Guidelines on Initial Offer Period, Portfolio Disclosure, Unclaimed Amounts, Expenses and Unrated Debt

MFD/CIR/9/120/2000 · 2000-11-24 · SEBI Mutual Funds Department

Summary

This circular mandates the reduction of initial offer periods for open-ended schemes to 30 days and prescribes a standardized format for half-yearly portfolio disclosures. It regulates the handling of unclaimed redemption amounts by restricting investments to money market instruments and capping management fees at 50 basis points. Additionally, it prohibits specific expense categories from being charged to schemes and allows mutual funds to delegate approval authority for unrated debt instrument investments to committees.

Text

The present limit of a maximum of 45 days for initial offer period should be reduced to 30 days in case of open ended schemes and the mutual fund should despatch statements of accounts and the scheme should open for ongoing sales and repurchases within 30 days from the closure of scheme.

It has been decided to prescribe a common format for this purpose so that the investors get meaningful information on the deployment of funds. The disclosure of portfolio in future shall be made in the format enclosed herewith.

It has been decided that the unclaimed redemption and dividend amounts may be deployed by the mutual funds in call money market or money market instruments only and the investors who claim these amounts during a period of three years from the due date shall be paid at the prevailing Net Asset Value.

After a period of three years, this amount can be transferred to a pool account and the investors can claim the amount at NAV prevailing at the end of the third year.

The income earned on such funds can be used for the purpose of investor education.

It should be specifically noted that the AMC should make a continuous effort to remind the investors through letters to take their unclaimed amounts.

Further, the investment management fee charged by the AMC for managing unclaimed amounts shall not exceed 50 basis points.

For the schemes to be launched in the future, disclosures on the above provisions should be made in the offer documents. Also, the information on amount unclaimed and number of such investors for each scheme shall be disclosed in the annual report.

The Annual Report containing accounts of the asset management companies should be displayed on the websites of the mutual funds. It should also be mentioned in the annual report of mutual fund schemes that the unitholders, if they so desire, may request for the annual report of the asset management company.

With a view to give flexibility to mutual funds, it has been decided that such other expenses, which are directly attributable to the scheme, may be charged with the approval of the trustees within the overall limits as specified in Regulation 52 (6).

However, the following expenses cannot be charged to the schemes: i. Penalties and fines for infraction of laws. ii. Interest on delayed payment to the unitholders. iii. Legal, marketing, publication and other general expenses not attributable to any scheme(s). iv. Expenses on investment management/general management. v. Expenses on general administration, corporate advertising and infrastructure costs. vi. Depreciation on fixed assets and software development expenses. vii. Such other costs as may be prohibited by SEBI.

It has also been decided that each item of expenditure accounting for more than 10% of total expenditure should be disclosed in the accounts or the notes thereto of the schemes.

Source: SecMarx — Guidelines on Initial Offer Period, Portfolio Disclosure, Unclaimed Amounts, Expenses and Unrated Debt. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.