SEBI Updates - February 2016

(1.) Circular on Mutual Funds

SEBI Circular:

Circular No: SEBI/HO/IMD/DF2/CIR/P/2016/35 dated February 15, 2016

Applicability:

-       All Mutual Funds/Asset Management Companies (AMCs)/Trustee Companies/Boards of Trustees of Mutual Funds

Scheme

-       This scheme shall be applicable to all new schemes and fresh investments by existing schemes

-       Existing mutual fund schemes to comply with the revised investment restrictions within a period of 1 year from the date of issue of this circular

-       Existing close ended scheme:

o   Need not comply

o   If the existing close ended schemes sell their investments then their fresh investments shall be subject to the restrictions.

Crux of the Circular

A.   Amendments to SEBI (Mutual Funds) Regulations, 1996

-       Reference is drawn to the gazette notification no. SEBI/LAD-NRO/GN/2015-16/034 dated February 12, 2016 which deals with SEBI (Mutual Funds) (Amendment) Regulations, 2016.

-       This circular makes amendments to SEBI (Mutual Funds) Regulations, 1996

-       As per this amendment the restrictions on investments in debt instruments issued by a single issuer:

o   is reduced to 10% NAV.

o   may be extended to 12% NAV with the prior approval of the Board of Trustees and the Board of Asset Management Company.

B Prudential limits in sector exposure and group exposure in debt-oriented mutual fund schemes:

-       Inorder to provide enhanced diversification benefit to the investor and to put the mutual funds in a better position to handle adverse credit event, the prudential limits for sectoral exposure has been revised and the prudential limits for group level exposure has been introduced.

Sectoral exposure in debt oriented mutual fund schemes:

-       The exposure has been reduced to a single sector from the current 30% to 25%

-       Reduction of additional exposure limits provided for HFCs in finance sector from 10% to 5% (over and above the limit of current 25%)

Group exposure

-       Mutual Funds/ AMCs to ensure that:

o   the total exposure of the debt schemes of mutual funds in a group shall not exceed 20% of the net assets of the scheme

o   the investment limit may be extended to 25% of the net assets of the scheme with the prior approval of the Board of Trustees.

A.   Half yearly report by Trustees:

-       trustees to review and satisfy themselves on the level of exposure of a mutual fund and to confirm the same to SEBI in a Half yearly trustee report starting from Half Year ending March 31, 2016

(2.) Circular on Mutual Funds

SEBI Circular:

Circular No: SEBI/HO/IMD/DF2/CIR/P/2016/37 dated February 25, 2016

Applicability:

All Mutual Funds/Asset Management Companies (AMCs)/Trustee Companies/Boards of Trustees of Mutual Funds/Association of Mutual Funds in India (AMFI)

Effect of the circular:

Part A of the Circular shall come into effect from April 1, 2016, while Part B of the Circular shall be applicable with immediate effect

Crux of the Circular

B.     Treatment of unclaimed redemption and dividend amounts

This circular makes the following partial modifications to the SEBI circular dated November 24, 2000 on treatment of unclaimed redemption and dividend amount.

-       The unclaimed redemption and dividend amounts which are currently permitted to be deployed only in the call money market or money market instruments shall be allowed to be investments in a separate plan of Liquid scheme/ Money Market Mutual Fund scheme floated by Mutual Funds exclusively for deployment of unclaimed amounts.

-       AMCs shall not be permitted to charge any exit load in this plan.

-       TER (Total Expense Ratio) of such plan shall be capped at 50 bps

-       Mutual funds to play a very pro-active role in tracing the rightful owner of the unclaimed amounts:

b.    Mutual funds to provide the list of names and addresses of the investors of the unclaimed amounts, on their website.

c.    AMFI to provide on their website the consolidated list of the investors’folios with unclaimed amounts across the Mutual Fund Industry

d.   Adequate security control measures to be put in place by the Mutual Fund/ AMFI for collecting the proper credentials of the investors

e.    The website of the Mutual Funds and AMFI to provide complete information on the process of claiming the unclaimed amount

f.     The unclaimed amount along with its prevailing value (based on income earned on deployment of such unclaimed amount), shall be disclosed separately to the investors through the periodic statement of accounts/ consolidated account statement sent to the investors.

-       An investor who claims the unclaimed amount

g.   During the period of 3 years from the due date: shall be paid initial unclaimed amount along with the income earned on its deployment.

h.   After 3 years from the due date: shall be paid initial unclaimed amount along with the income earned on its deployment till the end of third year.

i.     Investor education:the income earned on unclaimed amounts shall be used for the purpose of investor education after 3 years from the due date of claiming the amount.

C.     Distribution of Mutual Fund products

In partial modification of the above said circular, the simple and performing Mutual Fund schemes shall also contain Retirement benefit schemes having tax benefits and Liquid schemes/ Money Market Mutual Fund schemes.