought to the notice of the trustees by the MF lite asset management company and be disclosed in the 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.
(14) The mutual fund lite asset management company shall file with the trustees and the Board—
(a)detailed bio-data of all its directors along with their interest in other companies within fifteen days of their appointment;
(b)any change in the interests of directors every six months; and
(c)a quarterly report to the trustees giving details and adequate justification about the purchase and sale of the securities of the group companies of the sponsor or the mutual fund lite asset management company, as the case may be, by the mutual fund lite during the said quarter.
(15) Each director of the mutual fund lite asset management company shall file the details of his transactions of dealing in securities with the trustees on a quarterly basis in accordance with guidelines issued by the Board.
(16) The mutual fund lite asset management company shall not appoint any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws.
(17) The mutual fund lite asset management company shall appoint registrars and share transfer agents who are registered with the Board:
Provided if the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme and for rates higher than the competitive market rates, prior approval of the trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts.
(18) The mutual fund lite asset management company shall abide by the Code of Conduct as specified in PART-A of the Fifth Schedule of these regulations.
(19) The mutual fund lite asset management company shall not carry out its operations including trading desk, unit holder servicing and investment operations outside the territory of India.
(20) The mutual fund lite asset management company shall compute and carry out valuation of investments made by its scheme(s) in accordance with the investment valuation norms specified in Eighth Schedule of these regulations, and shall publish the same.
(21) The mutual fund lite asset management company and the sponsor of the mutual fund lite shall be liable to compensate the affected investors and/or the scheme for any unfair treatment to any investor as a result of inappropriate valuation.
(22) The board of directors of the mutual fund lite asset management company shall exercise due diligence as follows:
(a) The board of directors of the mutual fund lite asset management company shall ensure before the launch of any scheme that the mutual fund lite asset management company has-
(i) systems in place for its back office, dealing room and accounting;
(ii) appointed all key personnel including fund manager(s) for the scheme(s) and submitted their bio-data which shall contain the educational qualifications and past experience in the securities market with the trustees, within fifteen days of their appointment;
(iii) appointed auditors to audit its accounts;
(iv) appointed a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the Board or the Central Government and for redressal of investors grievances;
(v) appointed a registrar to an issue and share transfer agent registered under the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 and laid down parameters for their supervision;
(vi) prepared a compliance manual and designed internal control mechanisms including internal audit systems;
(vii) specified norms for empanelment of brokers and marketing agents;
(viii) obtained, wherever required under these regulations, prior in principle approval from the recognized stock exchange(s) where units are proposed to be listed.
(b) The board of directors of the mutual fund lite asset management company shall ensure that –
(i) the mutual fund lite asset management company has been diligent in empanelling the brokers, in monitoring securities transactions with brokers and avoiding undue concentration of business with specific brokers;
(ii) the mutual fund lite asset management company has not given any undue or unfair advantage to any associate or dealt with any of the associate of the mutual fund lite asset management company in any manner detrimental to interest of the unit holders;
(iii) the transactions entered into by the mutual fund lite asset management company are in accordance with these regulations and the respective schemes;
(iv) the transactions of the mutual fund lite are in accordance with the provisions of the trust deed;
(v) the mutual fund lite asset management company has been managing the mutual fund schemes independently of other activities and have taken adequate steps to ensure that the interest of investors of one scheme are not being compromised with those of any other scheme or of other activities of the mutual fund lite asset management company.
(vi) the networth of the mutual fund lite asset management company are reviewed on a quarterly basis to ensure compliance with the threshold provided in regulation 86 on a continuous basis;
(vii) all service contracts including custody arrangements of the assets and transfer agency of the securities are executed in the interest of the unit holders and test checks of service contracts are arranged.
