Chapter I

Executive Summary
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments and other securities. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc. Currently, the worldwide value of all mutual funds totals more than $US 26 trillion. There are various investment avenues available to an investor such as real estate, bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of Investment Avenue available to investors. There are many reasons why investors prefer mutual funds. Buying shares directly from the market is one way of investing. But this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company, finding out the track record of the promoters and the dividend, bonus issue history of the company etc. An informed investor needs to do research before investing. However, many investors find it cumbersome and time consuming to pore over so much of information, get access to so much of details before investing in the shares. Investors therefore prefer the mutual fund route. They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks and shares after due analysis and research. The investor need not bother with researching hundreds of stocks. It leaves it to the mutual fund and its professional fund management team. Another reason why investors prefer mutual funds is because mutual funds offer diversification. An investors money is invested by the mutual fund in a variety of shares, bonds and other securities thus diversifying the investors portfolio across different companies and sectors. This diversification helps in reducing the overall risk of the portfolio. It is also less expensive to invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low (Rs. 500 or so). With Rs. 500 an investor may be able to buy only a few stocks and not get the desired diversification. These

are some of the reasons why mutual funds have gained in popularity over the years Mutual Funds in India follow a 3-tier structure. There is a Sponsor (the First tier), who thinks of starting a mutual fund. The Sponsor approaches the Securities & Exchange Board of India (SEBI), which is the market regulator and also the regulator for mutual funds. Not everyone can start a mutual fund. SEBI checks whether the person is of integrity, whether he has enough experience in the financial sector, his net worth etc. Once SEBI is convinced, the sponsor creates a Public Trust (the Second tier) as per the Indian Trusts Act, 1882. Trusts have no legal identity in India and cannot enter into contracts, hence the Trustees are the people authorized to act on behalf of the Trust. Contracts are entered into in the name of the Trustees. Once the Trust is created, it is registered with SEBI after which this trust is known as the mutual fund. The aim of this project is to understand the compliance perspective of mutual fund industry. The research is based on secondary data collected from the official website of various regulatory bodies.

Introduction to Mutual Funds

OVERVIEW OF MUTUAL FUND INDUSTRY IN INDIA The Indian financial system is based on four basic components like Financial Market, Financial Institutions, Financial Service, Financial Instruments. All play important roles for smooth activities for the transfer of the funds and allocation of the funds. The main aim of the Indian financial system is to channelize savings from sources (households, societies etc) to users of such funds (Government, business houses), thereby ensuring efficient functioning of the financial markets. The Indian capital market has been growing tremendously during the second generation reforms. The first generation reforms started in 1991 under the concept of LPG. (Liberalization, privatization, Globalization) Then after 1997 second generation reforms were started, which are continuing and includes reforms of industrial investment, fiscal policy, ex- imp policy, public sector, financial sector, foreign investment through the institutional investors, banking sectors. The

economic development model adopted by India in the post independence era has been characterized by mixed economy with the public sector playing a dominant role and the activities in private industrial sector control measures emaciated from time to time. The last two decades have seen a phenomenal expansion in the geographical spread and the dynamics of our financial system. The spared of the banking system has been a major factor in promoting financial intermediation in the economy and in the growth of financial savings with progressive liberalization of economic policies, there has been a rapid growth of capital market, money market and financial services industry including merchant banking, leasing and venture capital, leasing, hire purchasing. Various instruments/investment options available for channelizing savings from households, cooperative societies etc into financial markets. What is a Mutual Fund? Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. TYPES OF MUTUAL FUNDS:

Wide variety of mutual funds exits to carter to the needs such as financial positions, risk tolerance and return expectations etc. The table below gives an overview into the existing types of scheme in the industry

By Structure

Open Ended Funds

Close Ended Funds Interval Funds

By Investment Objectives

Growth Funds

Income Funds Balanced Funds Money Market Funds

Other Schemes

Special Funds Index Funds Sector Specific Funds Tax Saving Funds

ADVANTAGES OF MUTUAL FUNDS: Portfolio Diversification: Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).

Professional Management: Fund manager peruses various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own. Low Transaction Costs: Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. Liquidity: An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid. Transparency: Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. Flexibility: Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.

DISADVANTAGES OF MUTUAL FUNDS: Mutual Fund investments are subject to market risks. Though the fund manager strives to achieve the investment objectives of the scheme, it is not assured that the objectives may be achieved. Costs Control Not in the Hands of an Investor: Investor has to pay investment management fees and other expenses as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund. These expenses are disclosed to the investors in the offer documents of the scheme.

No Customized Portfolios: The portfolio of securities in which a scheme invests is a decision taken by the fund manager in accordance with the investment objectiveof the scheme. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. Difficulty in Selecting a Suitable Fund Scheme: Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

Source: http://www.amfiindia.com

Role of Regulators:
Role of AMFI: The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and
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maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unit holders. AMFI stipulates Best practices guidelines on every aspects of functioning of mutual funds with a view to improve investor confidence. Following are Assets Management Companies in India Name of the Asset Management Website

Company Axis Asset Management Company Ltd. Baroda Pioneer Asset Management www.axismf.com www.barodapioneer.in

Company Limited Birla Sun Life Asset Management

Company Limited BNP Paribas Asset Management India Private Limited BOI AXA Investment Managers Private Limited Canara Robeco Asset Management

www.birlasunlife.com

www.bnpparibasmf.in

www.boiaxa-im.com

Company Limited Daiwa Asset Management (India) Private Limited Deutsche Asset Management (India) Pvt. Ltd. DSP BlackRock Investment Managers

www.canararobeco.com

www.daiwafunds.in

www.dws-india.com

Private Limited Edelweiss Asset Management Limited Escorts Asset Management Limited Franklin Templeton Asset Management (India) Private Limited

www.dspblackrock.com www.edelweissmf.com www.escortsmutual.com www.franklintempletonindia.com

Goldman Sachs Asset Management (India) www.gsam.in

Private Limited HDFC Limited HSBC Asset Management (India) Private Ltd. ICICI Prudential Asset Mgmt.Company Limited IDBI Asset Management Ltd. IDFC Limited IL&FS Infra Asset Management Limited India Infoline Asset Management Co. Ltd. Indiabulls Asset Management Company Ltd. ING Investment Management (India) Pvt. Ltd. JM Financial Asset Management Private Limited JPMorgan Asset Management India Pvt. Ltd. Kotak Mahindra Asset Management Asset Management Company Asset Management Company
www.hdfcfund.com

www.assetmanagement.hsbc.com/in

www.icicipruamc.com www.idbimutual.co.in www.idfcmf.com www.ilfsinfrafund.com www.iiflmf.com www.indiabullsmf.com

www.ingim.co.in

www.jmfinancialmf.com

www.jpmorganmf.com

Company Limited(KMAMCL) L&T Investment Management Limited LIC NOMURA Mutual Fund Asset

www.kotakmutual.com www.lntmf.com www.licnomuramf.com

Management Company Limited Mirae Asset Global Investments (India) Pvt. Ltd. Morgan Stanley Investment Management Pvt.Ltd.

www.miraeassetmf.co.in

www.morganstanley.com/indiamf

Motilal

Oswal

Asset

Management

Company Limited Peerless Funds Management Co. Ltd. PineBridge Investments Asset Management Company (India) Pvt. Ltd. PPFAS Asset Management Pvt. Ltd. Pramerica Asset Managers Private Limited Principal Pnb Asset Management Co. Pvt. Ltd. Quantum Asset Management Company Private Limited Reliance Capital Asset Management Ltd. Religare Invesco Asset Management

www.motilaloswal.com/assetmanagement/ www.peerlessmf.co.in www.pinebridge.in www.amc.ppfas.com www.pramericamf.com www.principalindia.com

www.QuantumAMC.com www.reliancemutual.com www.religareinvesco.com

Company Private Limited Sahara Asset Management Company

Private Limited SBI Funds Management Private Limited Sundaram Asset Management Company Limited Tata Asset Management Limited Taurus Limited Union KBC Asset Management Company Private Limited UTI Asset Management Company Ltd Asset Management Company

www.saharamutual.com www.sbimf.com www.sundarammutual.com www.tatamutualfund.com www.taurusmutualfund.com

www.unionkbc.com www.utimf.com

Tax Planning and Mutual Fund:

