Circular on Mutual Funds
Summary
This circular permits Mutual Funds to use pool accounts for operational transactions subject to strict daily segregation and ring-fencing conditions. It establishes specific norms for investment in Bills Re-discounting Scheme (BRDS), including issuer limits and sector exposure classification. Additionally, it extends the implementation dates for the Risk Management Framework and benchmark uniformity guidelines to April 1, 2022.
Text
Mutual Funds may use pool accounts, only for such transactions which are executed at mutual fund level owing to certain operational and regulatory requirements, subject to the following conditions:
AMCs shall have internal policies approved by the Board of AMC and Trustees to ensure that adequate operational processes and internal controls are in place to segregate and ring-fence the assets and liabilities of each scheme along with segregation and ring-fencing of securities & bank accounts.
In such cases, at the end of day, the assets and liabilities of each scheme shall be segregated and ring-fenced from other schemes of the mutual fund; and bank accounts and securities accounts of each scheme shall be segregated and ring-fenced. The pool accounts for both securities and funds should have nil balance at end of the day.
Provided that if the funds lying in the pool bank account of the mutual fund are not identified, due to the reasons beyond the control of the AMC, the same shall be transferred to the respective scheme account not later than one business day from the day such transactions are identified.
At no point of time, the securities or funds of one schemes shall be used for other scheme(s) and there shall be any conflict of interest amongst investors of various schemes.
The responsibility to ensure segregation and ring-fencing of the assets and liabilities of each scheme along with segregation and ring- fencing of bank accounts & securities accounts shall lie with the Board of AMC and Trustees. Trustees in their Half Yearly Trustee Report (HYTR) to SEBI shall confirm that the assets and liabilities of each scheme along with their bank accounts & securities accounts are segregated and ring-fenced on daily basis...
The whole mechanism shall be audited on half yearly basis by the auditor appointed by the trustees.
In terms of Clause (5) of the Fifth Schedule of MF Regulations, the AMC shall ensure that margins or collaterals for such transactions are placed from the assets of the respective schemes only, without co-mingling with the assets of other schemes.
overnight funds can deploy, not exceeding, 5% of the net assets of the scheme in G-secs and/or T-bills with a residual maturity of upto 30 days for the purpose of placing the same as margin and collateral for certain transactions.
The single issuer limit and the group exposure limit shall be calculated at the issuing bank level as BRDS are issued with recourse to the issuing bank.
Investment in BRDS by debt schemes of mutual funds shall be considered as exposure to financial services sector for the purpose of sector exposure limits.
Based on the request received from AMFI, it has been decided to extend the date of implementation of the circular to April 01, 2022. Till such time, the existing circular no. MFD/CIR/15/19133/2002, dated September 30, 2002 on “Risk Management System” shall remain operational.
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Source: SecMarx — Circular on Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.