(viii) there is no conflict of interest between the manner of deployment of the networth of the mutual fund lite asset management company and the interest of the unit holders;
(ix) the investor complaints received are periodically reviewed and redressed;
(x) all service providers are holding appropriate registrations from the Board or with the concerned regulatory authority;
(xi) any special developments in the mutual fund lite are immediately reported to the Board;
(xii) there has been exercise of due diligence on the reports submitted by the mutual fund lite asset management company to the trustees;
(xiii) there has been exercise of due diligence on such matters as may be specified by the Board from time to time.
(23) The board of directors of the mutual fund lite asset management company shall review the desirability or continuance of the mutual fund lite asset management company if substantial irregularities are observed in any of the schemes and shall not allow the mutual fund lite asset management company to float new schemes.
(24) The Board of Directors of the mutual fund lite asset management company shall be responsible for the overall risk management of the mutual fund lite asset management company as well as the mutual fund lite schemes.
(25) The independent directors of the mutual fund lite asset management company shall pay specific attention to the following, as may be applicable, namely:—
(i) the Investment Management Agreement and the compensation paid under the agreement,
(ii) service contracts with associates and whether the mutual fund lite asset management company has charged higher fees than outside contractors for the same services,
(iii) selections of the mutual fund lite asset management company’s independent directors,
(iv) securities transactions involving associates to the extent such transactions are permitted,
(v) selecting and nominating individuals to fill independent directors’ vacancies,
(vi) code of ethics must be designed to prevent fraudulent, deceptive or manipulative practices by insiders in connection with personal securities transactions,
(vii) the reasonableness of fees paid to sponsors, mutual fund lite asset management company and any others for services provided,
(viii) principal underwriting contracts and their renewals,
(ix) any service contract with the associates of the mutual fund lite asset management company.
(26) The compliance officer appointed under sub-clause (iv) of clause (a) of sub-regulation (22) shall independently and immediately report to the Board any noncompliance observed by him.
(27) The mutual fund lite asset management company shall constitute a Unit Holder Protection Committee in the form and manner and with a mandate as may be specified by the Board.
(28) The mutual fund lite asset management company shall be responsible for calculation of any income due to be paid to the mutual fund lite and also any income received in the mutual fund lite, for the unit holders of any scheme of the mutual fund lite, in accordance with these regulations and the trust deed.
(29) The mutual fund lite asset management company shall ensure that no change in the fundamental attributes of any scheme or the trust, fees and expenses payable or any other change which would modify the scheme and affect 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 issued 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; and
(ii) the unit holders are given an option to exit at the prevailing Net Asset Value without any exit load.
(30) The MF Lite asset management company shall put in place an institutional mechanism, as may be specified by the Board, for the identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities.
(31) The Chief Executive Officer or Managing Director or such other person of equivalent or analogous rank and Chief Compliance Officer of the mutual fund lite asset management company shall be responsible and accountable for implementation of such an institutional mechanism for deterrence of potential market abuse, including front-running and fraudulent transactions in securities.
(32) The mutual fund lite asset management company shall establish, implement and maintain a documented whistle blower policy that shall —
(a) provide for a confidential channel for employees, directors, trustees, and other stakeholders to raise concerns about suspected fraudulent, unfair or unethical practices, violations of regulatory or legal requirements or governance vulnerability, and
(b) establish procedures to ensure adequate protection of the whistle blowers.
(33) The board of directors of the mutual fund lite asset management company, including any of their committees, shall meet at such frequency as may be specified by the Board from time to time.
(34) The board of directors of mutual fund lite asset management company shall furnish to the Board on a yearly basis, —
(a) a report on the activities of the mutual fund lite;
(b) a certificate stating that the board of directors of mutual fund lite asset management company 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 mutual fund lite asset management company;
(c) a certificate to the effect that the mutual fund lite asset management company has been managing the schemes independently of any other activities and in case any activities of the nature referred to in clause (b) of regulation 88 have been undertaken by the mutual fund lite asset management company, it has taken adequate steps to ensure that the interests of the unitholders are protected.
