The implementation was to come into force from January 1, 2022. Meanwhile, the watchdog has come out with guidelines on usage of pool accounts by mutual funds as well as norms for investment in Bills Re Discounting Scheme (BRDS).
All these decisions have been taken after receiving representations from the Association of Mutual Funds in India (AMFI). As per the rules, trustees and Asset Management Companies (AMCs) will have to ensure that the assets and liabilities of each scheme are segregated and ring-fenced from other schemes of a mutual fund. Also, bank accounts and securities accounts of each scheme should be segregated and ring-fenced.
However, the securities or funds held in the pool accounts at mutual fund level are duly segregated scheme-wise and is appropriately reflected in the books of the respective schemes at the end of day.
Sebi said that mutual funds may use pool accounts only for transactions which are executed at mutual fund level, owing to certain operational and regulatory requirements.
This is subject to certain conditions, including that AMCs will have internal policies approved by their respective boards and trustees. The internal policies should ensure that adequate operational processes and internal controls are in place to segregate and ring-fence each scheme’s assets and liabilities. Besides, there should be segregation and ring-fencing of securities and bank accounts.
The pool accounts for both securities and funds should have nil balance at end of the day.
In case the funds lying in pool bank account of the mutual fund are not identified due to the reasons beyond the control of an AMC, the same will be transferred to the respective scheme account not later than one business day from when such transactions are identified.
At no point of time, the securities or funds of one scheme will be used for other schemes.
The responsibility to ensure segregation and ring-fencing of the assets and liabilities of each scheme along with that of bank accounts and securities accounts will lie with the board of an AMC and trustees, as per Sebi.
In their half-yearly report submitted to Sebi, trustees of an AMC will confirm that the assets and liabilities of each scheme along with their bank accounts and securities accounts are segregated and ring-fenced on a daily basis exceptthe unidentified transactions of funds during the half-year period.
The whole mechanism will be audited on a half-yearly basis by the auditor appointed by the trustees.
“Overnight funds can deploy, not exceeding, 5 per cent of the net assets of the scheme in G-secs and/or T-bills with a residual maturity of up to 30 days for the purpose of placing the same as margin and collateral for certain transactions,” Sebi said. Besides, Sebi has issued norms for investments in Bills Re Discounting Scheme (BRDS).
Sebi said single issuer limit and the group exposure limit will be calculated at the issuing bank level as BRDS are issued with recourse to the issuing bank.
Further, it noted that investment in BRDS by debt schemes of mutual funds will be considered as exposure to financial services sector for the purpose of sector exposure limits.
Under the rule, investments in unrated debt and money market instruments, other than government securities, treasury bills, derivative products such as Interest Rate Swaps (IRS), Interest Rate Futures (IRF), can only be made in instruments like bills re-discounting and usance bills. These are generally not rated and for which separate investment norms are not provided in mutual fund regulations.
Further, exposure of mutual fund schemes in such instruments will not exceed 5 per cent of the net assets of the schemes. Sebi said these norms will come into effect from the 30th day of the circular, which has been isused on Friday.
The risk management framework for the mutual funds, whose implementation has now been extended till April 1, 2022, has certain mandatory and recommendatory elements. AMCs need to perform a self-assessment of their risk management framework and practices and submit a report to Sebi along with the roadmap for its implementation.
With regard to the two-tier structure for benchmarking certain categories of schemes, Sebi had said the first tier benchmark will be reflective of the category of the scheme and the second tier benchmark will be demonstrative of the investment style/strategy of the fund manager within the category. The second tier benchmark is optional and will be decided by the AMCs according to investment style/strategy of the index. The implementation of the benchmarking requirements have also been extended till April 1, 2022. The new benchmarking guidelines will be applicable for schemes like debt-oriented, equity-oriented, hybrid and solution, thematic, index funds and exchange-traded funds (ETFs) and Fund of Funds Schemes (FoFs).
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
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