Module VI Regulatory Updates (SEBI Circulars from May 13, 2010 upto May 19, 2011)

Interval Schemes (to be read with Chapter 1 - Slide 7 ) Interval funds are a variant of closed-end funds They are primarily closed-ended but become open ended at specific intervals. Subscriptions/Redemptions allowed at specific intervals during the specified transaction period. Investors may use the ‘specified transaction period’ in order to transact in the fund. Specified Transaction Period needs to be for a minimum period of 2 days. Minimum duration of interval period (number of days between two successive specified transaction periods) has to be 15 days. Interval schemes have to be mandatorily listed. No redemption is allowed except during the Specified Transaction Period Investments in an interval scheme are permitted only in such securities which mature on or before the opening of the immediately following transaction period. Explanation to last bullet point: In case of securities with put and call options the residual time for exercising the put option of the securities shall not be beyond the opening of the immediately following transaction period

Disclosure of Investor Complaints (to be added after Chapter 3 – Slide 3) SEBI has prescribed a detailed format for annual reporting on redressal of complaints received against the mutual fund (including its authorised persons, distributors, employees etc.). The report categorises different kinds of complaints. For each complaint category, the mutual fund has to report on the number of complaints, the time period in which they were resolved, and if not resolved, for how long they remain unresolved. The trustees have to sign off on this report, which is to be disclosed in AMFI website, the website of the individual mutual fund, and its Annual Report.

Transferability of Units (to be read with Chapter 3 – Slide 6) A mutual fund unit, unless otherwise restricted or prohibited under the scheme, shall be freely transferable either: By act of parties: Sale or gift of units Operation of law: eg. Transmission of units in the event of death Units in demat form are also freely transferable. However, restrictions on transfer of units of ELSS schemes during the lock-in period continue to be applicable as per the ELSS Guidelines.

Consolidation / Merger of schemes (to be read with Chapter 3 – Slide 7) Merger or consolidation of schemes was earlier taken as change in fundamental attribute of the surviving scheme. However, henceforth, merger or consolidation of schemes shall not be seen as change in fundamental attribute of the surviving scheme if the following conditions are met: Fundamental attributes of the scheme that remains in existence after merger (surviving scheme) do not change. Mutual Funds are able to demonstrate that the circumstances merit merger or consolidation of schemes and the interest of the unitholders of surviving scheme is not adversely affected.

Unclaimed Dividend / Redemption (to be added to Chapter 3 – after slide 7) 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. Recovery of such unclaimed amounts by the investors is as follows: 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 AMC is expected to make a continuous effort to remind the investors through letters to claim their dues. The Annual Report has to mention the unclaimed amount and the number of such investors for each scheme.

KYD Requirements (to be read with Chapter 5 – Slide 6) As part of Sebi’s drive to streamline the distribution process of mutual fund products, AMFI has introduced the KYD process To verify the correctness of the information provided in the registration documents To have person verification of the ARN holders The process consists of document verification and bio-metric process Self-attested copy of the PAN card and specific documents as proof of address to be submitted along with application form at the CAMS- PoS Bio-metric process consists of taking the impression of the index finger of the right hand of the ARN holder. This will be done at the PoS at the time submission of documents In case of non-individual distributors, bio-metric process will be conducted on specified authorized persons An acknowledgement confirming the completion of KYD process is received from the CAMS-PoS A photocopy of the acknowledgement has to be sent to all the AMCs with whom the distributor is empanelled. Fulfilling KYD requirements is a pre-requisite to become a distributor of a mutual fund.

Transactions Cut off timings (to replace Chapter 6 – Slide 5, 6, 7) Mutual fund transaction documents have to be submitted at designated Official points of acceptance (OPoA). All financial transactions received at OPoAs have to be time stamped. Time stamp determines the applicable NAV according to SEBI’s cut-off time regulation: Equity-oriented fund purchases and all redemptions (equity-oriented, debt-oriented and liquid) will get same day NAV if received before 3pm on a business day. Changes have been made in the cut-off time and applicable NAV regulations for Liquid funds and Debt fund purchases equal to or more than Rs. 1 crore.

Transactions Cut off timings (to replace Chapter 6 – Slide 5, 6, 7) Cut-off Time and Applicable NAV for liquid funds The cut-off time for purchase of units in liquid funds has been revised to 2.00 p.m. on a day The applicable NAV for a purchase transaction in a liquid fund received within the cut-off time is the closing NAV of the day immediately preceding the application day Provided funds are available for utilization without resorting to intra-day or inter-day credit If the application is received after 2.00 p.m, the transaction will be done as per the NAV applicable for the same business day The allotment of units at the applicable NAV for a day will therefore depend upon Receiving application before cut-off time Funds credited to the scheme’s account before cut-off time Funds available for utilization without using any credit facilities

Transactions Cut off timings (to replace Chapter 6 – Slide 5, 6, 7) Applicable NAV for Switch-in to Liquid Funds The applicable NAV for switch-in transactions to liquid funds is the NAV of the day preceding the day of application provided The application is received before cut-off time Funds credited to the scheme’s account before cut-off time Funds available for utilization without using any credit facilities

Transactions Cut off timings (to replace Chapter 6 – Slide 5, 6, 7) Applicable NAV for Income/Debt- Oriented Funds The cut-off time for debt-oriented funds is 3.00 p.m. on a day The applicable NAV for a transaction where the application is received within the cut-off time on a day is the closing NAV of the day of application. If the application is for debt/income fund purchase is equal to Rs. 1 crore and above the applicable NAV as above will apply provided Funds are credited to the scheme’s account before the cut-off time The funds are available for utilization before the cut-off time without resorting to any intra-day or inter-day credit facility Switch-in to debt-oriented funds will get the applicable NAV of the day of application provided Application is received before cut-off time

Expenses of FoF Scheme (To replace Chapter 6 – slide 12 last bullet point) Fund of funds invest in other funds, therefore there may be two layers of expenses, one for the FoF and the other for the schemes in which the FoF invests. A FoF has to choose between the following two options for charging expenses: Charge a fee of 0.75%, which is over and above the fees charged by the underlying funds; or Charge a consolidated fee, including its fee and that of the underlying funds, which does not exceed 2.5% of net assets.

ASBA (to be read with Chapter 7 – Slide 6) ASBA (Applications Supported by Blocked Amount) facility extended to investors subscribing to mutual fund NFOs w.e.f 1 October, 2010. This facility is in addition to cheques/ DDs as modes of payment Investors can avail of ASBA through banks specified in Sebi list ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed.

Option to hold units in demat form (To be read with Chapter 7 – Slide 10) Sebi has directed mutual funds to ensure that option to receive allotment of units in demat form is available in all schemes (existing and new) Will apply to open-ended as well as closed-end schemes Subscription form to provide an option to mention demat account details Mutual Funds have to obtain ISIN for each option of the scheme ISIN along with the name of the scheme is to be quoted in all Statement of Account/Common Account Statement (CAS) issued to investors These directives have been made applicable with effect from October 01, 2011.