Circular for Mutual Funds
Summary
This circular mandates standardized disclosure formats for brokerage and commission paid to associates in mutual fund financial reports. It introduces the ASBA facility for New Fund Offers, reduces the NFO period to 15 days, and prohibits the use of Unit Premium Reserve for dividend distribution. Additionally, it requires AMCs to disclose corporate governance voting policies and bans revenue-sharing arrangements with underlying funds in Fund of Funds schemes.
Text
Regulation 25 (8) of SEBI (Mutual Funds) Regulations, 1996 mandates that the payment of brokerage or commission, if any, to the sponsor or any of its associates, employees or their relatives, has to be disclosed in the half–yearly annual accounts of the mutual fund.
In order to standardize the said disclosures on brokerage and commission paid to associates/related parties/group companies of sponsor/Asset Management Company in the unaudited half yearly financial results, the abridged scheme wise annual report and the SAI, these disclosures shall henceforth be made in the format as prescribed in Annexure A.
It has been decided to extend ASBA facility to the investors subscribing to New Fund Offers (NFOs) of mutual fund schemes... Mutual Funds shall ensure that adequate arrangements are made by Registrar and Transfer Agents for the implementation of ASBA. Mutual Funds/AMCs shall make all relevant disclosures in this regard in the SAI.
In order to make NFO process efficient, it has been decided to reduce the NFO period to 15 days.
However, the NFO period in case of ELSS schemes shall continue to be governed by guidelines issued by Government of India.
Mutual Funds/AMCs shall make investment out of the NFO proceeds only on or after the closure of the NFO period.
The Mutual Funds/AMCs have to compulsorily provide ASBA facility to the investors for all NFOs launched on or after July 01, 2010. The provisions mentioned at paragraph 2(ii) regarding reduction in NFO period shall also be applicable for all NFOs launched on or after July 01, 2010.
When units of an open-ended scheme are sold, and sale price is higher than face value of the unit, part of sale proceeds that represents unrealised gains shall be credited to a separate account (Unit Premium Reserve) and shall be treated at par with unit capital and the same shall not be utilized for the determination of distributable surplus.
When units of an open-ended scheme are sold, and sale price is less than face value of the unit, the difference between the sale price and face value shall be debited to distributable reserves and the dividend can be declared only when distributable reserves become positive after adjusting the amount debited to reserves...
It has been decided that henceforth, AMCs shall disclose their general policies and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11.
Further, the AMCs are also required to disclose on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11, the actual exercise of their proxy votes in the AGMs/EGMs of the investee companies...
Consequent to SEBI Circular No. SEBI/IMD/CIR No. 4/ 168230/09 dated June 30, 2009 on “Mutual Funds- Empowering investors through transparency in payment of commission and load structure” which stipulated that “There shall be no entry load for all mutual fund schemes”, it is clarified that AMC shall not collect any additional management fees referred to in Regulation 52(3) of SEBI Mutual Funds Regulation, 1996.
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Source: SecMarx — Circular for Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.