Restrictions on business activities of the mutual fund lite asset management company.
88. The mutual fund lite asset management company shall, –
(a) not act as a trustee of any mutual fund lite;
(b) not undertake any business activities other than in the nature of advisory services to pooled assets only in respect of passive investments:
Provided that the asset management company may itself or through its subsidiaries undertake such activities, as permitted under clause (b), if, –
(i) it ensures that there is no material conflict of interest across different activities;
(ii) the absence of conflict of interest shall be disclosed to the trustees and unit holders in scheme information document and statement of additional information.
(iii) there are unavoidable conflict of interest situations, it shall satisfy itself that disclosures are made of source of conflict, potential ‘material risk or damage’ to investor interests and detailed parameters for the same;
(iv) it ensures independence to key personnel handling the relevant conflict of interest is provided through removal of direct link between remuneration to relevant asset management company personnel and revenues generated by that activity:
Procedure for launching of mutual fund lite schemes
89. (1) No mutual fund lite scheme shall be launched by the mutual fund lite asset management company unless such mutual fund lite scheme is approved by the board of directors of the mutual fund lite asset management company and a copy of the offer document has been filed with the Board.”
VII. In the Fourth Schedule the ‘FORM FOR NOMINATION/CANCELLATION OF NOMINATION’ shall be omitted.
PRAMOD RAO, Executive Director
[ADVT.-III/4/Exty./764/2024-25]
Footnote:
1. The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the Principal Regulations, were published in the Gazette of India on December 9, 1996 vide S.O. No. 856 (E).
2. The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 were subsequently amended–
(1) On April 15, 1997 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 1997 vide S.O. No.327 (E).
(2) On January 12, 1998 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 1998 vide S.O. No.32 (E).
(3) On December 8, 1999 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 1999 vide S.O. No.1223 (E).
(4) On March 14, 2000 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2000 vide S.O. No.235 (E).
(5) On March 28, 2000 by the Securities and Exchange Board of India (Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000 vide S.O. No.278 (E).
(6) On May 22, 2000 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2000 vide S.O. No.484 (E).
(7) On January 23, 2001 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2001 vide S.O. No.69 (E).
(8) On May 29, 2001 by the Securities and Exchange Board of India (Investment Advice by Intermediaries) (Amendment) Regulations, 2001 vide S.O. No.476 (E).
(9) On July 23, 2001 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2001 vide S.O. No.698 (E).
(10) On February 20, 2002 by the Securities and Exchange Board of India (Mutual Funds)(Amendment) Regulations, 2002 vide S.O. No.219 (E).
(11) On June 11, 2002 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2002 vide S.O. No.625 (E).
(12) On July 30, 2002 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2002 vide S.O. No.809 (E).
(13) On September 9, 2002 by the Securities and Exchange Board of India (Mutual Funds) (Fourth Amendment) Regulations, 2002 vide S.O. No.956 (E).
(14) On September 27, 2002 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 vide S.O. No.1045 (E).
(15) On May 29, 2003 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2003 vide S.O. No. 632 (E).
(16) On January 12, 2004 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2004 vide F.No. SEBI/LAD/DOP/4/2004.
(17) On March 10, 2004 by the Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004 vide S.O. No. 398 (E).
(18) On January 12, 2006 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2006 vide S.O. No. 38 (E).
(19) On May 22, 2006 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2006 vide S.O. No. 783 (E).
(20) On August 3, 2006 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2006 vide S.O. No. 1254 (E).
(21) On December 27, 2006 by the Securities and Exchange Board of India (Mutual Funds) (Fourth Amendment) Regulations, 2006 vide F. No. SEBI/LAD/DOP/82534/2006.
(22) On December 27, 2006 by the Securities and Exchange Board of India (Mutual Funds) (Fifth Amendment) Regulations, 2006 vide F. No. SEBI/LAD/ DOP/83065/2006.
