The percentage that needs to be invested depends on the risk level of the scheme, which has been categorized into low, low to moderate, moderate, moderately high, high and very high.
The new framework is aimed at aligning the interest of asset management companies (AMCs) with the unitholders of the mutual fund schemes.
The regulator on August 5 amended mutual fund rules, requiring fund houses to invest in their own schemes depending on the risk level to ensure ‘skin in the game’. The new rules will come into force on the 270th day from the date of notification.
Accordingly, it was decided that based on the risk value assigned to the scheme, AMCs will invest minimum amount as a percentage of assets under management (AUM) in their schemes. However, the regulator did not quantify the minimum amount that needs to be invested by the fund houses that time.
In a circular on Friday, Sebi said in case of scheme which comes under the low risk category, an AMC will have to invest a minimum of 0.03 percentage of the AUM in the scheme, while those under low to moderate category, 0.05 percentage of the asset base needs to be invested.
Further, in case of scheme which has been assigned moderate risk, 0.07 percentage of the AUM needs to be invested in the scheme, while the same for moderately high will be 0.09 percentage, 0.11 percentage for high and 0.13 percentage of the asset base for very high risk.
The risk value of the scheme as per the risk-o-meter of the immediate preceding month will be considered.
The investment will have to be maintained at all points of time till the completion of tenure of the scheme or till the scheme is wound up.
“AMCs shall, except in case of close ended scheme(s), conduct a quarterly review to ensure compliance with the requirement of investment of minimum amount in the scheme(s) which may change either due to change in value of the AUM or in the risk value assigned to the scheme,” Sebi said.
Further, based on review of quarterly average AUM, shortfall in value of the investment in schemes, if any, need to be made good within 7 days of such review.
The regulator said that AMCs will have the option to withdraw any excess investment than what is required pursuant to such review. AMCs may invest from their net worth or the sponsor may fund the AMC to fulfil the obligations, if required.
“However, the AMCs will be required to make good the shortfall in the minimum networth to comply with the requirement of the MF Regulations in case of sustenance of temporary mark to market loss for two consecutive quarters,” Sebi said.
It, further, said that AMCs will have to ensure that such temporariness of the mark to market loss is certified by the statutory auditor.
AMCs will not be required to invest in ETFs, Index Funds, Overnight Funds, Funds of Funds schemes and in case of close ended funds wherein the subscription period has closed as on date of coming into force of amended MF rules.
The mandatory contribution already made by the AMCs in compliance with the applicable MF rules will not be withdrawn. However, such contribution can be adjusted against the investment required by the AMC.
The compliance of the provisions of this circular will be ensured by the AMCs and monitored by the trustees. Any non-compliance in this regard, will be reported in the quarterly compliance test report and half-yearly trustee report.
Details of investment by AMCs in each of their mutual fund schemes will have to be disclosed on the website of AMCs and industry body AMFI.