The information furnished below outlines briefly the key tax implications applicable to the unit holders of the Scheme and to the Mutual Fund and based on relevant provisions of the Income Tax Act, 1961, Wealth Tax Act, 1957 and Gift Tax Act, 1958 (collectively called the relevant provisions). The information given is included only for general purpose and is based on advice received by the AMC regarding the law and practice currently in force in India and the Investors/Unit holders should be aware that the relevant fiscal rules or their explanation may change. As is the case with any investment, there can be no assurance that the tax position or the proposed tax position prevailing at the time of an investment in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each Investor / Unit holder is advised to consult his / her own professional tax advisor. Tax Benefits to the Mutual Fund IDBI Mutual Fund is a Mutual Fund registered with the Securities & Exchange Board of India and hence the entire income of the Mutual Fund will be exempt from income tax in accordance with the provisions of Section 10(23D) of the Income-tax Act, 1961, (the Act). The Mutual Fund will receive all income without any deduction of tax at source under the provisions of Section 196(iv) of the Act. An exemption has been granted under the Finance (No.2) Act, 2004 to open ended equity oriented mutual funds from paying distribution tax on income distributed without any time limit, effective from 1 April 2004. Role of SEBI SEBI is the apex and the governing body of the Mutual Fund. SEBI has laid down the norms and regulation for smooth functioning Role of RBI

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Company ProfileIDBI Asset Management Limited, a company registered under the Companies Act, 1956 was appointed by the Trustees to act as the Investment Manager of IDBI Mutual Fund. IDBI Asset Management Company (IDBI AMC) was incorporated on 25th January 2010. The Mutual Fund entered into an Investment Management Agreement (IMA) with IDBI AMC dated 20th Feb. 2010. IDBI Mutual Fund has the Average Asset under Management (AAUM) of Rs. 6,350.05 crores (AAUM for 31/03/2013) and investor base of over 1,10,000. Sponsors: IDBI Bank Ltd. IDBI AMC is sponsored by the IDBI Bank Limited & IDBI Capital Market Services Ltd. (Co sponsor, wholly owned subsidiary of IDBI Bank Ltd.). The Sponsor is the Settlor of the Mutual Fund Trust. The IDBI Bank Ltd has entrusted a sum of Rs.10 Lakhs to the Trustee as the initial contribution towards the corpus of the Mutual Fund. For over 40 years, IDBI Bank Ltd. has essayed a key nation building role first as the apex Development Financial Institution (DFI) in the realm of industry and now as a full-service commercial bank. The Industrial Development Bank of India (IDBI) was established by an Act of Parliament in 1964 as a wholly-owned subsidiary of Reserve Bank of India to catalyze the development of a diversified and efficient industrial structure in the country in tune with national priorities. The 100% ownership was transferred from RBI to the Government of India in 1976. On October 1, 2004, IDBI was converted into a banking company to undertake the entire gamut of banking activities while continuing to play its secular DFI role. In 2005, IDBI merged its banking subsidiary (IDBI Bank Ltd.) with itself with the appointed date of merger fixed as 1 October, 2004. Post the October 2004 merger, IDBI Bank Ltd. is now a universal bank. As of 31st March 2013, the majority shareholder in the Bank is the Government of India (71.72%) with the balance being widely held by general public and institutional investors. The Bank currently has 1077

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branches across India.IDBI Bank has adopted a strategy of developing a larger client base in the mid-corporate, SME and retail sectors, while nurturing the deep relationships that already exist in the large corporate sector. The key business segments that IDBI Bank focuses primarily on are Corporate Banking, Retail Banking, Infrastructure Financing, Small and Medium Enterprises (SME), Agriculture and Microfinance and Treasury. As of 31st March 2013, the balance sheet size of the Bank is Rs. 3.23 lakh crores with a total business of Rs. 4.23 lakh crores of which Deposits constitute Rs. 2.27 lakh crores and Advances constitute Rs. 1.96 lakh crores.

IDBI Capital Market Services Ltd: IDBI Asset Management Limited, the Asset Management Company of IDBI Mutual Fund is co sponsored by IDBI Capital Market Services Ltd. (wholly owned subsidiary of IDBI Bank Ltd.) IDBI Capital offers a full suite of products and services to Corporate, Institutional and Individual clients ranging from Investment Banking, Capital Market Products, Private Equity, Corporate Advisory Services, Mergers & Acquisitions, Debt Syndication, Stock Broking- Institutional & Retail, Distribution of Financial Products, Fund Management etc. Mission of IDBI Mutual Fund:
To

promote financial inclusion, by assisting the common man in making informed

investment choices, through mutual funds and thus bring to him, the prosperity of the capital markets. Trustees: IDBI MF Trustee Company Limited, incorporated on 25th January, 2010 under the Companies Act, 1956, has been appointed as the Trustee of IDBI Mutual Fund by the sponsor. The Trustee company has entered into an investment management agreement with IDBI AMC.

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Product Profile:Funds of IDBI under Equity/Growth Scheme:

IDBI Rajiv Gandhi Equity Savings Scheme (RGESS): (A close-ended growth scheme offering income tax benefits.)The primary investment

objective of the scheme is to generate opportunities for growth while providing

income tax benefits under Section 80CCG of the IT Act, 1961 by active management of portfolio investing predominantly in RGESS eligible equity. IDBI India Top 100 Equity Fund: (An open-ended growth scheme.)The primary investment objective of the scheme is to provide investors with opportunities for long-term growth in capital through active management of a diversified basket of equity stocks, debt and money market instruments. The investment universe of the scheme will be restricted to equity stocks and equity related instruments of companies that are constituents of the CNX Nifty Index (Nifty 50) and the CNX Nifty Junior Index comprising a total of 100 stocks. These two indices are collectively referred to as the CNX 100 Index. The equity portfolio will be well-diversified and actively managed to realize the Scheme objective. IDBI Nifty Junior Index Fund: (An open - ended passively managed equity scheme tracking the CNX Nifty Junior Index.) The primary investment objective of the scheme is to invest only in and all the stocks comprising the CNX Nifty Junior Index in the same weights of these stocks as in the Index with the objective to replicate the performance of the Total Returns Index of CNX Nifty Junior index. The scheme may also invest in derivatives instruments such as Futures and Options linked to stocks comprising the Index or linked to the CNX Nifty Junior index as and when the derivative products on the same are made available. The scheme will adopt a passive investment strategy and will seek to achieve the investment objective by

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minimizing the tracking error between the CNX Nifty Junior index (Total Returns Index) and the Scheme. IDBI Nifty Index: (An open - ended passively managed equity scheme tracking the CNX Nifty Index.) The investment objective of the scheme is to invest only in and all the stocks comprising the CNX Nifty Index in the same weights of these stocks as in the Index with the objective to replicate the performance of the Total Returns Index of CNX Nifty index. The scheme may also invest in derivatives instruments such as Futures and Options linked to stocks comprising the Index or linked to the CNX Nifty index. The scheme will adopt a passive investment strategy and will seek to achieve the investment objective by minimizing the tracking error between the CNX Nifty index (Total Returns Index) and the Scheme.

Funds of IDBI under Debt/Liquid Schemes:IDBI Fixed Maturity Plan Series (A closed-ended debt scheme offering Plans of tenor from 30 Days to 60 Months). The investment objective for each Plan(s) under the Scheme will be to generate income through investments in Debt and Money Market Instruments. In accordance with SEBI Circular No SEBI/IMD/ CIR No. 12/147132/08 dated December 11, 2008 each Plan shall invest only in such securities which mature on or before the maturity date of the respective plan. Current Series III is being managed by AMC. IDBI Gilt Fund(An open-ended dedicated Gilt scheme.)The investment objective of the scheme is

toprovide regular income along with opportunities for capital appreciation through investments in a diversified basket of central government dated securities, state government securities and treasury bills. IDBI Dynamic Bond Fund-

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The investment objective of the scheme is to generate income while maintaining liquidity through active management of a portfolio comprising of debt and money market instruments. IDBI Short Term Bond Fund(An open-ended debt scheme.)The investment objective of the scheme is to provide investors with regular income for their investment. The Scheme will endeavour to achieve this objective through an allocation of the investment corpus in a diversified portfolio of debt and money market instruments.

