Guidelines on Inter Scheme Transfers of Securities
Summary
This SEBI circular prescribes additional safeguards for Inter Scheme Transfers (ISTs) of securities within mutual funds to ensure compliance with investment objectives. It restricts ISTs in Close Ended Schemes and outlines specific scenarios, such as liquidity management and rebalancing, for Open Ended Schemes. The document mandates documentation templates and prohibits transfers involving securities with recent negative news or credit alerts.
Text
In case of Close Ended Schemes, IST purchases would be allowed within “three” business days of allotment pursuant to New Fund Offer (NFO) and thereafter, no ISTs shall be permitted to/from Close Ended Schemes.
Recourse to ISTs for managing liquidity will only be taken after the following avenues for raising liquidity have been attempted and exhausted: Use of scheme cash & cash equivalent; Use of market borrowing; Selling of scheme securities in the market.
After attempting all the above, if there is still a scheme level liquidity deficit, then out of the remaining securities, outward ISTs of the optimal mix of low duration paper with highest quality shall be effected.
ISTs shall be allowed only to rebalance the breach of regulatory limit.
Different reasons cannot be cited for transferor and transferee schemes except in case of transferee schemes is being a Credit Risk scheme.
Trustees shall ensure to have a mechanism in place to negatively impact the performance incentives of Fund Managers, Chief Investment Officers (CIOs), etc. involved in process of ISTs in Credit Risk scheme, in case the security becomes default grade after the ISTs within a period of one year.
No ISTs of a security shall be allowed, if there is negative news or rumors in the mainstream media or an alert is generated about the security, based on internal credit risk assessment... during the previous four months.
AMC shall ensure that Compliance Officer, Chief Investment Officer and Fund Managers of transferor and transferee schemes have satisfied themselves that ISTs undertaken are in compliance with the regulatory requirements. Template and documentary evidence in this regard shall be maintained by the AMC for all ISTs.
If security gets downgraded following ISTs, within a period of four months, Fund Manager of buying scheme has to provide detailed justification /rationale to the trustees for buying such security.
The circular shall be applicable with effect from January 1, 2021.
This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.
Source: SecMarx — Guidelines on Inter Scheme Transfers of Securities. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.