SEBI tightens MF norms; Completion of schemes only after the consent of majority of the unit holders

Under the new rules, mutual fund trustees will be required to obtain the consent of the unitholders when a majority of the trustees decide to wind up a scheme or prematurely redeem units of a closed-ended scheme.

The trustees will have to obtain the consent of the unitholders by a simple majority of the unitholders present and voting on one vote per unit basis and publish the results of the voting within 45 days of the publication of the notice of circumstances, Sebi said. . In the notification issued on Tuesday.

In case the trustees fail to obtain consent, SEBI said the scheme will remain open for business activities from the second business day after the publication of the results of the voting.

Amending mutual fund norms, SEBI said that the trustees will give notice within a day, revealing the circumstances of winding up of the scheme to the regulator and two dailies as well as a local newspaper will be circulated across India . Where mutual funds are formed.

The decision to amend the rules came after the Supreme Court’s decision in July to allow majority unit-holders to wind up mutual fund schemes after publishing a notice asking trustees to disclose the reasons for their decision to wind up schemes. Consent is required.

This decision of the Supreme Court has come in a matter related to the winding up of six debt schemes of Franklin Templeton Mutual Fund.

The fund house on April 23, 2020 closed its six debt mutual fund schemes citing redemption pressure and lack of liquidity in the bond market.

The schemes – Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund – together were higher than anticipated 25,000 crore as assets under management.

Further, the watchdog asked mutual funds to comply with the Indian Accounting Standards (Ind AS) from the financial year 2023-24.

“The financial statements and accounts of mutual fund schemes shall be prepared in accordance with the Indian Accounting Standards (IND AS),” SEBI said.

In addition to the Ind AS requirements, SEBI has changed the norms with respect to regulatory provisions relating to accounting to remove unnecessary provisions and bring in more clarity.

For the purposes of financial statements, SEBI stated that mutual funds shall mark all investments in the market and invest in the balance sheet at market value.

“Profit or loss received on sale or redemption of investment, as well as unrealized depreciation or depreciation shall be recognized in all financial statements through revenue accounts,” SEBI said.

However, since unrealized gains arising from appreciation on investments cannot be distributed, provision should be made to exclude this item when arriving at distributable income.

The aggregate market value of investment in securities shall be stated separately in respect of each type of investment, such as equity shares, preference shares, convertible debentures listed on a stock exchange, non-convertible debentures or bonds that differentiate between those listed on a stock exchange. and are kept privately.

The amendment comes after SEBI’s board approved a proposal in this regard in December.