IDBI Monthly Income Plan(An open ended Income Scheme.) The investment objective of the scheme is to provide regular income along with opportunities for capital appreciation through investments in a diversified basket of debt instruments, equity and money market instruments. IDBI Ultra Short Term Fund(An open-ended debt scheme.)The investment objective of the scheme is to provide investors with regular income for their investment. The Scheme will endeavour to achieve this objective through an allocation of the investment corpus in a diversified portfolio of money market and debt instruments with maturity predominantly between a liquid fund and a short term fund while maintaining a portfolio risk profile similar to a liquid fund.

IDBI Liquid Fund(An open-ended liquid scheme.)The investment objective of the scheme is to provide investors with high level of liquidity along with regular income for their investment. The Scheme will endeavour to achieve this objective through an allocation of the investment corpus in a low risk portfolio of money market and debt instruments.
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Funds of IDBI under Gold:IDBI Gold FundThe investment objective of the scheme will be to generate returns that correspond closely to the returns generated by IDBI Gold Exchange Traded Fund IDBI Gold Exchange Traded Fund (ETF)(An open-ended gold exchange traded scheme.) The investment objective of the scheme to invest in physical gold with the objective to replicate the performance of gold in domestic prices. The ETF will adopt a passive investment strategy and will seek to achieve the investment objective by minimizing the tracking error between the Fund and the underlying asset.

Chapter II
OBJECTIVE OF THE PROJECTThe objective of the project is to study in detail the regulations governing mutual fund industry in India which are stipulated by SEBI, RBI and other regulators and how these guidelines are implemented by the compliance department. The main objectives of the project are To study governance norms of Mutual Funds in India. To study the how these regulations are implemented by the compliance department of Asset Management Company.

Methodology

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Secondary DataIt is the data which is already collected by someone else. Researcher has to analyze the data and interprets the results. It has always been important for the completion of any report. It provides reliable, suitable, adequate and specific knowledge. The required data for the study are basically secondary in nature and the data are collected post studying & analyzing the rules and regulations available on the official websites of the regulatory bodies of different countries such as Securities and Exchange Board of India Association of Mutual Funds in India Reserve Bank of India

Chapter III
Analysis &Findings SEBI Guidelines for Mutual Funds
OFFER DOCUMENT FOR SCHEMESThe Offer Document shall have two parts i.e. Scheme Information Document (SID) and Statement of Additional Information (SAI). SID shall incorporate all information pertaining to a particular scheme. SAI shall incorporate all statutory information on Mutual Fund.

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Filing of Draft SID: Draft SID of schemes of Mutual Funds filed with the Board shall also be available on SEBIs website www.sebi.gov.in for 21 working days from the date of filing.

Filing of Final SID: Final SID (after incorporating comments of the Board) must reach the Board before it is issued for circulation. Soft copy of the final SID in PDF format along with a printed copy should be filed with Board two working days prior to the launch of the scheme. AMC shall also submit an undertaking to the Board while filing the soft copy that information contained in the soft copy of SID to be uploaded on SEBI website is current and relevant and matches exactly with the contents of the hard copy and that the AMC is fully responsible for the contents of the soft copy of SID. The soft copy of SID should also be uploaded on AMFI website two working days prior to launch of the scheme. Failure to submit the printed SID to the Board before it is issued for circulation shall invite penalties under the Mutual Funds Regulations

Updation of SID & SAI:

Updation of SID: For the schemes launched in the first half of a financial year, the SID shall be updated within 3 months from the end of the financial year. However, for the schemes launched in the second half of a financial year, SID shall be updated within 3 months of the end of the subsequent financial year. (For example, for a scheme launched in May, 2008 the SID shall be updated by June 30, 2009 and for a scheme launched in December 2008, the SID shall be updated by June 30, 2010) Thereafter, the SID shall be updated once every year. A copy of all changes made to the scheme shall be filed with Board within 7 days of the change. A soft copy of updated SID shall be filed with Board in PDF Format along with printed copy of the same. AMC shall also submit an undertaking to the Board while filing the soft copy that information contained in the soft copy of
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Updation of SAI: A printed copy of SAI shall be made available to the investor(s) on request. SAI shall be updated within 3 months from end of financial year and filed with SEBI. Any material changes in the SAI shall be made on an ongoing basis by way of updation on the Mutual Fund and AMFI website. SEBI shall be intimated of the changes made in the SAI within 7 days. The effective date for such changes shall be mentioned in the updated SAI.

Validity of SEBI Observations on SID: The AMCs shall file their replies to the modifications suggested by SEBI on SID as required under Regulation 29 (2), if any, within six months from the date of the letter. In case of lapse of six-month period, the AMC shall be required to refile the SID along with filing fees. The scheme shall be launched within six months from the date of the issuance of final observations from SEBI. If the AMC intends to launch the scheme at a date later than six months, it shall refile the SID with SEBI under Regulation 28 (1) along with filing fees.

Consolidation of Schemes & Launch of Additional plans

Consolidation of Schemes:

Any consolidation or merger of Mutual Fund schemes will be treated as a change in the fundamental attributes of the related schemes and Mutual Funds shall be required to comply with the Mutual Funds Regulations in this regard Further, in order to ensure that all important disclosures are made to the investors of the schemes sought to be

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consolidated or merged and their interests are protected; Mutual Funds shall take the following steps Approval by the Board of the AMC and Trustees- The proposal and modalities of the consolidation or merger shall be approved by the Board of the AMC and Trustee(s), after they ensure that the interest of unit holders under all the concerned schemes have been protected in the said proposal

Disclosures- Subsequent to approval from the Board of the AMC and Trustees Mutual Funds shall file the proposal with the Board, along with the draft SID, requisite fees (if a new scheme emerges after such consolidation or merger) and draft of the letter to be issued to the unit holders of all the concerned schemes. The letter addressed to the unit holders, giving them the option to exit at prevailing NAV without charging exit load, shall disclose all relevant information enabling them to take well informed decisions.

Updating of SID- It shall be as per the requirements for change in fundamental attribute of the scheme

Maintenance of Records- AMC(s) shall maintain records of dispatch of the letters to the unit holders and the responses received from them. A report giving information on total number of unit holders in the schemes and their net assets, number of unit holders who opted to exit and net assets held by them and number of unit holders and net assets in the consolidated scheme shall be filed with the Board within 21 days from the date of closure of the exit option

Merger or consolidation shall not be seen as change in fundamental attribute of the surviving scheme if the following conditions are met

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Fundamental attributes42 of the surviving scheme do not change. The surviving scheme means the scheme which remains in existence after the merger.

Mutual Funds are able to demonstrate that the circumstances merit merger or consolidation of schemes and the interest of the unitholders of surviving scheme is not adversely affected.

After approval by the Boards of AMCs and Trustees, the mutual funds shall file such proposal with SEBI. SEBI would communicate its observations on the proposal within the time period prescribed.

The letter to unit holders shall be issued only after the final observations communicated by SEBI have been incorporated and final copies of the same have been filed with SEBI.

Launch of Additional plans:

Additional plans sought to be launched under existing open ended schemes which differ substantially from that scheme in terms of portfolio or other characteristics shall be launched as separate schemes in accordance with the regulatory provisions. However, plan(s) which are consistent with the characteristics of the scheme may be launched as additional plans as part of existing schemes by issuing an addendum. Such proposal should be approved by the Board(s) of AMC and Trustees. In this regard please note that the addendum shall contain information pertaining to salient features like applicable entry/exit loads, expenses or such other details which in the opinion of the AMC/ Trustees is material. The addendum shall be filed with SEBI 21 days in advance of opening of plans. AMC(s) shall publish an advertisement or issue a press release at the time of launch of such additional plan(s).

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Gold Exchange Traded Fund SchemeA Gold Exchange Traded Fund (GETF) Scheme shall invest primarily in Gold and Gold related instruments. However investments in gold related instruments shall be done only after such instruments are specified by the Board.

