In a Gazette Notification dated 4th February, 2021 the Securities and Exchange Board of India (“SEBI”) has issued the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2021 (“Amendment Regulation”) in order to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (“Principal Regulations”).
The Amendment Regulation will gain effect on 6th March, 2021 i.e. on the 30th day from the date of their publication in the Official Gazette (4th February, 2021).
Key Takeaways:
- Key changes in definition-
| Principal Regulations | Amendment Regulation | Implication | |
| Regulation 2:
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| (d) “asset management company” means a company formed and registered under the Companies Act, 1956 (1 of 1956) and approved as such by the Board under subregulation (2) of regulation 21; | (d) “asset management company” means a company formed and registered under the Companies Act 1956 (1 of 1956) or Companies Act, 2013 (18 of 2013) and approved by the Board under sub regulation (2) of regulation 21 | To bring in line the definition of asset management company with the Companies Act, 2013 the present amendment has been made. | |
| (q) “mutual fund” means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities including money market instruments or gold or gold related instruments or real estate assets | (q) “mutual fund” means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the pubic under one or more schemes for investing in securities, money market instruments, gold or gold related instruments, real estate assets and such other assets and instruments as may be specified by the Board from time to time | With the present amendment, mutual fund will mean a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the pubic under one or more schemes for investing in securities, money market instruments, gold or gold related instruments, real estate assets and such other assets and instruments as may be specified by the Board from time to time.
Therefore, from time to time the Board will specify instruments/ assets under which investment for mutual fund can be made. |
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| Not present | (qa) “networth” means the aggregate of the paid up capital and free reserves after deducting therefrom, miscellaneous expenditure to the extent not written off or adjusted or deferred revenue expenditure, intangible assets and accumulated losses; | A new definition has been added to define “networth” as the aggregate of the paid up capital and free reserves after deducting therefrom, miscellaneous expenditure to the extent not written off or adjusted or deferred revenue expenditure, intangible assets and accumulated losses; | |
- Other key changes:
| Principal Regulations | Amendment Regulation | Implication |
| Regulation 7: Eligibility criteria:
For the purpose of grant of a certificate of registration, the applicant has to fulfill the following, namely—
(a) the sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions.
Explanation: For the purposes of this clause “sound track record” shall mean the sponsor should—
(i) be carrying on business in financial services for a period of not less than five years; and
(ii) the networth is positive in all the immediately preceding five years; and
(iii) the networth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company; and (iv) the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year;
(iv) the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year
(aa) the applicant is a fit and proper person; |
Regulation 7: Eligibility criteria:
For the purpose of grant of a certificate of registration, the applicant has to fulfill the following, namely—
(a) the sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions.
Explanation: For the purposes of this clause “sound track record” shall mean the sponsor should—
(i) be carrying on business in financial services for a period of not less than five years; and
(ii) ensure that the networth is positive in all the immediately preceding five years; and
(iii) ensure that the networth is more than the proposed capital contribution of the sponsor in the asset management company and ensure that in case of change in control of the existing asset management company due to acquisition of shares, the networth of the sponsor is more than the aggregate par value or market value of the shares so acquired, whichever is higher; and
(iv) the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year
Provided that the applicant shall have a networth not less than rupees one hundred crore in case the aforementioned requirement is not fulfilled
(aa) the applicant is a fit and proper person;
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There has been change in the process of registration of mutual fund wherein.
Now, the sponsor has to ensure that the networth is more than the proposed capital contribution of the sponsor in the asset management company and ensure that in case of change in control of the existing asset management company due to acquisition of shares, the networth of the sponsor is more than the aggregate par value or market value of the shares so acquired, whichever is higher. |
| Regulation 18: Rights and obligations of the trustees.
(…)
(18) The trustees shall quarterly review the networth of the asset management company and in case of any shortfall, ensure that the asset management company make up for the shortfall as per clause (f) of sub-regulation (1) of regulation 21. |
Regulation 18: Rights and obligations of the trustees.
(…)
(18) The trustees shall on a quarterly basis review the networth of the asset management company to ensure compliance with the threshold provided in clause (f) of sub-regulation (1) of regulation 21 on a continuous basis |
Instead of quarterly reviewing the networth of the asset management company for checking shortfall, with the present amendment, the trustees have to ensure compliance to the threshold threshold provided in Regulation 21 (1)(f) on a continuous basis.
