Mutual Funds Norms Change: Recently, there was some negative news about mutual funds, especially from the debt segment. If news of some funds defaulted, then the 6 credit schemes of Franklin Templeton Mutual Fund were closed due to inability to pay. After this, there was a fear in investors about the risk in mutual funds. In view of the interests of investors, market regulator SEBI has made some changes in the rules of mutual funds, to reduce the risk in them. Also, such incidents should be stopped in future. However, Sebi has set some new standards for equity segment in addition to debt. In the last few months, we are telling you about some 10 such changes.
1. Identifying Risk Properly
In order to enable investors to identify the risks of mutual funds properly, market regulator SEBI has introduced a “very high risk” category to warn investors. All mutual funds will now have to show 6 signals in the risk-o-meter instead of 5. According to the circular of SEBI, now there will also be a sign of “very high risk”. Apart from this, the other 5 categories are Low, Moderately Low, Moderate, Moderately High and High. Now very high will also be added to it. This will be effective from 1 January 2021.
2. Multicap will correspond to the name
SEBI has changed the rules for asset allocation for multi-cap mutual funds. According to the new rules, 75 per cent of the funds will now be required to invest in equity, which is currently a minimum of 65 per cent. According to the new rules of SEBI, the structure of multi-cap funds will change. Funds will be required to invest 25-25 per cent in midcap and smallcap. At the same time, 25 percent will have to be applied in large caps. Earlier, fund managers used to allocate according to their choice. At present, large-cap weight is more in multicap. This new rule will be applicable from January 2021.
3. Portfolio disclosure
In July this year, Sebi had said that debt mutual funds would have to disclose their portfolio every 15 days instead of 30 days. Because only selected funds were disclosing their portfolio twice a month. This step will also help in understanding any risk.
4. Change in Liquid Fund
SEBI has made it mandatory for liquid funds to hold at least 20 per cent of their portfolio in liquid assets such as cash, tea bills, government securities and repo rates on government securities at all times. In addition, measures have been taken to prevent corporates from using liquid funds to deposit their money for short periods.
5. Investment in unlisted NCDs
By the end of September, SEBI had allowed mutual funds to invest in non-convertible debentures (NCDs), which make up to a maximum of 10 per cent of the debt portfolio of a scheme. Its objective is to bring transparency in investment in debt and money market instruments by mutual funds.
6. Fund managers, dealers will be accountable
The Chief Executive Officer (CEO) of AMC will be responsible for ensuring that the code of conduct is being followed by fund managers and dealers. Fund managers and dealers will submit self-certification to the trustees on a quarterly basis that they have followed the code of conduct. The fund manager must have a reasonable and adequate basis for the investment decision and will be responsible for investing in the fund managed by him. Apart from this, the fund manager will keep a record in writing along with the detail justification about the purchase and sale of securities.
7. In case of Temptation
Fund managers or dealers will not be allowed to carry out any transaction on behalf of the fund with any counterparty that is associated with the sponsor / AMC / fund manager/dealer / CEO. They cannot accept the offer of any inducement in the matters of money management of the unitholders. Fund managers and dealers must always communicate in a clear, transparent and precise manner and conduct all communications during market hours only through recorded modes and channels.
8. Inter Scheme Transfer
Capital market regulator SEBI (SEBI) has tightened the norms of inter scheme transfer to protect the interests of mutual funds investors. According to the market regulator, the inter-scheme can be transferred only after a fund house tries to increase liquidity and ends. These will include the use of cash and cash equivalent assets available in the schemes and the sale of scheme assets in the markets. According to Sebi, these circulars will be applicable from January 1.