Valuation- Gold shall be valued based on the methodology provided in Clause 3A of, Schedule Eight of the Mutual Funds Regulations.

Determination of Net Asset Value- The NAV of units under the GETF Scheme shall be calculated up to four decimal points as shown below:

Market or Fair Value of Scheme's investments + Current Assets Current Liabilities and Provision NAV (in rupees terms) = ______________________________________________

Number of Units outstanding under Scheme on the Valuation Date Recurring Expenses- The recurring expenses limits applicable to equity schemes shall be applicable to GETF Schemes.

Benchmarks for GETF Scheme- GETF Scheme(s) shall be benchmarked against the price of gold.

Half yearly report by Trustees-Physical verification of gold underlying the Gold ETF units shall be carried out by statutory auditors of mutual fund schemes and reported to

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trustees on half yearly basis. The confirmation on physical verification of gold as above shall also form part of half yearly report by trustees to SEBI.

RISK MANAGEMENT SYSTEM

An Operating Manual70 for Risk Management has been developed to ensure minimum standards of due diligence and Risk Management Systems for all the Mutual Funds in various operational areas (for e.g. Fund Management, Operations, Customer Service, Marketing and Distribution, Disaster Recovery and Business Contingency, etc.)

The Risk Management practices covered in the Operating Manual are under three categories as detailed below:

Existing Industry Practices- Under each head of risk, the Manual covers the exemplary practices followed by some / most of Mutual Funds in India. However, the extent and degree of observance of these practices differs among the Mutual Funds. Mutual Funds shall accordingly develop their systems and follow these practices.

Practices to be followed on Mandatory Basis- Mutual Funds shall follow the practices which have been indicated as mandatory in the operating manual. These are Risk Management function that shall be assigned to Compliance Officer or Internal Risk Management Committee or to an external agency a. Disaster Recovery and Business Contingency plans, and insurance cover against certain risks.

Best Practices to be followed by Mutual Funds-Mutual Funds shall adopt these practices as a part of their due diligence exercise after considering the size of their operations.

Implementation of the Risk Management System

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Mutual Funds shall adopt the following approach to implement the Risk Management System:

Identification of observance of each recommendation- Mutual Funds shall identify areas of current adherence as well as non-adherence of various Risk Management practices under each of the aforesaid three categories. They shall examine the areas where development or improvement of systems is required. After identifying the same, Mutual Funds shall review the progress made on implementation of the systems on a monthly basis and place the progress report in periodical meetings of the Board of the AMC and Trustees.

Review of Progress of implementation by Board of AMC and Trustee(s):The Board of the AMC and Trustee(s) shall review the progress made by the Mutual Funds with regard to Risk Management practices and the same shall be reported to the Board at the time of sending CTR(s) and Half Yearly Trustee Reports.

Review by Internal Auditors-The review of Risk Management Systems shall be a part of internal audit and the auditors shall check their adequacy on a continuing basis. Their reports shall be placed before the Board of the AMC and Trustee(s) who shall comment on the adequacy of systems in the CTRs and Half Yearly Reports filed with the Board.

Disclosures& Reporting Norms

Disclosures:

Half Yearly disclosure of Portfolios: Mutual Funds shall send a complete statement of Scheme Portfolio to the unit holders before the expiry of one month from the closure of each Half Year (i.e. March 31 and

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September 30), if such statement is not published by way of advertisement. The Scheme Portfolio(s) shall also be disclosed on the Mutual Funds web sites before the expiry of one month from the closure of each Half Year (i.e. March 31 and September 30) and a copy of the same shall be filed with the Board along with the Half Yearly Results.

Unaudited Half Yearly Financials: The publication of the unaudited half-yearly results in news paper and websites shall be made in the format prescribed in Twelfth Schedule in line with provisions of the Regulations. The half yearly results must be published before the expiry of one month from the close of each half year. Copies of the advertisements carrying the results must be filed with SEBI within 7 days from the date of publication.

Disclosure of large unit holdings: The number of investors holding over 25 % of the NAV85 in a scheme and their total holdings in percentage terms shall be disclosed in the Statement of Accounts issued after the NFO and also in the Half Yearly and Annual Results.

Portfolio disclosure for debt oriented close-ended and interval schemes/plans: AMCs shall disclose the portfolio of such schemes in the prescribed format on a monthly basis on their respective websites. The said disclosure of the portfolio as on the last day of the month shall be made on or before 3rd working day of succeeding month. For example, portfolio as of March 31, 2009 shall be disclosed by April 04, 2009 - April 3, 2009 being a non working day.

Asset Under Management (AUM) disclosure: Wherever the Mutual Funds discloses the AUM figures for the fund, disclosure on bifurcation of the AUM into debt/equity/ balanced etc, and percentage of AUM by geography (i.e. top 5 cities, next 10 cities, next 20 cities, next 75 cities and others) shall be
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made. The Mutual Funds shall disclose the aforesaid data on their respective websites & to AMFI and AMFI shall disclose industry wide figures on its website.

Commission disclosure: Mutual Funds / AMCs shall disclose on their respective websites the total commission and expenses paid to distributors who satisfy one or more of the following conditions with respect to non-institutional (retail and HNI) investors Multiple point of presence (More than 20 locations) AUM raised over 100 crore across industry in the non institutional category but including high net worth individuals (HNIs). Commission received of over 1 crore p.a. across industry Commission received of over 50 lakhs from a single Mutual Fund/AMC. Mutual Funds / AMCs shall also submit the above data to AMFI. AMFI shall disclose the consolidated data in this regard on its website.

Annual report of the AMC: Annual report containing accounts of the asset management companies should be displayed on the website of the mutual funds. It should also be mentioned in the annual report of the mutual fund schemes that the unit holders, if they so desire, may request for a copy of the annual report of the asset management company.

Submission of bio data of key personnel: AMCs are required to submit the bio data of all key personnel to Trustees and the Board. For this purpose, key personnel would be the Chief Executive Officer (CEO), fund manager(s), dealer(s) & heads of other departments of the AMC.

Disclosure of investor complaints with respect to Mutual Funds: Mutual Funds shall disclose on their websites, on the AMFI website as well as in their Annual Reports, details of investor complaints received by them from all sources. The said
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details should be vetted and signed off by the Trustees of the concerned Mutual Fund. The Mutual Funds are advised to: Upload the report for the year 2009-10 by June 30, 2010. Upload the report for the following financial years within 2 months of the close of the financial year. Include the report in their annual reports, as part of the Report of the Trustees, beginning with the annual report for the year 2009-10.

Brokerage and commission paid to associates: Regulations mandate payment of brokerage or commission if any, to the sponsor or any of its associates, employees or their relatives. Disclosures on brokerage and commission paid to associates/related parties/group companies of sponsor/Asset Management Company in the unaudited half yearly financial results, the abridged scheme wise annual report and the SAI, shall be made in the format as prescribed.

REPORTS-

Monthly Cumulative Report (MCR): Date and Mode of Submission- MCR shall be submitted to the Board by 3rd of each month by way of an email. Hard copy should also be sent by hand delivery/courier.

Other Guidelines- Details of the new schemes launched shall be reported in the MCR for the month in which the allotment is done. For example, if an NFO closes in the month of July and the allotment is done in the month of August, then, the details of the new scheme shall be reported in the MCR for the month of August
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that will reach SEBI by 3rd of September. Further, additional report on overseas investment101 by Mutual Funds in ADRs/GDRs, foreign securities and overseas exchange traded funds (ETFs) shall also be provided. Compliance officers of all the Mutual Funds are advised to take due care while forwarding the MCR data to SEBI. Compliance Officers shall confirm that the data forwarded is correct and does not require any revision.

New Scheme Report (NSR): All Mutual Funds shall submit the NSR to SEBI complete in all respects within 10 working days from the date of allotment. Bimonthly Compliance Test Reports: AMCs shall do exception reporting on a bi-monthly basis. AMCs are required to report only exceptions in the CTR to SEBI, i.e. AMCs shall report for only those points in the CTR where they have not complied with the same. The details sought in the annexure of the CTR shall be furnished to the Board in case of non-compliance only along with exception report. This exception report shall also be placed before the Trustee(s). The CTRs should be submitted by the AMC to the Board once in every two months so as to reach within 21 days of completion of the two months period. As a compliance of SEBI Regulations is a continuous process, AMCs are advised to incorporate the modifications/additions under the relevant sections of the format, based on amendments to the Regulations/guidelines issued in the future from time to time.

