Applicable from January 1: Sebi tightens inter scheme transfer norms for MFs

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October 9, 2020 8:45 AM

Such data need to be preserved by the company or intermediary fiduciary for a period of five years, Sebi said in a set of frequently asked questions on insider trading regulations. Another structured digital database should be maintained internally by fiduciary or intermediary, capturing such information.

Besides, they had submitted incorrect declarations to KBL stating that they are not in possession of UPSI.

The Securities and Exchange Board of India (Sebi) has tightened the norms for inter scheme transfer for mutual funds. The regulator in its circular said in case of close-ended schemes, the inter scheme transfer purchases would be allowed within ‘three’ business days of allotment pursuant to new fund offer (NFO), and thereafter, no inter scheme transfer shall be permitted to or from close-ended schemes. The circular shall be applicable with effect from January 1,2021.

Fund houses shall have an appropriate liquidity risk management (LRM) model at scheme level, approved by trustees, to ensure that reasonable liquidity requirements are adequately provided for. Recourse to inter scheme transfer for managing liquidity will only be taken after the avenues such as use of cash and cash equivalent, use of market borrowings and selling of scheme in the market, among others, are attempted and exhausted.

At present, transfers of securities from one scheme to another in the same mutual fund is allowed only if such transfers are done at the prevailing market price for quoted instruments on spot basis and the securities so transferred are in conformity with the investment objective of the scheme to which such transfer has been made.

The use of market borrowing before inter scheme transfer will be optional and fund manager may at his discretion take decision on borrowing in the best interest of unit holders. In case the option of market borrowing and/or selling of security is not used, the reason for the same shall be recorded with evidence, said Sebi in its circular.

“In order to guard against possible misuse of inter scheme transfer in credit risk scheme, trustees shall ensure to have a mechanism in place to negatively impact the performance incentives of fund managers, chief investment officers (CIOs), etc. involved in process of inter scheme transfer in credit risk scheme, in case the security becomes default grade after the ISTs within a period of one year. Such negative impact on performance shall mirror the existing mechanism for performance incentives of the AMC,” said Sebi.

If the security gets downgraded following inter scheme transfer within a period of four months, fund manager of buying scheme has to provide detailed justification/rationale to the trustees for buying such security.

‘Maintain updated contact info of designated employees for one year after resignation’

Sebi on Thursday said listed companies should make efforts to maintain updated addresses and contact details of “designated employees” for one year after their resignation, under the digital database.

Such data need to be preserved by the company or intermediary fiduciary for a period of five years, Sebi said in a set of frequently asked questions on insider trading regulations. Another structured digital database should be maintained internally by fiduciary or intermediary, capturing such information.

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