On September 02, 2021, the Securities and Exchange Board of India (SEBI) has issued a circular regarding the Alignment of interest of Asset Management Companies (‘AMCs’) with the Unitholders of the Mutual Fund Schemes.

Regulation 25 of SEBI (Mutual Funds) Regulations,1996 (‘MF Regulations’), asset management companies are required to invest such amount in such scheme(s) of the mutual fund, based on the risk associated with the scheme, as may be specified by the Board from time to time.

Based on the risk value assigned to the scheme(s), AMCs  are required to invest  minimum amount as a percentage of assets under management (‘AUM’) in their scheme(s).

 

Key points:
  • Risk value of  the  scheme  as  per  the  risk-o-meter  of  the  immediate  preceding month shall be considered.
  • Investment shall be maintained at all points of time till the completion of tenure of the scheme or till the scheme is wound up.
  • AMCs shall, except in  case  of  close  ended  scheme(s),  conduct  a  quarterly  review to ensure compliance with the requirement of investment of minimum amount in the scheme(s) which may change either due to change in value of the AUM or in the risk value assigned to the scheme. Further, based on review of quarterly average AUM, shortfall in value of the investment in scheme(s), if any,  shall  be  made  good  within  7  days  of  such  review.  AMC shall  have  the  option to  withdraw  any  excess  investment  than  what  is  required pursuant  to  such review.
  • AMCs  may  invest  from  their  net  worth  or  the  sponsor  may  fund  the  AMC  to  fulfil the aforesaid obligations, if required. However, the AMCs shall be required to  make  good  the  shortfall  in  the  minimum  net-worth to  comply  with  the  requirement of the MF Regulations in case of sustenance of temporary Mark to  Market  loss  for  two  consecutive quarters. AMC  shall  ensure  that  such  temporariness of the Mark to Market loss is certified by the statutory auditor.
  • AMCs shall not be required to invest in ETFs, Index Funds, Overnight Funds, Funds  of  Funds  scheme(s)   and in  case  of  close  ended  funds  wherein  the subscription  period  has  closed  as  on  date  of  coming  into  force  of  MF Amendment Regulations.
  • Mandatory  contribution  already made by the AMCs  in  compliance  with  the  applicable MF Regulations shall not be withdrawn. However, such contribution can be adjusted against the investment required by the AMC as per this circular.

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