Annual Statistical Report (ASR): AMC should submit the annual statistical report to SEBI in the prescribed format by 30th of April each year.

Daily Transaction Report: All Mutual Funds shall submit details of transactions in secondary
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market on daily basis. Accordingly, Mutual Funds are advised to make necessary arrangements with their custodians for the submission of reports on a daily basis. The report is to be submitted to the Board in both hard as well as soft copy. It must be ensured by the compliance officers of the custodians as well as that of Mutual Funds that the information submitted is correct and reaches the Board by 3.00 p.m. on the following working day (T+1).

Responsibilities of AMC(s) and Trustees: All information and documents relating to the compliance process shall be authenticated and/or adopted by the Board of the AMC(s) to strengthen the compliance mechanism. The Trustee(s) shall also review all information and documents received from the AMC(s) as required under the compliance process. The half-yearly report on the activities of the mutual fund to be submitted by the trustees to the Board under the Mutual Funds Regulations112 shall cover all issues mentioned in the prescribed format as well as any other issue relevant to the operation of the Mutual Fund. The Trustees may mention in their report, if they so desire, that they have relied on the reports obtained from the independent auditor or internal/ statutory auditors or the Compliance Officer as the case may be. The report shall mention that the Trustees have satisfied themselves about the adequacy of compliance systems in the Mutual Fund. AMC(s) and the Trustees shall update the reporting formats including relevant provisions of amendments made to the Mutual Funds Regulations and/or guidelines and/or circulars issued by the Board and shall specifically comment on their compliance.

Filing of Annual Information Return by Mutual Funds: Mutual Funds are required to submit the Annual Information Return under section 285 BA in the Income-tax Act. As per this requirement, Trustees of Mutual Funds or such other person managing the affairs of the Mutual Funds (as may be duly authorized by the trustees in this behalf) have to report specified financial transactions in electronic media to Income Tax
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Department giving PAN of the transacting parties in an Annual Information Return (AIR).

GOVERNANCE NORMS
FUND GOVERNANCE:

Formation of Audit Committee by the Trustees and/or AMC: Trustees shall constitute an audit committee, comprising of the Trustees and chaired by an Independent Trustee to review the internal audit systems and recommendations of the internal and statutory audit reports and ensure that the rectifications as suggested by internal and external auditors are acted upon.

Formation of Valuation Committee by the Trustees and/or AMC: The AMC shall constitute an in-house valuation committee consisting of senior executives including personnel from accounts, fund management and compliance departments. This committee shall, on a regular basis review the systems and practices of valuation of securities.

Review and Reporting of Transactions:

Reporting of transactions: Directors of the AMC shall file with the trustees on a quarterly basis details of transactions in securities exceeding 1 lakhs. Trustees are required to report to Mutual Funds only those transactions in securities that exceed 1 lakhs in value.

Review of transactions: Trustees shall review all transactions of the Mutual Fund with the associates as defined below on a regular basis and ensure that Regulations are complied with.

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Role of Independent Director on the Board of the AMC and Independent TrusteesAn Independent Trustee shall not be associated in any manner with the Sponsors. The independent directors on the Board of the AMC shall not be associate of, or associated in any manner with, the sponsor or any of its subsidiaries or the trustees. An associate shall be defined as: Relatives of Sponsor(s) or directors of the Sponsor Company or relatives of Associate Directors of the AMC(s) and Trustee. Persons providing any type of professional service to the Mutual Funds, the AMC and the Trustees and the Sponsor(s). Also, persons having a material pecuniary relationship with the above mentioned entities that may, in the judgment of the Trustees, affect their independence. Nominees of the companies who are stakeholders in the Sponsor company or AMCs (even if they are not deemed sponsors by virtue of holding less than 40% of net worth of AMCs).

Cooling off PeriodAn Associate as defined above cannot be appointed as Independent Director even after he ceases to be an Associate unless a cooling off period of three years has elapsed from the date of his disassociation. For example, An employee of the Sponsors or their associate companies or AMCs or Trustees resigns on December 1, 2001 then he cannot be appointed as an Independent Director till December 1, 2004. During this intervening period, he can be appointed only as Associate Director. However, if he is taken as an Associate Director, say on December 2, 2001, then he cannot be considered as Independent from December 2, 2004. There must be a cooling off period of 3 years from the date he ceases to be an Associate Director.

Mutual Funds are required to have a minimum of 50 per cent. And two-third independent directors on the Board of the AMC(s) and Trustees respectively. In case the composition of the directors does not meet these requirements, Mutual Funds are required to inform the Board along with the steps proposed to ensure compliance.
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AMC(s) or Trustees shall appoint Independent Directors in place of the resigning director(s) within a period of 3 months from the date of resignation. Where Mutual Funds are unable to meet this time limit, they shall report to the Board explaining the reasons for non compliance. Mutual Funds may maintain a panel of eligible persons who can be appointed as Independent Directors as and when required. They may also consider appointing more than the required minimum number of Independent Directors to enhance the standards of corporate governance and also to meet the regulatory requirements in case of resignation of an independent director. On appointment of new directors of the AMC or Trustee, their biodata shall be filed with the Board for information or approval respectively. Investment and/or for / Trading in Securities by the employees of the AMCs and TrusteesThe Board of the AMC and Trustees shall ensure compliance with these Guidelines on a continuous basis and shall report any violations and remedial action taken by them in the periodical reports submitted to the Board. The guidelines enumerated below specify the minimum requirements that have to be followed. The AMC(s) and Trustees are free to set more stringent norms for investment and/or trading in securities by their employees.

Guidelines for Investment and/or Trading in Securities by Employees of AMC(s) and Trustees:

Applicability: These Guidelines shall be applicable to all employees of AMC(s) and Trustees and shall form a part of the Code of Conduct for employees adopted by the AMC(s) and/or Trustees. New employees shall be bound by these Guidelines from the date of joining the AMC(s) and/or Trustees. These Guidelines shall cover transactions for sale or purchase of securities made in the employees name, either individually

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or jointly, and in the name of the employees spouse and/or dependent children and transactions as a member of HUF.

Objectives & Principles: To ensure that all securities transactions made by employees in their personal capacity are conducted in consonance with these Guidelines and in such manner as to avoid any actual or potential conflict of interest or any abuse of an individuals position of trust and responsibility. The employees of AMC(s) and Trustees especially Access Persons shall not take undue advantage of any price sensitive information that they may have about any company. Access Person for the purpose of these Guidelines shall mean the Head of the AMC (designated as CEO/Managing Director/President or by any other name), the Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as decided by the AMC(s) and/or Trustees. To guide employees of AMC(s) and Trustees in maintaining a high standard of probity that one would expect from an employee in a position of responsibility.

Prior approval of personal investment transactions:

All access persons except Compliance Officer shall apply in the form prescribed by the AMC(s) and/or Trustees to the Compliance Officer for prior approval of transactions for sale or purchase of securities other than those expressly stated to be exempt under these guidelines. The Compliance Officer shall apply to the Head of the AMC(s). The decision of the Compliance Officer shall be final and binding on the employee.

In these Guidelines, in the case of the Compliance Officers own transactions for purchase or sale of securities or disclosure or any other related matter, the term "Compliance Officer" wherever it appears, shall be read as "Head of the AMC."

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The Compliance Officer may coordinate with the Fund Management Department of the Mutual Fund, wherever necessary, to clear requests of investment and/or trading in securities by the employees.

The approval of Compliance Officer for carrying out a transaction of sale or purchase of a security by the access person shall not be valid for more than seven calendar days from the date of approval.

If a transaction approved by Compliance Officer has not been effected within seven calendar days from the date of its approval, the access person shall be required to obtain approval once again from Compliance Officer prior to effecting the transaction.

