Chapter 3
• SEBI is the regulatory authority for securities markets in India. It regulates,
among other entities, mutual funds, depositories, custodians and registrars
& transfer agents in the country. Mutual funds need to comply with RBI’s
regulations regarding investment in the money market, investments
outside the country, investments from people other than Indians resident
in India, remittances (inward and outward) of foreign currency etc.
• Mutual Funds in India have not constituted any SRO(Self Regulatory
Organizations) for themselves. Therefore, they are directly regulated by
SEBI.
• AMFI is not an SRO.
• ACE stands for AMFI Code of Ethics and AGNI stands for AMFI Guidelines &
Norms for Intermediaries.
• In the event of breach of the Code of Conduct by an intermediary, the
following sequence of steps is provided for:
- Write to the intermediary (enclosing copies of the complaint and other
documentary evidence) and ask for an explanation within 3 weeks.
- In case explanation is not received within 3 weeks, or if the explanation
is not satisfactory, AMFI will issue a warning letter indicating that any
subsequent violation will result in cancellation of AMFI registration.
- If there is a proved second violation by the intermediary, the
registration will be cancelled, and intimation sent to all AMCs.
• The intermediary has a right of appeal to AMFI.
• SEBI has mandated AMCs to put in place a due diligence process to
regulate distributors who qualify any one of the following criteria:
a. Multiple point presence (More than 20 locations)
b. AUM raised over Rs.100 crore across industry in the non-institutional
category but including high networth individuals (HNIs)
c. Commission received of over Rs. 1 Crore p.a. across industry
d. Commission received of over Rs. 50 Lakhs from a single mutual fund
• When a scheme’s name implies investment in a particular kind of security
or sector, it should have a policy that provides for investing at least 65% of
its corpus in that security or sector, in normal times. Thus, a debt scheme
would need to invest at least 65% in debt securities; an equity scheme
would need to invest that much in equities; a steel sector fund would need
to invest at least 65% in shares of steel companies.
• Schemes other than ELSS and RGESS can remain open for subscription for a
maximum of fifteen days.
• In the case of RGESS schemes, the offering period shall be not be more
than thirty days.
• Schemes, other than ELSS and RGESS, need to allot units or refund moneys
within 5 business days of closure of the NFO. RGESS schemes are given a
period of 15 days from closure of the NFO to make the refunds.
• In the event of delays in refunds, investors need to be paid interest at the
rate of 15% p.a. for the period of the delay. This interest cannot be charged
to the scheme.
• Open-ended schemes, other than ELSS, have to re-open for ongoing sale /
re-purchase within 5 business days of allotment.
• Statement of accounts are to be sent to investors as follows:
- In the case of NFO - within 5business days of closure of the NFO (15
days for RGESS).
- In the case of post-NFO investment – within 10 working days of the
investment
-
In the case of SIP / STP / SWP
• Initial transaction – within 10 working days
• Ongoing – once every calendar quarter (March, June, September,
December) within 10 working days of the end of the quarter
• On specific request by investor, it will be dispatched to investor within 5
working days without any cost.
• Statement of Account shall also be sent to dormant investors i.e. investors
who have not transacted during the previous 6 months. This can be sent
along with the Portfolio Statement / Annual Return, with the latest position
on number and value of Units held.
• Units of all mutual fund schemes held in demat form are freely
transferable. Investors have the option to receive allotment of mutual fund
units of open ended and closed end schemes in their demat account
• Only in the case of ELSS and RGESS Schemes, free transferability of units
(whether demat or physical) is curtailed for the statutory minimum holding
period of 3 years.
• Investor can ask for a Unit Certificate for his Unit Holding. This is different
from a Statement of Account as follows:
• A Statement of Account shows the opening balance, transactions during
the period and closing balance
• A Unit Certificate only mentions the number of Units held by the investor.
• In a way, the Statement of Account is like a bank pass book, while the
Unit Certificate is like a Balance Confirmation Certificate issued by the
bank.
• Since Unit Certificates are non-transferable, they do not offer any real
transactional convenience for the Unit-holder. However, if a Unit-holder
asks for it, the AMC is bound to issue the Unit Certificate within 5 working
days of receipt of request (15 days for RGESS).
