Markets regulator Sebi has put in place a procedure for change in controlling interest ofasset management companies and issued guidelines for new sponsors of mutual funds. This comes after Sebi, in February, relaxed profitability criteria for becoming a mutual fund sponsor with a view to facilitating innovation and expansion in the mutual funds sector.
Apart from procedure for change in control of AMCs (Asset Management Companies), the regulator has come out with additional benchmarks for standardisation of mutual fund schemes. Also, comments from the regulator are required for change in fundamental attribute of a scheme.
In a circular, Sebi said no change in the control of an AMC, directly or indirectly, can be made unless prior approval of the trustees and the regulator is obtained, among other requirements. In addition, a written communication about the proposed change need to be sent to each unitholder and an advertisement need to be given in one English daily newspaper having nationwide circulation, and in a newspaper published in the language ofthe region where the head office of the mutual fund is situated.
Besides, unitholders need to be given an option to exit on the prevailing Net Asset Value (NAV) without any exit load within a time period of not less than 30 calendar days from the date of communication, Sebi said. In case the applicant proposing to take the control of an AMC is not an existingsponsor of a mutual fund registered with Sebi, it would have to apply to the regulator for approval of taking over control of an existing AMC.
Sebi said the new sponsor will have to give an undertaking to the regulator as well as unitholders taking full responsibility of the management and the administration ofthe schemes, including matters relating to the reconciliation of accounts.
Also, the new sponsor will have to assume the trusteeship of the assets and liabilities of the schemes, including outstanding borrowings, unclaimed dividends and unclaimed redemptions, if any, as well as take all responsibilities and obligations relating to investor grievances.
While seeking the regulator's approval for change in the control of the AMC, Sebi said the mutual fund handing over the control to another person should also file the draft letter to be sent to the unitholders along with draft advertisementto be published in the newspaper.
The draft letter to the unitholders should include information aboutactivities of the new sponsor and its financial track record and performance. In case of taking over of the schemes by an existing mutual fund registered with Sebi, the draft letter should also include the condensed financial information of all the schemes in prescribed format andthe amount of unclaimed redemption and dividend and also the procedure for claiming such amount by the unitholders.
"In case of any other situation like indirect change in control of the AMC orindirect change in the promoters of the sponsor(s), which was beyond thecontrol of the sponsor(s), etc., the mutual fund should provide the full details ofthe information to the board for further course of action," Sebi said.
For the sake of standardisation, a similar return in Indian rupee and by way of CAGR must be shown for the all equity schemes (benchmark Sensex or Nifty), all debt schemes having maturity up to one year and Arbitrage Fund, retirement fund and children's fund, among others,apart from the scheme benchmarks.
These disclosures should form part of the statement of additional informationand all advertisements of mutual funds. According to Sebi, the annual report containing accounts of the AMC should be displayed on the websites of the mutual funds immediately after approval in Annual General Meetings within four months from the date of closing of the financial year.
It should also be mentioned in the annual report of mutual fund schemes that theunitholders, if they so desire, may request for the annual report of the AMC. Further, the annual report of AMCs should be displayed on their websites in machine readable format. With regard to disclosures of votes cast by mutual funds, Sebi said AMCs need to be required to make disclosure of votes cast on their website on a quarterly basis, within 10 working days from the end of the quarter.
A detailed report in this regard along with summary should also be disclosed on their websites. Further, AMCs should provide the web link in their annual reports regarding the disclosure of voting details. Employees of AMCs may participate in private placement of equity by any company subject to there being no conflict with the interest of investors of the mutual fund and disclosure of such investments are made to the Compliance Officer immediately.
"The employees of AMC and trustees may avail discretionary PortfolioManagement Services (PMS) subject to compliance with all applicable SebiRegulations and circulars," the regulator noted. Industry body AMFI has been advised to issue necessary guidelines, including adequate safeguards, in this regard in consultation with Sebi within60 days from the date of this circular.
The regulator has also made changes individend distribution procedure as well as updation of Scheme Information Document (SID) and Key InformationMemorandum (KIM). It has been decided that non-convertible preference shares should be treated as debt instruments and henceinvestment restrictions as applicable on debt instruments as specified in mutual fundnorms should also be applicable to such shares.
Under its go green initiative, Sebi said AMCs need to submit Monthly Cumulative Report (MCR) to the regulator through e-mail instead of physical mode.
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