All employees shall refrain from profiting from the purchase and sale or sale and purchase of any security within a period of 30 calendar days from the date of their personal transaction. However, in cases where it is done, the employee shall provide a suitable explanation to the Compliance Officer, which shall be reported to the Board of the AMC and the Trustees at the time of review.

Investments in Shares and/or Debentures and/or Bonds and/or Warrants and/or Derivatives: Investments in securities shall broadly be classified into investments through (a) primary markets and (b) secondary markets.

1. Investments through the primary markets: An employee including access person is permitted to apply to a public issue of shares and/or debentures and/or bonds and/or warrants of any company, as long as the application is made in the normal course of the public issue. Such an application may be made without seeking the clearance from the Compliance Officer. Employees of AMC(s) and Trustees are prohibited from applying in any reserved quota such as promoters quota, employees quota etc. Employees shall not participate in any private placement of equity by any company.

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Notwithstanding anything stated above, an employee of an AMC(s) and/or Trustees may apply for shares and/or debentures and/or bonds and/or warrants in a preferential offer, in cases where such a preferential offer is being made by a company that shall be intimated to the Compliance Officer.

2. Investments through the secondary markets: An access person who wishes to make a secondary market transaction shall submit a written application to that effect to the Compliance Officer. Such an application shall specify the name of the company whose securities the employee wishes to buy and/or sell, type of security, and the number of shares and/or debentures and/or bonds and/or warrants and/or derivatives that the access person wishes to buy/sell.

The Compliance Officer shall clear these requests if the following conditions are met: If the shares and/or debentures and/or bonds and/or warrants of the company or derivatives specified by the access person are not held by any scheme of the Mutual Fund of which the AMC is the investment manager. If such shares and/or debentures and/or bonds and/or warrants of the company or derivatives specified by the employee are held by any scheme of the Mutual Fund of which the AMC is the investment manager, there should be a cooling off period of 15 calendar days. The Compliance Officer shall ensure that the last transaction in that particular security was done by the Mutual Fund at least 15 calendar days prior to the date of the written application by the access person. In other words, an application for a purchase /sale transaction on a personal basis would be cleared only if the Mutual Fund has not transacted in that particular security for at least 15 calendar days.

The Compliance Officer shall keep a track of the transactions of the employees and transactions of the Mutual Fund to ensure that there is no conflict of interest
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between them i.e. the Compliance Officer should track whether the Mutual Fund has transacted in the same securities either before or after the employees transaction(s). The Compliance Officer shall maintain a record of all requests for pre clearance regarding the purchase or sale of a security, including the date of the request, the name of the access person, the details of the proposed transaction and whether the request was approved or denied and waivers given, if any, and its reasons. No employee shall purchase any security (including derivatives) on a Carry Forward basis or indulge in Short Sale of any security (including derivatives) i.e. employees who effect any purchase transaction(s) shall ensure that they take delivery of the securities purchased, before selling them. Any transaction of Front Running by any employee directly or indirectly is strictly prohibited. For this purpose, Front Running means any transaction of purchase and/or sale of a security carried by any employee whether for self or for any other person, knowing fully well that the AMC also intends to purchase and/or sell the same security for its Mutual Fund operations. To ascertain that the employee had no prior knowledge of the Mutual Fund's intended transactions, the Compliance Officer may take a declaration in this regard from the employee. Such declaration may be included in the application form itself. Any transaction of self dealing by any employee either directly or indirectly, whether alone or in concert with another person is prohibited. For this purpose, Self Dealing means trading in the securities based on price sensitive information to which the employee has access by virtue of his office. Declaration to this effect may be taken from the employee while clearing the proposals for investment. The employees shall not insist or suggest to the concerned brokers to charge reduced brokerage, or accept any contract with a clause on reduced brokerage charge.

Investments in units of Mutual Fund Schemes:

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Access persons as well as other employees do not require prior permission of the Compliance Officer for purchase or sale of units of Mutual Fund schemes. However, details of each such transaction, excluding transactions in Money Market Mutual Fund schemes shall be reported by them to the Compliance Officer within 7 calendar days from the date of transaction.

In case of investments in SIP of any Mutual Fund scheme, the employees may report only at the time of making the first installment of the SIP. All employees other than access persons shall submit, in the form prescribed by the Mutual Fund, to the Compliance Officer: Details of each of their transactions for purchase or sale of securities including allotment in public and rights issues within 7 calendar days in tandem with SEBI (Insider Trading) Regulations. A statement of holding in securities as on March 31 within 30 calendar days (in tandem with SEBI (Insider Trading) Regulations) from the end of every financial year ending March 31.

Responsibilities of AMC & Trustees: For effective discharge of their responsibilities under the Mutual Funds Regulations, the AMC(s) shall provide infrastructure and administrative support to the Trustees. The Mutual Fund may decide to appoint independent auditors and/or may have separate full fledged administrative set up for the Trustees. However, the expenditure incurred in this regard shall be within the limits as specified in Regulation 52(6) of the Mutual Funds Regulations. AMC(s) shall place correspondence and reports submitted to SEBI before the Trustees.

SCHEME GOVERNANCE-

Minimum Number of investors:

Applicability for an open-ended scheme:

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The Scheme/Plan shall have: A minimum of 20 investors No single investor shall account for more than 25% of the corpus of the Scheme/Plan(s).

If either/both of such limit(s) is breached during the NFO of the Scheme, it shall be ensured that within a period of three months or the end of the succeeding calendar quarter from the close of the NFO of the Scheme, whichever is earlier, the Scheme complies with these two conditions.

In case the Scheme / Plan(s) does not have a minimum of 20 investors in the stipulated period, the provisions of Regulation would become applicable automatically without any reference from SEBI and accordingly the Scheme / Plan(s) shall be wound up and the units would be redeemed at applicable NAV.

If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25 % limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15th day of the notice period.

The two conditions mentioned above shall also be complied within each subsequent calendar quarter thereafter, on an average basis, as specified by SEBI. The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard.

Applicability for a Close ended scheme/Interval scheme: The Scheme/Plan shall have: A minimum of 20 investors No single investor shall account for more than 25% of the corpus of the Scheme/Plan(s).

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These conditions will be complied with immediately after the close of the NFO itself i.e. at the time of allotment. In case of non-fulfillment with the condition of minimum 20 investors, the Scheme(s)/Plan(s) shall be wound up in accordance with Regulation138 automatically without any reference from SEBI.

In case of non-fulfillment with the condition of 25% holding by a single investor on the date of allotment, the application to the extent of exposure in excess of the stipulated 25% limit would be liable to be rejected and the allotment would be effective only to the extent of 25% of the corpus collected. Consequently, such exposure over 25% limits will lead to refund within 6 weeks of the date of closure of the New Fund Offer.

For interval scheme the aforesaid provision will be applicable at the end of NFO and specified transaction period. Requisite disclosure in this regard shall be made in the SID.

Determination of breach: The average shall be calculated, at the end of each quarter, on the basis of number of investors at the end of the business hours of the scheme on a daily basis. To determine breach of 25% holding limit by an investor, net assets under the scheme shall be calculated daily and the daily holding limit shall be determined accordingly. At the end of the quarter, average daily holding by each investor shall be calculated and any breach of the 25% holding limit will be accordingly determined.

Applicability: These Guidelines are applicable at the Portfolio level. These Guidelines are not applicable to Exchange Traded Funds (ETFs).

Redemptions:

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Redemptions effected pursuant to these Guidelines shall be completed within 10 days from the day of winding up of the scheme(s) and/or plan(s).

Reporting to the Board: Compliance with these Guidelines shall be reported in Compliance Test Reports (CTRs) and Half Yearly Trustee Reports.

Scheme Performance Review: AMCs and Trustees shall review the performance of their schemes on periodic basis139. Such review can take place by comparing the performance of the schemes with benchmark indices as well as in light of the performance of the entire Mutual Funds industry by relying on data published from time to time by independent research agencies and financial newspapers and journals. Corrective action if required may be taken in case of unsatisfactory performance. Its compliance should be reported in the bimonthly CTRs of AMCs and half-yearly reports of the Trustees to SEBI (while reporting compliance of Regulation 25(2) on exercise of due diligence in investment decisions).

