CIRCULAR, CIR/IMD/DF/24/2012, dated November 19, 2012

All Mutual Funds/Asset Management Companies (AMCs)/

Trustee Companies/Boards of Trustees of Mutual Funds

A. Amendments to SEBI (Mutual Funds) Regulations, 1996

1. Please find enclosed a copy of the gazette notification No. LAD-NRO/GN/2012-13/17/21502 dated September 26, 2012 pertaining to Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2012, for your information and implementation.

B. Prudential limits and disclosures on portfolio concentration risk in debt oriented mutual fund schemes

1. Presently, the guidelines issued on prudential limit for sectoral exposure in debt oriented mutual fund schemes put a limit of 30% at the sector level. However, in light of the important role played by the Housing Finance Companies (HFCs) in the housing sector, it has been decided that an additional exposure not exceeding 10% of net assets of the scheme shall be allowed only to HFCs as part of financial services sector for prudential limits in debt oriented schemes.

2. In partial modification to SEBI Circular No.CIR/IMD/DF/21/2012 dated September 13, 2012, clause 1 of Para (J) shall read as under:

“1. Mutual Funds/AMCs shall ensure that total exposure of debt schemes of mutual funds in a particular sector (excluding investments in Bank CDs, CBLO, G-Secs, T-Bills and AAA rated securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 30% of the net assets of the scheme;

Provided that an additional exposure to financial services sector (over and above the limit of 30%) not exceeding 10% of the net assets of the scheme shall be allowed by way of increase in exposure to Housing Finance Companies (HFCs) only;

Provided further that the additional exposure to such securities issued by HFCs are rated AA and above and these HFCs are registered with National Housing Bank (NHB) and the total investment/ exposure in HFCs shall not exceed 30% of the net assets of the scheme.”

C. Brokerage and Transaction Cost

1. In order to align with the regulation 52(6A)(a) of the SEBI (Mutual Funds) Regulations 1996, the provisions of Para-B(4) of SEBI Circular No.CIR/IMD/DF/21/2012 dated September 13, 2012 is modified, and the revised provisions shall read as under:

“Service tax on brokerage and transaction cost paid for execution of trade, if any, shall be within the limit prescribed under regulation 52 of the Regulations.”

2. It is clarified that the brokerage and transaction cost incurred for the purpose of execution of trade may be capitalized to the extent of 12bps and 5bps for cash market transactions and derivatives transactions respectively. Any payment towards brokerage and transaction cost, over and above the said 12 bps and 5bps for cash market transactions and derivatives transactions respectively may be charged to the scheme within the maximum limit of Total Expense Ratio (TER) as prescribed under regulation 52 of the SEBI (Mutual Funds) Regulations, 1996. Any expenditure in excess of the said prescribed limit (including brokerage and transaction cost, if any) shall be borne by the AMC or by the trustee or sponsors.

D. Credit of exit load to scheme

1. In terms of new regulation 51A of SEBI (Mutual Funds) Regulations, 1996, the exit load charged, if any, would be credited to the scheme. Accordingly, Para-4(c) of SEBI circular SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009 stands withdrawn.

This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of and to regulate the securities market.

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Click here to download- Notification No. LAD-NRO/GN/2012-13/17/21502 dated September 26, 2012.

Source: Securities and Exchange Board of India.

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