Sebi board issues guidelines to check fraudulent trades in mutual funds

Capital markets regulator Securities and Exchange Board of India on Tuesday approved amendments to SEBI (Mutual Funds) Regulations, 1996, that would revise norms governing mutual funds. Under the new regulations, asset management companies (AMCs) need to put in place an "institutional mechanism" for identification and deterrence of potential market abuse, including front-running and fraudulent transactions in securities.

This framework should consist of enhanced surveillance systems, internal control procedures, and escalation processes to identify, monitor and address specific types of misconduct, including front running, insider trading, and misuse of sensitive information, Sebi said in a statement on Tuesday.

The AMCs will also be required to have a whistle-blower process to foster transparency.

Besides, the markets regulator also allowed passive schemes of AMCs to take higher exposure on group companies of the sponsor to allow the schemes to better reflect the underlying index. 

This will be allowed for indices specified by Sebi and be subject to an overall cap of 35 per cent investment in the group companies of the sponsor.

Venture capital funds

The Sebi board has approved a proposal to provide an option to venture capital funds, registered under the erstwhile VCF norms, to migrate into AIF (Alternative Investment Fund) rules and avail the facilities available for AIFs to deal with unliquidated investments. The erstwhile VCF cannot fully liquidate the investments of their schemes within the tenure of the scheme.

Increased contribution by NRIs, OCIs

The board also approved a regulatory framework to provide flexibility for increased contribution by NRIs, OCIs and RI Individuals, in the corpus of certain FPIs based out of IFSCs in India and regulated by IFSCA.

Funds established in the IFSC will be permitted to receive 100 per cent contributions from NRIs, OCIs, or RIs, on the condition that they furnish PAN cards or self-declarations along with identity documents. Alternatively, funds wishing to obtain 100 percent contributions from NRIs, OCIs, or RIs may do so without submitting these documents, provided they fulfill specific requirements.

(With agency inputs)