SEBI Proposed New Changes on Mutual Funds Market

Securities and Exchange Board of India (SEBI) has issued circular and circular to laid down new changes for Mutual Funds.

Followings are changes proposed by SEBI:

A. Distributor Due Diligence

SEBI has clarified that 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

B. Clarification to Regulation 24 of SEBI (Mutual Funds) Regulations, 1996

1. In order to address the issue of conflict of interest wherein a fund manager manages schemes of Mutual Fund and is engaged in other permissible activities of AMC, SEBI has amended Regulation 24 of the SEBI (Mutual Funds) Regulations, 1996.

2. 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.

3. It has been represented to SEBI that the perfect replication of portfolio between the mutual fund scheme and schemes/products under other permissible activities of AMC may not be achieved at all times.

4. On examination of the same, it has been decided that 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.

5. In order to bring transparency while addressing the issue of conflict of interest wherein a fund manager is common across mutual fund schemes and schemes/products under other permissible activities of AMC, then the AMC shall :

a) 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.

b) 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.

c) 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.

B. Valuation of Debt and Money Market Instruments

1. The valuation of money market and debt securities shall be in terms of the Eighth schedule.

2. In clause 2 (I) and 2(II) of the SEBI circular SEBI/IMD/CIR No.16/ 193388/2010 dated February 2, 2010, reference to “91 days” shall be replaced with “60 days” with effect from 30.09.2012. Consequently, changes shall be carried out in clause 2(V) of the said circular.

3. In order to further enhance transparency, the AMCs shall disclose all details of debt and money market securities transacted (including inter scheme transfers) in its schemes portfolio on AMCs’ website and the same shall be forwarded to AMFI for consolidation and dissemination as per format enclosed. These disclosures shall be made settlement date wise on daily basis with a time lag of 30 days.

C. Advertisement

SEBI circulars dated June 05, 2000, June 26, 2003, February 26, 2008, December 15, 2009, January 18, 2010 and February 04, 2010 relating to Advertisement stands withdrawn. However, mutual funds shall continue to comply with the following:

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.
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.
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).
4. In case of Money Market schemes or cash and liquid schemes, 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.