(23) On May 28, 2007 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2007 vide F. No. 11/LC/GN/2007/2518.
(24) On October 31, 2007 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2007 vide F. No. 11/LC/GN/2007/4646.
(25) On March 31, 2008 by the Securities and Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2008 vide F. No. 11/LC/GN/2008/21669.
(26) On April 16, 2008 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2008 vide F. No. LADNRO/ GN/2008/03/123042.
(27) On May 22, 2008 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2008 vide no. LADNRO/GN/2008/09/126202.
(28) On September 29, 2008 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2008 vide No. LADNRO/ GN/2008/24/139426.
(29) On April 8, 2009 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2009 vide No. LAD-NRO/GN/2009-10/01/159601.
(30) On June 5, 2009 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2009 vide No. LAD- NRO/GN/2009-10/07/165404.
(31) On July 29, 2010 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2010 vide No. LAD-NRO/GN/2010-11/13/13945.
(32) On August 30, 2011 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2011 vide No. LAD-NRO/GN/2011-12/27668.
(33) On February 21, 2012 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2012 vide No. LAD-NRO/GN/2011-12/38/4290.
(34) On September 26, 2012 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2012 vide No. LAD-NRO/GN/2012-13/17/21502.
(35) On April 16, 2013 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2013 vide No. LAD-NRO/GN/2013-14/03/5652.
(36) On June 19, 2013 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2013 vide No. LAD-NRO/GN/2013-14/12/6108.
(37) On August 19, 2013 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2013 vide No. LAD-NRO/GN/2013-14/18/6384.
(38) On May 6, 2014 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/01/1039.
(39) On May 23, 2014 by the Securities and Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/03/1089.
(40) On December 30, 2014 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/19/1973.
(41) On May 15, 2015 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2015 No. NROOIAE/GN/2015-16/005.
(42) On February 12, 2016 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2016 vide No. SEBI/LAD-NRO/GN/2015-16/034.
(43) On February 15, 2017 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2017 vide No. SEBI/LAD/NRO/GN/2016-17/031.
(44) On March 13, 2018 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2018 vide No. SEBI/LAD-NRO/GN/2018/02.
(45) On May 30, 2018 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2018 vide No. SEBI/LAD-NRO/GN/2018/14.
(46) On December 6, 2018 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2018 vide No. SEBI/LAD-NRO/GN/2018/50.
(47) On December 13, 2018 by the Securities and Exchange Board of India (Mutual Funds) (Fourth Amendment) Regulations, 2018 vide No. SEBI/LAD-NRO/GN/2018/51.
(48) On January 1, 2019 by the Securities and Exchange Board of India (Custodian of Securities) (Amendment) Regulations, 2018 vide No. SEBI/LAD-NRO/GN/2019/01.
(49) On April 26, 2019 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/2019/011.
(50) On September 23, 2019 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/2019/37.
(51) On March 6, 2020 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/07.
(52) On April 17, 2020 by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/10.
(53) On October 29, 2020 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/39.
(54) On February 4, 2021 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/08.
(55) On August 3, 2021 by the (Regulatory Sandbox) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/30.
(56) On August 5, 2021 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/36.
(57) On November 9, 2021 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/56.
(58) On January 25, 2022 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/70.
(59) On August 3, 2022 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2022 vide No. SEBI/LAD-
NRO/GN/2022/92.
(60) On November 16, 2022 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/106.
(61) On February 7, 2023, by the Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/121.
(62) On June 27, 2023 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/134.
(63) On July 3, 2023, by the Securities and Exchange Board of India (Alternative Dispute Resolution Mechanism) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/137.
(64) On August 17, 2023, by the Securities and Exchange Board of India (Facilitation of Grievance Redressal Mechanism) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/146.
(65) On July 2, 2024 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2024 vide No. SEBI/LAD-NRO/GN/2024/188.
(66) On August 2, 2024 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2024 vide No. SEBI/LAD-NRO/GN/2024/197.
