MUMBAI, February 6: The Securities and Exchange Board of India (SEBI) has made it mandatory for mutual funds to disclose the entire portfolio of their schemes in the annual report.It has also defined the term `fundamental attributes' of a scheme to include the type of a scheme, investment objective and terms of issue.
According to a SEBI release, these and other amendments to the mutual fund regulations have been notified in the gazette on January 12. They had been approved by the SEBI board earlier.
The type of scheme has to be specified as open-ended, close-ended, interval, sectoral, equity, balance, income, index or any other. The investment objective has to state whether the main objective is growth or income or both.
The investment pattern also has to be specified, stating the tentative equity or debt or money market portfolio break-up with minimum and maximum asset allocation while retaining the option to alter the asset allocation for a short term on defensive considerations.
The terms ofthe issue must include liquidity provisions such as listing, repurchase, redemption, aggregate fees and expenses charged to the scheme and any safety net or guarantee that might be provided.
While earlier, the regulations stated that the scheme-wise annual report or an abridged version be published through an advertisement, the amendments state that this abridged version be mailed to all unitholders. The full portfolio disclosure is not required if the full accounts are published in the newspapers, the notification says. Among other amendments are the restriction on investments by mutual funds in group companies of the sponsor. Investments in unlisted group companies as well as privately-placed securities of group companies are now prohibited.
Moreover, asset management companies (AMCs) are also not permitted to undertake security transactions with associate brokers beyond 5 per cent of the quarterly business done by the fund. In case of transactions undertaken with other brokers who are not associates,if the 5 per cent limit is exceeded on a quarterly basis, asset management companies will have to record in writing the justification for exceeding the limit and report to the trustees on a quarterly basis. The regulations now say that unitholder approval will be required for any amendment in the fundamental attributes as have been defined.
However, there is no need for obtaining unitholder approval for rollover of schemes and for conversion of close-ended schemes into open-ended ones.
The condition here is that unitholders who do not express their written consent should be allowed to redeem their holdings in full at the net asset-based price as per the terms of the offer. Further, to help the trustees of mutual funds play their role more effectively, independent trustees will now constitute two-thirds of the board.
The abridged prospectus containing key information will now have to be circulated along with all applications forms and will be available to all investors.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
