sebi:WTM/KMA/IMD/257/04/2010
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Facts / Headnote
Show cause notices dated August 7, 2009 disposed of with a warning to comply with the law; issues (a) answered in the negative, issues (b), (c) and (d) answered against the noticees.
Provisions invoked
- s. 19
Regulations
- Reg. 25
- Reg. 25(1)
- Reg. 18(22)
- Reg. 18
- Reg. 25(16)
- Reg. 18(9)
Parties
- Board of Trustees of HSBC Mutual Fund
- HSBC Mutual Fund
- HSBC Asset Management (India) Private Limited
- Chief Executive Officer of HSBC Asset Management (India) Private Limited
Holding
The changes to the scheme's name, benchmark index and modified duration were not changes in 'fundamental attributes' as elaborated in the SEBI Circular dated February 4, 1998, so the noticees were not liable under Regulation 18(15A) or the SEBI Circular dated May 23, 2008. However, the Board of Trustees, the Fund, the AMC and its CEO contravened Regulations 18(9), 18(22), 25(1), 25(16) and 25(6A) and Clauses 2, 6 and 9 of the Code of Conduct by effecting material changes affecting unitholders' interests without prior intimation.
Full text
Page 2 of 18 b. the benchmark index; and c. the duration of the scheme, the fundamental attributes of the scheme were changed in January 2009 without following the procedure specified under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (hereinafter referred to as the Mutual Funds Regulations). In view of the same, a notice dated August 7, 2009 was issued to the Board of Trustees of HSBC Mutual Fund, HSBC Mutual Fund, the AMC and its Chief Executive Officer calling upon them to show cause as to why appropriate action including directions under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulations 18, 75 and 76 of the Mutual Funds Regulations should not be taken. The said show cause notice alleged that the Fund and its Board of Trustees have violated Regulations 18(9), 18(15A), 18(22) of the Mutual Funds Regulations, Clauses 2, 6 and 9 of the Code of Conduct under the Fifth Schedule thereof and paragraph 5(ii)(a) of the SEBI Circular dated May 23, 2008. It was also alleged that the AMC had violated Regulations 18(9), 18(22), 25(1) and 25(16) of the Mutual Funds Regulations, Clauses 2, 6 and 9 of the Code of Conduct mentioned under the Fifth Schedule thereof and paragraph 5(ii)(a) of the SEBI Circular dated May 23, 2008. In view of the above, it was alleged that the Chief Executive Officer of the AMC had failed to ensure that the Fund complied with all the provisions of the Regulations, Guidelines and Circ
Page 3 of 18 were also present in the hearing. The primary submission of the noticees was that the impugned changes made by them in the scheme were not changes in fundamental attributes, as defined by SEBI, for them to adhere to the prescriptions specified under Regulation 18(15A) of the Mutual Funds Regulations.
Page 4 of 18 i. Change in the name of the scheme from HSBC Gilt Fund – Short Term Plan to HSBC Gilt Fund; ii. Change in the benchmark index from “I Sec Si-Bex” to “I Sec Composite Index”; and iii. Change in the duration (modified duration) of the portfolio, as mentioned below, which was substituted in the scheme information document: “The scheme is suitable for investors seeking to obtain returns from investing in Gilts (including Treasury Bills) across the yield curve with the modified duration of the portfolio not exceeding 15 years. Liquidity conditions and other macro-economic factors affecting interest rates shall be taken into account for varying the portfolio duration. However, this can undergo a change in case the market conditions warrant and according to the fund manager’s view.” [Emphasis supplied]
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Source: SecMarx — sebi:WTM/KMA/IMD/257/04/2010. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.