𝐒𝐄𝐁𝐈 𝐩𝐫𝐨𝐩𝐨𝐬𝐞𝐬 𝐞𝐚𝐬𝐞 𝐨𝐟 𝐝𝐨𝐢𝐧𝐠 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐢𝐧𝐢𝐭𝐢𝐚𝐭𝐢𝐯𝐞𝐬 𝐟𝐨𝐫 𝐌𝐮𝐭𝐮𝐚𝐥 𝐅𝐮𝐧𝐝𝐬

SEBI through a recent Consultation Paper has made three recommendations with respect to the ease of doing business initiatives for Mutual Funds (MFs).
 
The background of the proposals is that the Hon’ble Finance Minister of India Smt. Nirmala Sitharaman 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 by SEBI to review the present framework under SEBI MF Regulations and circulars issued thereunder.
 
The Working Group based on public consultation has proposed the following:
 
(i) 𝐃𝐞𝐝𝐢𝐜𝐚𝐭𝐞𝐝 𝐅𝐮𝐧𝐝 𝐌𝐚𝐧𝐚𝐠𝐞𝐫 𝐟𝐨𝐫 𝐂𝐨𝐦𝐦𝐨𝐝𝐢𝐭𝐲 𝐅𝐮𝐧𝐝𝐬 𝐚𝐧𝐝 𝐎𝐯𝐞𝐫𝐬𝐞𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬: 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.
 
𝐑𝐞𝐜𝐨𝐦𝐦𝐞𝐧𝐝𝐚𝐭𝐢𝐨𝐧: 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.
 
(ii) 𝐍𝐨𝐦𝐢𝐧𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐌𝐮𝐭𝐮𝐚𝐥 𝐅𝐮𝐧𝐝 𝐔𝐧𝐢𝐭𝐬: 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.
 
𝐑𝐞𝐜𝐨𝐦𝐦𝐞𝐧𝐝𝐚𝐭𝐢𝐨𝐧: Requirement of nomination may be made optional for jointly held folios.
 
(iii) 𝐄𝐱𝐩𝐨𝐬𝐮𝐫𝐞 𝐨𝐟 𝐩𝐚𝐬𝐬𝐢𝐯𝐞 𝐬𝐜𝐡𝐞𝐦𝐞𝐬 𝐭𝐨 𝐚 𝐬𝐢𝐧𝐠𝐥𝐞 𝐬𝐭𝐨𝐜𝐤 𝐨𝐟 𝐨𝐰𝐧 𝐠𝐫𝐨𝐮𝐩 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬: 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%.
 
𝐑𝐞𝐜𝐨𝐦𝐦𝐞𝐧𝐝𝐚𝐭𝐢𝐨𝐧: 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.
 
A copy of the SEBI Consultation Paper is enclosed herewith.
 
Readers are welcome to share their views with Regstreet Law Advisors on info@regstreetlaw.com.