• NAV has to be published daily, in at least 2 daily newspapers having
circulation all over India
• NAV and re-purchase price are to be updated in the website of AMFI and
the mutual fund
• In the case of Fund of Funds, by 10 am the following day
• In the case of other schemes, by 9 pm the same day
• The investor/s can appoint upto 3 nominees, who will be entitled to the
Units in the event of the demise of the investor/s. The investor can also
specify the percentage distribution between the nominees. If no
distribution is indicated, then an equal distribution between the nominees
will be presumed.
• The investor can also pledge the units. This is normally done to offer
security to a financier.
• Dividend warrants have to be dispatched to investors within 30 days of
declaration of the divide
• Redemption / re-purchase cheques would need to be dispatched to
investors within 10 working days from the date of receipt of transaction
request.
• In the event of delays in dispatching dividend warrants or redemption /
repurchase cheques, the AMC has to pay the unit-holder, interest at the
rate of 15% p.a. This expense has to be borne by the AMC i.e. it cannot be
charged to the scheme.
• Scheme-wise Annual Report or an abridged summary has to be mailed to
all unit-holders within 6 months of the close of the financial year.
• The appointment of the AMC for a mutual fund can be terminated by a
majority of the trustees or by 75% of the Unit-holders (in practice, Unit-
holding) of the Scheme. 75% of the Unit-holders (in practice, Unit-holding)
can pass a resolution to wind-up a scheme.
• If an investor feels that the trustees have not fulfilled their obligations,
then he can file a suit against the trustees for breach of trust.
• Under the law, a trust is a notional entity. Therefore, investors cannot sue
the trust
• The principle of caveat emptor (let the buyer beware) applies to mutual
fund investments. So, the unit-holder cannot seek legal protection on the
grounds of not being aware, especially when it comes to the provisions of
law, and matters fairly and transparently stated in the Offer Document.
• Unit-holders have a right to proceed against the AMC or trustees in certain
cases. However, a proposed investor i.e. someone who has not invested in
the scheme does not have the same rights.
• The mutual fund has to deploy unclaimed dividend and redemption
amounts in the money market. AMC can recover investment management
and advisory fees on management of these unclaimed amounts, at a
maximum rate of 0.50% p.a.
• If the investor claims the money within 3 years, then payment is based on
prevailing NAV i.e. after adding the income earned on the unclaimed
money
• If the investor claims the money after 3 years, then payment is based on
the NAV at the end of 3 years
• SEBI is the regulatory authority for securities markets in India. It regulates,
among other entities, mutual funds, depositories, custodians and registrars
& transfer agents in the country. Mutual funds need to comply with RBI’s
regulations regarding investment in the money market, investments
outside the country, investments from people other than Indians resident
in India, remittances (inward and outward) of foreign currency etc.
• Mutual Funds in India have not constituted any SRO(Self Regulatory
Organizations) for themselves. Therefore, they are directly regulated by
SEBI.
• AMFI is not an SRO.
• ACE stands for AMFI Code of Ethics and AGNI stands for AMFI Guidelines &
Norms for Intermediaries.
• In the event of breach of the Code of Conduct by an intermediary, the
following sequence of steps is provided for:
- Write to the intermediary (enclosing copies of the complaint and other
documentary evidence) and ask for an explanation within 3 weeks.
- In case explanation is not received within 3 weeks, or if the explanation
is not satisfactory, AMFI will issue a warning letter indicating that any
subsequent violation will result in cancellation of AMFI registration.
- If there is a proved second violation by the intermediary, the
registration will be cancelled, and intimation sent to all AMCs.
• The intermediary has a right of appeal to AMFI.
• SEBI has mandated AMCs to put in place a due diligence process to
regulate distributors who qualify any one of the following criteria:
a. Multiple point presence (More than 20 locations)
b. AUM raised over Rs.100 crore across industry in the non-institutional
category but including high networth individuals (HNIs)
c. Commission received of over Rs. 1 Crore p.a. across industry
d. Commission received of over Rs. 50 Lakhs from a single mutual fund
• When a scheme’s name implies investment in a particular kind of security
or sector, it should have a policy that provides for investing at least 65% of
its corpus in that security or sector, in normal times. Thus, a debt scheme
would need to invest at least 65% in debt securities; an equity scheme
would need to invest that much in equities; a steel sector fund would need
to invest at least 65% in shares of steel companies.
• Schemes other than ELSS and RGESS can remain open for subscription for a
maximum of fifteen days.
• In the case of RGESS schemes, the offering period shall be not be more
than thirty days.
