Mutual funds: Sebi extends deadline for implementing risk management framework until April 2022
Meanwhile, the watchdog has issued guidelines on the use of pool accounts by mutual funds as well as investment standards in the Bills Re Discounting Scheme (BRDS).
All of these decisions were taken after receiving representations from the Association of Mutual Funds in India (AMFI).
In accordance with the rules, trustees and asset management companies (AMCs) will need to ensure that the assets and liabilities of each plan are segregated and isolated from other plans of a mutual fund. In addition, the bank accounts and securities accounts of each regime should be segregated and ring-fenced.
However, the securities or funds held in the pool accounts at the mutual fund level are duly segregated by plan and are correctly reflected in the books of the respective plans at the end of the day.
Sebi said that mutual funds can use mutual accounts only for transactions executed at the mutual fund level, due to certain operational and regulatory requirements.
This is subject to certain conditions, including that AMCs have internal policies approved by their respective boards and directors. Internal policies should ensure that adequate operational processes and internal controls are in place to separate and contain the assets and liabilities of each plan. In addition, there should be segregation and separation of securities and bank accounts.
Pool accounts for securities and funds should have a zero balance at the end of the day.
In the event that funds in the mutual fund bank account are not identified for reasons beyond the control of an AMC, they will be transferred to the respective system account no later than one working day from the identification of these transactions.
At no time will securities or funds from one plan be used for other plans.
Responsibility for ensuring the segregation and segregation of the assets and liabilities of each plan as well as that of bank and securities accounts will rest with an AMC’s board of directors and trustees, according to Sebi.
In their semi-annual report submitted to Sebi, the trustees of an AMC will confirm that the assets and liabilities of each plan as well as their bank accounts and securities accounts are segregated and restricted on a daily basis, with the exception of unidentified fund transactions during the period. the semester period.
The entire system will be audited every six months by the statutory auditor appointed by the trustees.
“Overnight funds can deploy, without exceeding, 5% of the plan’s net assets in G-secs and / or Treasury bills with a residual maturity of up to 30 days with the aim of placing the same as margin and collateral for some transactions, ”Sebi said.
In addition, Sebi has published standards for investments in the Bills Re Discounting Scheme (BRDS).
Sebi said the single issuer limit and group exposure limit will be calculated at the issuing bank level, as BRDSs are issued with recourse to the issuing bank.
In addition, he noted that investment in BRDS through mutual fund loan programs will be considered exposure to the financial services sector for the purposes of sector exposure limits.
Under the rule, investments in unrated debt and money market instruments, other than government securities, treasury bills, derivatives such as interest rate swaps (IRS), Interest Rate Futures Contracts (IRF), can only be made in instruments such as rediscount bills and usury invoices. These are generally not rated and for which separate investment standards are not provided for in the regulation of mutual funds.
In addition, the exposure of mutual funds to such instruments will not exceed 5 percent of the net assets of the funds.
Sebi said those standards would come into effect from the 30th day of the circular, which was used on Friday.
The risk management framework for UCIs, the implementation of which is now extended until April 1, 2022, includes certain mandatory and recommendable elements. AMCs should conduct a self-assessment of their risk management framework and practices and submit a report to Sebi along with the roadmap for its implementation.
Regarding the two-tier structure for benchmarking certain categories of plans, Sebi had said that the first benchmark would reflect the category of the system and the second benchmark would demonstrate the investment style / strategy. of the fund manager within the category.
The second tier benchmark is optional and will be decided by the AMCs depending on the investment style / strategy of the index.
The implementation of benchmarking requirements has also been extended until April 1, 2022.
The new benchmarking guidelines will apply to programs such as debt-focused funds, equities, hybrids and solutions, thematic funds, index funds and exchange-traded funds (ETFs) and funds of funds. (FoF).