Sebi has extended the deadline for the implementation of the risk management framework for mutual funds and the two-tier structure for benchmarking certain schemes until April 1 of next year. The implementation was to come into effect on January 1, 2022.
The guidelines on the use of pool accounts by mutual funds and norms for investment in the Bills Re Discounting Scheme BRDS have been issued by the watchdog. All these decisions have been taken after representations from the Association of Mutual Funds in India AMFI. The bank accounts and securities accounts of each scheme should be segregated and ring-fenced.
The securities or funds held in the pool accounts at the mutual fund level are segregated scheme-wise and are appropriately reflected in the books of the respective schemes at the end of the day.
Sebi said that mutual funds may only use pool accounts for transactions that are executed at the mutual fund level due 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 make sure that adequate operational processes and internal controls are in place to separate and ring-fence each scheme's assets and liabilities. There is a need for segregation and ring-fencing of securities and bank accounts.
The pool accounts for both securities and funds should have a nil balance at the end of the day.
In case funds are not identified due to reasons beyond the control of an AMC, the same will be transferred to the respective scheme account no later than one business day from when such transactions are identified.
At no point in time, the securities or funds of one scheme will be used for other schemes.
The board of an AMC and trustees will have responsibility for segregation and ring-fencing of the assets and liabilities of each scheme, as per Sebi.
In their half-yearly report to Sebi, trustees of an AMC will confirm that the assets and liabilities of each scheme are segregated and ring-fenced on a daily basis except for unidentified transactions of funds during the half-year period.
The auditor appointed by the trustees will be appointed to audit the whole mechanism on a half-yearly basis.
Overnight funds can deploy 5 per cent of the net assets of the scheme in G-secs and T-bills with a residual maturity of up to 30 days for the purpose of placing the same as a margin and collateral for certain transactions, Sebi said.
Sebi has issued norms for investments in Bills Re Discounting Scheme BRDS Sebi said that the 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.
It noted that investments in BRDS by debt schemes of mutual funds will be considered exposure to the financial services sector for the purpose of exposure limits.
Under the rules, investments in unrated debt and money market instruments can be made only in instruments like bills re-discounting and usance bills, other than government securities, treasury bills, and derivative products such as Interest Rate Swaps IRS Interest Rate Futures IRF. These are generally not rated and for which separate investment norms are not provided in mutual fund regulations.
The exposure of mutual fund schemes in such instruments will not exceed 5 per cent of the net assets of the schemes.
The circular, which was used on Friday, will take effect on the 30th day of the circular, according to Sebi.
The risk management framework for mutual funds, which was extended until April 1, 2022, has some mandatory and recommendatory elements. AMCs need to submit a report to Sebi along with the roadmap for implementation to do a self-assessment of their risk management framework and practices.
Sebi said that the first tier benchmark will be reflective of the category and the second tier benchmark will be a reflection of the investment style strategy of the fund manager within the category and that there will be a two-tier structure for benchmarking certain categories of schemes.
The second tier benchmark is optional and will be decided by the AMCs according to the investment style strategy of the index.
The implementation of benchmarking requirements has been extended until April 1, 2022.
The new benchmarking guidelines will apply to schemes like debt-oriented, equity-oriented, hybrid and solution, thematic, index funds and exchange-traded funds ETFs and Fund of Funds Schemes FoFss.