• Schemes, other than ELSS and RGESS, need to allot units or refund moneys
within 5 business days of closure of the NFO. RGESS schemes are given a
period of 15 days from closure of the NFO to make the refunds.
• In the event of delays in refunds, investors need to be paid interest at the
rate of 15% p.a. for the period of the delay. This interest cannot be charged
to the scheme.
• Open-ended schemes, other than ELSS, have to re-open for ongoing sale /
re-purchase within 5 business days of allotment.
• Statement of accounts are to be sent to investors as follows:
- In the case of NFO - within 5business days of closure of the NFO (15
days for RGESS).
- In the case of post-NFO investment – within 10 working days of the
investment
-
In the case of SIP / STP / SWP
• Initial transaction – within 10 working days
• Ongoing – once every calendar quarter (March, June, September,
December) within 10 working days of the end of the quarter
• On specific request by investor, it will be dispatched to investor within 5
working days without any cost.
• Statement of Account shall also be sent to dormant investors i.e. investors
who have not transacted during the previous 6 months. This can be sent
along with the Portfolio Statement / Annual Return, with the latest position
on number and value of Units held.
• Units of all mutual fund schemes held in demat form are freely
transferable. Investors have the option to receive allotment of mutual fund
units of open ended and closed end schemes in their demat account
• Only in the case of ELSS and RGESS Schemes, free transferability of units
(whether demat or physical) is curtailed for the statutory minimum holding
period of 3 years.
• Investor can ask for a Unit Certificate for his Unit Holding. This is different
from a Statement of Account as follows:
• A Statement of Account shows the opening balance, transactions during
the period and closing balance
• A Unit Certificate only mentions the number of Units held by the investor.
• In a way, the Statement of Account is like a bank pass book, while the
Unit Certificate is like a Balance Confirmation Certificate issued by the
bank.
• Since Unit Certificates are non-transferable, they do not offer any real
transactional convenience for the Unit-holder. However, if a Unit-holder
asks for it, the AMC is bound to issue the Unit Certificate within 5 working
days of receipt of request (15 days for RGESS).
• NAV has to be published daily, in at least 2 daily newspapers having
circulation all over India
• NAV and re-purchase price are to be updated in the website of AMFI and
the mutual fund
• In the case of Fund of Funds, by 10 am the following day
• In the case of other schemes, by 9 pm the same day
• The investor/s can appoint upto 3 nominees, who will be entitled to the
Units in the event of the demise of the investor/s. The investor can also
specify the percentage distribution between the nominees. If no
distribution is indicated, then an equal distribution between the nominees
will be presumed.
• The investor can also pledge the units. This is normally done to offer
security to a financier.
• Dividend warrants have to be dispatched to investors within 30 days of
declaration of the divide
• Redemption / re-purchase cheques would need to be dispatched to
investors within 10 working days from the date of receipt of transaction
request.
• In the event of delays in dispatching dividend warrants or redemption /
repurchase cheques, the AMC has to pay the unit-holder, interest at the
rate of 15% p.a. This expense has to be borne by the AMC i.e. it cannot be
charged to the scheme.
• Scheme-wise Annual Report or an abridged summary has to be mailed to
all unit-holders within 6 months of the close of the financial year.
• The appointment of the AMC for a mutual fund can be terminated by a
majority of the trustees or by 75% of the Unit-holders (in practice, Unit-
holding) of the Scheme. 75% of the Unit-holders (in practice, Unit-holding)
can pass a resolution to wind-up a scheme.
• If an investor feels that the trustees have not fulfilled their obligations,
then he can file a suit against the trustees for breach of trust.
• Under the law, a trust is a notional entity. Therefore, investors cannot sue
the trust
• The principle of caveat emptor (let the buyer beware) applies to mutual
fund investments. So, the unit-holder cannot seek legal protection on the
grounds of not being aware, especially when it comes to the provisions of
law, and matters fairly and transparently stated in the Offer Document.
• Unit-holders have a right to proceed against the AMC or trustees in certain
cases. However, a proposed investor i.e. someone who has not invested in
the scheme does not have the same rights.
• The mutual fund has to deploy unclaimed dividend and redemption
amounts in the money market. AMC can recover investment management
and advisory fees on management of these unclaimed amounts, at a
maximum rate of 0.50% p.a.
• If the investor claims the money within 3 years, then payment is based on
prevailing NAV i.e. after adding the income earned on the unclaimed
money
• If the investor claims the money after 3 years, then payment is based on
the NAV at the end of 3 years
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