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NISM_VA_Ch_04_Legal _ Regulatory Framework

Published by Teamlease Edtech Ltd (Amita Chitroda), 2022-08-03 07:09:03

Description: NISM_VA_Ch_04_Legal _ Regulatory Framework


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NISM VA Chapter 04 - Legal & Regulatory Framework July 13, 2022

Learning Objectives Learn About: • Role Of Regulators In India • Role Of SEBI In Regulating Mutual Funds • Due Diligence Process By Amcs For Distributors Of Mutual Funds • SEBI Advertisement Code For Mutual Funds • Investor Grievance And Redress Standards • AMFI Code Of Ethics And AMFI Code Of Conduct For Intermediaries

Role of Regulators in India Insurance Regulatory & Development Authority Reserve Bank of India (RBI) (IRDA) Securities & Exchange Pension Fund Regulatory & Board of India (SEBI) Development Authority (PFRDA) 3

Preamble of SEBI “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.” 4

Role of SEBI Efficiency of transactions in the securities markets Disclosures by issuers of securities Low transaction costs Inadequate collateral by issuers of debt securities Excessive risks taken by Deliberate speculation in mutual funds stock markets Insider trading 5

Regulatory Reforms by SEBI Scheme Related Documents Conversion and Valuation Transaction in Segregated Consolidation of Mutual Fund Portfolio Existing Schemes Loads, Fees Units New and Risk Products Expenses Management Dividend Scheme System Distribution Performance Procedure Governance Norms Categorisation of Mutual Fund Disclosures Secondary Investment and MarketActivities By Schemes Reporting Schemes Advertisements Norms Net Asset Value(NAV) Certification Investor Rights and Registration and Obligations of 6 Intermediaries

Mutual Funds Regulations Wherever applicable, need to comply with regulations issued by other regulators as well Circulars in Mutual Funds section of SEBI’s website 1 2 3 SEBI (Mutual Funds) Regulations, 1996 7

Investment Restrictions Restrictions pertaining to investment in Equity General Restrictions Restrictions pertaining to investment in Restrictions pertaining to REITs and InvITs investment in debt securities 8

General Restrictions The Mutual Fund will buy and The Mutual Fund shall not The scheme will not invest in sell securities on delivery basis advance any loans the unlisted or privately placed securities of any associate or Investment in the listed The scheme may invest in other group company of the securities of the group schemes of the same Mutual sponsor companies of the sponsor Fund or other Mutual Funds, This does not apply to Fund will be limited to 25% of the limited to not more than 5% of the of Funds net assets net asset value of the scheme and no fees will be charged on 9 such investments The Mutual Fund under all its schemes shall not own more than 10% of a company’s paid up capital bearing voting rights

Restrictions For Debt The scheme shall not The limit shall not Investment in unrated debt invest more than 10% of its apply to Government securities of a single issuer NAVin investment grade Securities, Treasury will be limited to 10% of its debt instruments issued by NAVand the total investments in a single issuer, can be Bills and CBLO extended to 12% with the such securities shall not approval of the trustees exceed 25 percent of the NAV of thescheme Parking of funds in Short- The Scheme cannot invest term deposits with all in the short-term deposits scheduled commercial of a bank that has invested banks shall be limited to in the scheme, No 15% of the net assets of management fee will be the scheme, can be charged for such raised to 20% with the investments by the scheme approval of the trustees 10

Group Exposures Total exposure of debt schemes of mutual An additional exposure to • The additional exposure to such funds in a particular sector (excluding financial services sector securities issued by HFCs are investments in Bank CDs, CBLO, G-secs, (over and above the limit AA rated and above. T-Bills, Short Term Deposits of Schedule of 25 percent) not Commercial Banks and AAA rated exceeding 10% of the net • These HFCs are registered with securities issued by the Public Sector assets of the scheme shall National Housing Bank (NHB) Units, Public Financial Institutions and be allowed only by increase and the total investment/ Public Sector Banks) shall not exceed in exposure to Housing exposure in HFCs shall not 25% of the net assets of the scheme Finance Companies exceed 25% of the net assets of (HFCs) the scheme 11

Restrictions For Equity Upto 5% of the net assets of the scheme will be invested in unlisted equity shares and equity related At least 80% of the instruments in case of open-ended schemes and ELSS’ funds should be invested in equity and 10% of its NAV in case of close-ended schemes equity-linked securities The Scheme shall not invest more than 10% of its net assets in the equity shares and equity-related instruments of a company, the limit is not applicable for investments in index/sector/industry specific schemes 12