NET ASSET VALUEDisclosure of Net Asset Value: The NAV of schemes shall be published on a daily basis by the Mutual Funds at least in two daily newspapers. NAV and sale/repurchase price of all Mutual Fund schemes except for Fund of Fund Schemes shall be updated on AMFIs website and the Mutual Funds websites by 9 p.m. of the same day. Fund of Fund Schemes shall have an extended time up to 10 a.m. the following business day in this regard161 and the NAVs shall be published in newspapers with an asterisk to indicate the one day time lag/or the actual time lag.

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Delay beyond 10 a.m. of the following business day in case of Fund of Fund schemes and 9 p.m. on the same day for all other schemes shall be explained in writing to AMFI and the Board and shall also be reported in the CTR(s)162 in terms of number of days of non adherence of time limit for uploading NAV on AMFIs website and the reasons for the same. Corrective steps taken by AMC to reduce the number of occurrences shall also be disclosed.

In case the NAVs are not available before the commencement of business hours on the following day due to any reason, Mutual Funds shall issue a press release giving reasons for the delay and explain when they would be able to publish the NAVs.

Compliance Reporting: Status of compliance with these Guidelines shall be reported to the Board in the CTR(s) of the AMC(s) and the Half Yearly Trustee Reports. The Half Yearly Trustee Reports shall contain a declaration on whether the Trustees are satisfied with the systems and procedures of the Mutual Fund designed for the purpose of compliance with these Guidelines. Further, the substance of these Guidelines shall be disclosed to investors in the SID or in any addendum thereto.

Time Stamping: Application from investors shall be received by Mutual Funds only at official points of acceptance, addresses of which shall be disclosed in the SID and on Mutual Funds websites

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Requirements with respect to time stamping machines: For every machine, running serial number shall be stamped from the first number to the last number as per its capacity before repetition of the cycle. Every application for purchase shall be stamped on the face and the corresponding payment instrument shall be stamped on the back indicating the date and time of receipt and running serial number. The application and the payment instrument shall contain the same serial number. Every application for redemption shall be stamped on the face thereof and on the investors acknowledgment copy (or twice on the application if no

acknowledgment is issued) indicating the date and time of receipt and running serial number. Different applications shall not be bunched together with the same serial number. Blank papers shall not be time stamped. Genuine errors, if any, shall be recorded with reasons and the corresponding applications requests shall also be preserved. The time stamping machine shall have a tamper proof seal and the ability to open the seal for maintenance or repairs must be limited to vendors or nominated persons of the mutual fund, to be entered in a proper record. Breakage of seal and/or breakdown of the time stamping process shall be duly recorded and reported to the Trustees. Every effort should be made to ensure uninterrupted functioning of the time stamping machine. In case of breakdown, the Mutual Funds shall take prompt action to rectify the situation. During the breakdown period, Mutual Funds shall adopt an alternative time stamping method that has already been approved by the Board of the AMC and the Trustee(s). An audit trail shall be available to check and ensure the accuracy of the time stamping process during the said period. Any alternate mode of application that does not have any physical or electronic trail shall be converted into a physical piece of information and time stamped in accordance with these Guidelines.

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Mutual Funds shall maintain and preserve all applications/ requests, duly time stamped as aforesaid, at least for a period of eight years178 to be able to produce them as and when required by the Board or auditors appointed by the Board.

VALUATIONDefinitions:

Non Traded Securities: When a security (other than Government Securities) is not traded on any Stock Exchange for a period of thirty days prior to the valuation date, the scrip shall be treated as a non traded security.

Thinly Traded Securities:

Thinly traded equity/ equity related securities: When trading in an equity and/or equity related security (such as convertible debentures, equity warrants etc.) in a month is both less than 5 lacs and the total volume is less than 50,000 shares, the security shall be considered as thinly traded security and valued accordingly. In order to determine whether a security is thinly traded or not, the volumes traded in all recognized Stock Exchanges in India may be taken into account. For example, if the volume of trade is 1,00,000 and value is 4,00,000, the shares do not qualify as thinly traded. Also if the volume traded is 40,000, but the value of trades is 6,00,000, the shares do not qualify as thinly traded. Where a Stock Exchange identifies the thinly traded securities by applying the above parameters for the preceding calendar month and publishes or
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provides the required information along with the daily quotations, the same can be used by the Mutual Funds. If the shares are not listed on the Stock Exchanges which provide such information, then Mutual Funds shall make their own analysis in line with the above criteria to check whether such securities are thinly traded or not and then value them accordingly.

Thinly traded Debt Securities:A debt security (other than Government Securities) shall be considered as a thinly traded security if, on the valuation date, there are no individual trades in that security in marketable lots (currently applicable) on the principal Stock Exchange or any other Stock Exchange.

Valuation of Securities:

Traded Securities: When a security (other than debt securities) is not traded on any Stock Exchange on a particular valuation day, the value at which it was traded on the selected Stock Exchange, as the case may be, on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date. When a debt security (other than Government Securities) is not traded on any Stock Exchange on any particular valuation day, the value at which it was traded on the principal Stock Exchange or any other Stock Exchange, as the case may be, on the earliest previous day may be used provided such date is not more than fifteen days prior to valuation date. When a debt security (other than Government Securities) is purchased by way of private placement, the value at which it was bought may be used for a period of fifteen days beginning from the date of purchase.

Non-Traded /and/or Thinly Traded Securities:

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Non-traded/ and/or thinly traded equity securities: Based on the latest available Balance Sheet, Net Worth shall be calculated as follows: Net Worth per share = [Share Capital+ Reserves (excluding Revaluation Reserves) Miscellaneous expenditure and Debit Balance in Profit and Loss Account] / Number of Paid up Shares. Average Capitalization rate (P/E ratio) for the industry based upon either BSE or NSE data (which shall be followed consistently and changes, if any, noted with proper justification thereof) shall be taken and discounted by 75 per cent i.e. only 25 per cent. Of the industry average P/E shall be taken as Capitalization rate (P/E ratio). Earnings per share (EPS) of the latest audited annual accounts shall be considered for this purpose. The value as per the Net Worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 10 per cent. for illiquidity so as to arrive at the fair value per share. In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalized earning. In case where the latest Balance Sheet of the company is not available within nine months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero. In case an individual security accounts for more than 5 per cent. of the total assets of the scheme, an independent valuer shall be appointed for the valuation of the said security. To determine if a security accounts for more than 5 per cent. of the total assets of the scheme, it shall be valued by the procedure above and the proportion which it bears to the total net assets of the scheme to which it belongs will be compared on the date of valuation. In case trading in an equity security is suspended up to thirty days, then the last traded price shall be considered for valuation of that security. If an equity security is suspended for more than thirty days, then the AMC(s) or Trustees shall decide

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the valuation norms to be followed and such norms shall be documented and recorded.

Non traded/thinly Traded Debt security: A thinly traded debt security as defined above shall be valued as per the norms for non traded debt security. Valuation of money market and debt securities with residual maturity of upto 60 days: All money market and debt securities, including floating rate securities, with residual maturity of upto 60 days shall be valued at the weighted average price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they shall be valued on amortization basis. It is further clarified that in case of floating rate securities with floor and caps on coupon rate and residual maturity of upto 60 days then those shall be valued on amortization basis taking the coupon rate as floor. Valuation of money market and debt securities with residual maturity of over 60 days: All money market and debt securities, including floating rate securities, with residual maturity of over 60 days shall be valued at weighted average price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day they shall be valued at benchmark yield/ matrix of spread over risk free benchmark yield obtained from agency entrusted for the said purpose by AMFI The approach in valuation of non traded debt securities is based on the concept of using spreads over the benchmark rate to arrive at the yields for pricing the non traded security.

Illiquid Securities:

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Aggregate value of illiquid securities under a scheme, which are defined as nontraded, thinly traded and unlisted equity shares, shall not exceed 15 per cent of the total assets of the scheme and any illiquid securities held above 15 per cent. of the total assets shall be assigned zero value.

All Mutual Funds shall disclose as on March 31 and September 30 the scheme wise total illiquid securities in value and percentage of the net assets while disclosing Half Yearly Portfolios to the unit holders. In the list of investments, an asterisk mark shall be given against all such investments which are recognized as illiquid securities. Mutual Funds shall not be allowed to transfer illiquid securities among their schemes.

