Recording of investment decisions by Mutual Funds
Summary
The circular mandates Mutual Fund Asset Management Companies to maintain detailed records supporting each investment decision to ensure due diligence and transparency. It requires AMCs to document data, facts, and opinions for individual scrip-wise investments, including research reports for new purchases and reasons for subsequent transactions. Compliance must be reported by AMCs to trustees and subsequently by trustees to SEBI in half-yearly reports.
Text
AMCs are hereby advised to maintain records in support of each investment decision which will indicate the data, facts and opinion leading to that decision.
It is important that the basis for taking individual scripwise investment decision in equity and debt securities should be recorded.
There should be a detailed research report analysing various factors for each investment decision taken for the first time, the reasons for subsequent purchase and sales in the same scrip should be recorded.
AMC boards may develop a mechanism to verify that due diligence is being exercised while making investment decisions.
They may pay specific attention in case of investment in unlisted and privately placed securities, unrated debt securities, NPAs, transactions where associates are involved and the instances where there is poor performance of the schemes.
The AMCs shall report the compliance of the above in their periodical reports to the trustees.
The trustees shall report to SEBI in their half-yearly reports.
Trustees may also check its compliance through the independent auditors or internal/statutory auditors or other systems developed by them.
The details of its compliance and the system developed in this regard may be informed to us by August 16, 2000.
Source: SecMarx — Recording of investment decisions by Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.