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๐’๐„๐๐ˆ ๐ฉ๐ซ๐จ๐ฉ๐จ๐ฌ๐ž๐ฌ ๐ž๐š๐ฌ๐ž ๐จ๐Ÿ ๐๐จ๐ข๐ง๐  ๐›๐ฎ๐ฌ๐ข๐ง๐ž๐ฌ๐ฌ ๐ข๐ง๐ข๐ญ๐ข๐š๐ญ๐ข๐ฏ๐ž๐ฌ ๐Ÿ๐จ๐ซ ๐Œ๐ฎ๐ญ๐ฎ๐š๐ฅ ๐…๐ฎ๐ง๐๐ฌ

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SEBI

SEBIย through a recent Consultation Paper has made three recommendations with respect to the ease of doing business initiatives for Mutual Funds (MFs).
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The background of the proposals is that the Honโ€™ble Finance Minister of India Smt.ย Nirmala Sitharamanย ji in the budget announcements for FY 2023-24, inter-alia, made an announcement to simplify, ease and reduce cost of compliance for participants in the financial sector. Thereafter, a working group for review of compliance requirements for MFs was formed byย SEBIย to review the present framework underย SEBIย MF Regulations and circulars issued thereunder.
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The Working Group based on public consultation has proposed the following:
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(i) ๐ƒ๐ž๐๐ข๐œ๐š๐ญ๐ž๐ ๐…๐ฎ๐ง๐ ๐Œ๐š๐ง๐š๐ ๐ž๐ซ ๐Ÿ๐จ๐ซ ๐‚๐จ๐ฆ๐ฆ๐จ๐๐ข๐ญ๐ฒ ๐…๐ฎ๐ง๐๐ฌ ๐š๐ง๐ ๐Ž๐ฏ๐ž๐ซ๐ฌ๐ž๐š๐ฌ ๐ข๐ง๐ฏ๐ž๐ฌ๐ญ๐ฆ๐ž๐ง๐ญ๐ฌ: The present Regulations require the appointment of a dedicated Fund Manager each for Overseas Investment and for Commodity Funds. This has led to operational challenges such as additional costs to the AMCs especially in view of the fact that transactions done by fund managers in the overseas securities are comparatively less.
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๐‘๐ž๐œ๐จ๐ฆ๐ฆ๐ž๐ง๐๐š๐ญ๐ข๐จ๐ง: The mandatory requirement for a dedicated Fund Manager in the present scenario may be made optional. However, the AMC should ensure that the Fund Manager has adequate expertise and experience.
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(ii) ๐๐จ๐ฆ๐ข๐ง๐š๐ญ๐ข๐จ๐ง ๐Ÿ๐จ๐ซ ๐Œ๐ฎ๐ญ๐ฎ๐š๐ฅ ๐…๐ฎ๐ง๐ ๐”๐ง๐ข๐ญ๐ฌ: Presently, for joint folios, the surviving holder takes precedence over the Nominee for transmission of units. Further, a confirmation is needed from all holders regarding the nominee. In instances where all holders are not available at the same time to register their nominee(s), the process is put on hold.
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๐‘๐ž๐œ๐จ๐ฆ๐ฆ๐ž๐ง๐๐š๐ญ๐ข๐จ๐ง: Requirement of nomination may be made optional for jointly held folios.
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(iii) ๐„๐ฑ๐ฉ๐จ๐ฌ๐ฎ๐ซ๐ž ๐จ๐Ÿ ๐ฉ๐š๐ฌ๐ฌ๐ข๐ฏ๐ž ๐ฌ๐œ๐ก๐ž๐ฆ๐ž๐ฌ ๐ญ๐จ ๐š ๐ฌ๐ข๐ง๐ ๐ฅ๐ž ๐ฌ๐ญ๐จ๐œ๐ค ๐จ๐Ÿ ๐จ๐ฐ๐ง ๐ ๐ซ๐จ๐ฎ๐ฉ ๐œ๐จ๐ฆ๐ฉ๐š๐ง๐ข๐ž๐ฌ: The MF Regulations prohibit a Mutual Fund Scheme to invest more than 25% of net assets in the listed securities of group companies of the sponsor. However, a single stock (issuer) can have upto 35% weight in the underlying index for a sectoral/ thematic Index based passive fund. This may lead to a situation where the exposure to listed securities of group companies of the sponsor in an equity-oriented ETFs / Index Funds may be more than 25%.
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๐‘๐ž๐œ๐จ๐ฆ๐ฆ๐ž๐ง๐๐š๐ญ๐ข๐จ๐ง: Equity oriented ETFs and index funds, based on widely tracked and non-bespoke Indices, may be excluded from the requirement of investment limit of 25% in group companies of sponsors.
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A copy of theย SEBIย Consultation Paper is enclosed herewith.
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Readers are welcome to share their views withย Regstreet Law Advisorsย onย info@regstreetlaw.com.

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