Restrictions For REITs and INVITs No mutual fund under all its schemes shall own more than 10 percent of units issued by a single issuer of REIT and INVIT Not applicable for A mutual fund scheme shall not investments in case of invest index funds or sector or • more than 10% of its NAV in industry specific scheme pertaining to REIT and the units of REIT and INVIT INVIT • more than 5% of its NAV in the units of REIT and INVIT issued by a single issuer 13

SEBI Advertisement Code For Mutual Funds Not No false, misleading, exaggerated slogans biased or deceptive No celebrity endorsement Accurate, true, fair, clear, complete, unambiguous and concise No extensive Accompanied Dividend technical by standard declared to be also mentioned terminology warnings or complex in rupees language No unfair comparisons After dividend the Timely and the fall of the NAV consistent disclosures has to be mentioned 14

Advertisement Guidelines For Mutual Funds Performance in terms of Change of fund Equity scheme CAGR for past 1, 3, 5 manager to be benchmark - years & since inception disclosed Sensex or Nifty Growth mentioned on For a scheme that is Long term debt fund a notional value of Rs. less than 1 year in benchmark - 10 year G-sec 10,000 existence, past performance is not Short term debt fund benchmark Performance of required - 1 YearT-bill regular or direct plan to be mentioned Annualised returns for Performance of all other clearly liquid schemes for funds by the same fund simple understanding manager also to be mentioned 15

Celebrity Endorsements of Mutual Funds At Industry Level Celebrity can endorse MF only as a financial product category No promotion of a specific AMC Prior approval of Celebrity SEBI required endorsements to be paid within limits 16

SEBI Guidelines For Circulation of Unauthenticated News Toundertake nationwide Investor To disseminate information on Mutual Awareness Programs on educating about Fund industry and to undertake R&D Mutual Funds Torepresent to Government, RBI and all bodies on all matters of Mutual Fund Tointeract with SEBI and represent industry on all matters concerning Mutual Access to blogs/chat Funds industry forums/messenger sites should be Market intermediaries should not restricted circulate rumors or unverified 17 information obtained from client, industry, any trade or any sources

Investor’s Rights And Obligations Right To Proportionate Right To Right to Right To Trust Deed & Right To Appoint up Beneficial right to assets Change change the Inspect other Appoint to 3 Ownership distributor Documents Nominees ofscheme The without any Agreements nominees Distributor NOC Right To Can pledge Right To Formal Right Of Exit window of Rights To Consent of Pledge units to Grievance grievance Investors In at least 30 Terminate 75% unit Mutual financier Redressal redressal policy Contest Of Appointment holders can Fund Units laid by SEBI Change In days provided Of An AMC terminate the Fundamental without any exit appointment of an AMC or Attribute load wind up any scheme Right To Prevailing NAV, Proceeds Of If the amounts Unclaimed if claimed Illiquid Rights Amounts are substantial & within 3 years Securities recovered in 2 years Definition otherwise then given back to old 18 the NAV at the investors. end of 3 years In other cases transferred to Investor Awareness Fund

Investor Grievance Redressal Mechanism Get the complaint Get the complaint Register a complaint addressed by your addressed by the Not satisfied customer service Not satisfied with SEBI via their advisory / with redressal center of product / with redressal intermediary service provider SCORES portal 19

Investor Grievance Redressal Mechanism Entities against which complaints are handled by SEBI include: 02 05 01 04 Portfolio Managers Brokers / Stock 06 Exchanges 03 Depository Participants / Depositories Listed companies/ Mutual KYC Collective Investment registrar & transfer Funds Scheme, Merchant Banker, agents Credit Rating, Foreign Portfolio Investor, etc. 20

Investor Grievance Redressal Mechanism ACE AGNI AMFI Code of Ethics: AMFI Guidelines & Norms for Intermediaries: • Sets out standards of good practices to be followed by the • Set of guidelines and code of AMC in their operations and in conduct for intermediaries (Individual their dealings with investors’, agents, brokers, distribution houses intermediaries and public & banks) engaged in selling of Mutual Funds • SEBI Regulation, 1996 requires all AMCs, trustees to abide by the code ofconduct 21

Summary: • The four major regulators are RBI, SEBI, IRDAI, PFRDA. • Advertisements, valuation of securities, calculation of NAV—each of these aspects related to mutual funds are very tightly regulated. • Mutual Funds need to comply with the rules of the exchanges with which they choose to have a business relationship. • Investors also have rights to various services such as receiving account statements, statements of portfolios, half-yearly disclosures etc.

Thank you

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