Regulation 21(1)(f) which specifies that the asset management company has to maintain a networth of Rs. 50 Crores. |
| Regulation 21 Eligibility criteria for appointment of asset management company:
(…)
(f) the asset management company has a networth of not less than rupees fifty crore. Provided that an asset management company already granted approval under the provisions of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 shall within a period of three years from the date of notification of Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2014 increase its networth to rupees fifty crore:
Not present |
Regulation 21 Eligibility criteria for appointment of asset management company:
(…)
(f) the asset management company has a networth of not less than rupees fifty crore: Provided that where the sponsor does not fulfil the requirements provided in part (iv) of the Explanation to clause (a) of regulation 7 at the time of making application, the asset management company shall be required to have a networth of not less than rupees one hundred crore and the asset management company shall maintain such networth till it has profits for five consecutive years: Provided further that an asset management company of a mutual fund eligible to launch only infrastructure debt fund schemes, shall have a networth of not less than rupees ten crore.
Explanation: Loans and advances given by asset management company to either sponsor, associates or group company of sponsor and associates or group company of asset management company shall be excluded while computing the networth of the asset management company
(g) The networth of the asset management company as required under clause (f) of this regulation shall be maintained on a continuous basis |
With the present amendment, it has been stated that where the sponsor does not fulfil the prescribed requirements at he time of making application, the asset management company will be required to have a networth of not less than Rs.100 crore and the asset management company has to ensure that it maintains such networth till it has profits for five consecutive years.
Please note that an asset management company of a mutual fund eligible to launch only infrastructure debt fund schemes, must have a networth of not less than rupees ten crore.
[Loans and advances given by asset management company to either sponsor, associates or group company of sponsor and associates or group company of asset management company shall be excluded while computing the networth of the asset management company]
Further, with an insertion of a new sub clause, sub clause (g), it has been stated that the prescribed net worth for the asset management company has to be maintained on a continuous basis. |
| Regulation 36: Statement of accounts or unit certificates-
(…)
(4) The asset management company shall ensure that consolidated account statement for each calendar month is issued, on or before tenth day of succeeding month, detailing all the transactions and holding at the end of the month including transaction charges paid to the distributor, across all schemes of all mutual funds, to all the investors in whose folios transaction has taken place during that month: Provided that the asset management company shall ensure that a consolidated account statement every half yearly (September/ March) is issued, on or before tenth day of succeeding month, detailing holding at the end of the six month, across all schemes of all mutual funds, to all such investors in whose folios no transaction has taken place during that period |
Regulation 36: Statement of accounts or unit certificates-
(…)
(4) The asset management company shall ensure that consolidated account statement for each calendar month is issued, as per the timeline specified by the Board from time to time, detailing all the transactions and holding at the end of the month including transaction charges paid to the distributor, across all schemes of all mutual funds, to all the investors in whose folios transaction has taken place during that month:
Provided that the asset management company shall ensure that a consolidated account statement every half yearly (September/ March) is issued, on or before tenth day of succeeding month, detailing holding at the end of the six month, across all schemes of all mutual funds, to all such investors in whose folios no transaction has taken place during that period |
Presently, the asset management company has to ensure that consolidated account statement for each calendar month is issued on or before 10th of every month.
The said timeline is being revised wherein the account statement for each calendar month will have to issued as per timeline specified by the Board from time to time. |
| Regulation 49: Pricing of Units
(…) (3) While determining the prices of the units, the mutual fund shall ensure that the repurchase price is not lower than 93 per cent of the Net Asset Value and the sale price is not higher than 107 per cent of the Net Asset Value: Provided that the repurchase price of the units of close ended scheme launched prior to the commencement of the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2009 shall not be lower than ninety five per cent of the Net Asset Value: Provided further that the difference between the repurchase price and the sale price of the unit shall not exceed 7 per cent calculated on the sale price [Rule 3(A), 3(B), 3(C) omitted] |
Regulation 49: Pricing of Units
(…) (3) While determining the price of the units, the mutual fund shall ensure that the repurchase price of an open ended scheme is not lower than 95 per cent of the Net Asset Value |
Earlier while determining price of units, the mutual funds had to ensure that the repurchase price is not lower than 93% of the Net Asset Value and the sale price is not higher than 107% of the Net Asset Value.
With the present amendment, the mutual fund has to specifically ensure that the repurchase price of an open ended scheme is not lower than 95 per cent of the Net Asset Value. |
| Rule 53: Despatch of warrants and proceeds:
Every mutual fund and asset management company shall, (a) despatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend;
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Rule 53: Despatch of warrants and proceeds:
Every mutual fund and asset management company shall, (a) despatch to the unitholders the dividend payments within 15 days from the record date |
Instead of 30 days, the mutual funds and asset management companies have to despatch to the unitholders payment within 15 days of the record date. |
Source: Securities and Exchange Board of India