Guidelines for Identification and Provisioning for Non Performing Assets (Debt Securities)-

Definition of a Non Performing Asset (NPA): An asset shall be classified as NPA if the interest and/or principal amount have not been received or remained outstanding for one quarter from the day such income and/or installment was due.

Effective date for classification and provisioning of NPA: The definition of NPA may be applied after a quarter past due date of the interest. For e.g. if the due date for interest is 30.06.2000, it will be classified as NPA from 01.10.2000.

Treatment of income accrued on the NPA and further accruals: After the expiry of the 1st quarter from the date the income has fallen due, there will be no further interest accrual on the asset i.e. if the due date for interest falls on 30.06.2000 and if the interest is not received, accrual will continue till 30.09.2000 after which there will be no further accrual of income. In short, taking the above example, from the beginning of the 2nd quarter there will be no further accrual on income.
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On classification of the asset as NPA from a quarter past due date of interest, all interest accrued and recognized in the books of accounts of the Mutual Fund till the date shall be provided for. For e.g. if interest income falls due on 30.06.2000, accrual of interest will continue till 30.09.2000 even if the income as on 30.06.2000 has not been received. Further, no accrual will take place from 01.10.2000 onwards. Full provision will be made for interest accrued and outstanding as on 30.06.2000.

Provision for NPAs Debt Securities The value of the asset shall be provided in the following manner or earlier at the discretion of the Mutual Fund. Mutual Funds will not have discretion to extend the period of provisioning. The provisioning against the principal amount or installments shall be made at the following rates irrespective of whether the principal is due for repayment or not. 10 percent of the book value of the asset shall be provided for after 6 months past due date of interest i.e. 3 months form the date of classification of the asset as NPA. 20 percent of the book value of the asset should be provided for after 9 months past due date of interest i.e. 6 months from the date of classification of the asset as NPA. Another 20 percent of the book value of the assets shall be provided for after 12 months past due date of interest i.e. 9 months from the date of classification of the asset as NPA. Another 25 percent of the book value of the assets shall be provided for after 15 months past due date of interest i.e. 12 months from the date of classification of the asset as NPA. The balance 25 percent of the book value of the asset shall be provided for after 18 months past due date of the interest i.e. 15 months from the date of classification of the assets as NPA. Book value for the purpose of provisioning for NPAs shall be taken as a value determined as per the prescribed valuation method.

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Disclosure in the Half Yearly Portfolio Reports: Mutual Funds shall make scrip wise disclosures of NPAs on Half Yearly basis along with the Half Yearly Portfolio Disclosure in the format prescribed. The total amount of provisions made against the NPAs shall be disclosed in addition to the total quantum of NPAs and their proportion to the assets of the Mutual Fund scheme. In the list of investments and asterisk mark shall be given against such investments which are recognized as NPAs. Where the date of redemption of an investment has lapsed, the amount not redeemed shall be shown as Sundry Debtors and not investment, provided, that where an investment is redeemable by installments, that will be shown as an nvestment until all installments have become overdue.

Valuation of securities not covered under the current valuation policy: In case of securities purchased by mutual funds do not fall within the current framework of the valuation of securities then such mutual fund shall report immediately to AMFI regarding the same. Further, at the time of investment AMCs shall ensure that the total exposure in such securities does not exceed 5% of the total AUM of the scheme. AMFI has been advised that the valuation agencies should ensure that the valuation of such securities gets covered in the valuation framework within six weeks from the date of receipt of such intimation from mutual fund. In the interim period, till AMFI makes provisions to cover such securities in the valuation of securities framework, the mutual funds shall value such securities using their proprietary model which has been approved by their independent trustees and the statutory auditors.

Dissemination of information: All mutual funds shall provide transaction details, including inter scheme transfers, of money market and debt securities on daily basis to the agency entrusted for

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providing the benchmark yield/ matrix of spread over risk free benchmark yield. Submission of data would help in daily matrix generation and would improve uniformity and accuracy of valuation in the mutual funds industry. The AMCs shall also disclose all details of debt and money market securities transacted (including inter scheme transfers) in its schemes portfolio on its website and the same shall be forwarded to AMFI for consolidation and dissemination as per format. These disclosures shall be made settlement date wise on daily basis with a time lag of 30 days.

DIVIDEND DISTRIBUTION PROCEDURERegulations permit Mutual Funds to distribute returns including dividend. To introduce uniform practices in dividend distribution, the following guidelines should be followed. These guidelines are applicable to all Mutual Fund schemes/plans which intend to declare the dividend irrespective of their dates of launch. The Trustees shall decide the quantum of dividend and the record date in their meeting. Dividend so decided, shall be paid, subject to availability of distributable surplus. Record date shall be the date which will be considered for the purpose of determining the eligibility of investors whose names appear on the register of unit holders for receiving dividends. The NAV shall be adjusted to the extent of dividend distribution and statutory levy, if applicable, at the close of business hours on record date. Within one calendar day of the decision of the Trustees with respect to the dividend to be distributed, the AMC(s) shall issue a notice to the public communicating the

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decision including the record date. The record date shall be five calendar days from the issue of public notice. Before the issue of such notice, no communication whatsoever indicating the probable date of dividend declaration shall be issued by any Mutual Fund or its distributors of its products. Such notice shall be given in at least one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the head office of the Mutual Fund is situated. The notice shall, in font size 10, bold, categorically state that pursuant to dividend distribution, NAV of the scheme would fall to the extent of payout and statutory levy (if applicable).

INVESTMENT BY SCHEMES
Investments by Liquid Schemes and plans: The liquid fund schemes and plans shall make investment in /purchase debt and money market securities with maturity of upto 91 days only. This shall also be applicable in case of inter scheme transfer of securities. In case of securities where the principal is to be repaid in a single payout the maturity of the securities shall mean residual maturity. In case the principal is to be repaid in more than one payout then the maturity of the securities shall be calculated on the basis of weighted average maturity of security. In case of securities with put and call options (daily or otherwise) the residual maturity of the securities shall not be greater than 91 days. In case the maturity of the security falls on a non-business day then settlement of securities will take place on the next business day. The above requirements shall be disclosed in the SID and shall form part of the investment allocation pattern. Any deviation from these requirements shall be viewed as violation of investment restrictions.
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Reporting Requirement: The AMC(s) shall report to the Trustees on a quarterly basis about the level of lending, in terms of value, volume and intermediaries and also earnings and/or losses, value of collateral security etc. The Trustees shall periodically review the securities lending contract and take reasonable steps to ensure that the same is not, in any way, detrimental to the interests of the unit holders of the scheme. The Trustees shall offer their comments on the above aspects in the Half Yearly Trustee Report filed with the Board.

Participation of mutual funds in repo in corporate debt securities: Mutual funds can participate in repos in corporate debt securities as per the guidelines issued by RBI from time to time, subject to the following conditions: The gross exposure of any mutual fund scheme to repo transactions in corporate debt securities shall not be more than 10 % of the net assets of the concerned scheme. The cumulative gross exposure through repo transactions in corporate debt securities along with equity, debt and derivatives shall not exceed 100% of the net assets of the concerned scheme. Mutual funds shall participate in repo transactions only in AAA rated corporate debt securities.

INVESTOR RIGHTS & OBLIGATIONS-

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Payment of interest for delay in dispatch of redemption and/or repurchase proceeds and/or dividend: In the event of failure to dispatch Redemption or repurchase proceeds within 10 working days from the date of receipt of such requests and/ or Dividend within the stipulated 30 day period.

The AMC(s) shall be liable to pay interest @ 15 per cent per annum to the unit holders.AMC(s) must ensure that the interest amount due for the period of delay in dispatch of repurchase or redemption and/or dividend is added to the proceeds when such payments are made to the investors. Such interest shall be borne by the AMC. Details of such payments shall be sent to the Board along with the CTR. Investors shall also be informed about the rate and amount of interest paid to them. Non compliance with these directions may invite action under the Mutual Funds Regulations.

Dispatch of Statement of Accounts: AMCs shall allot the units to the applicant whose application has been accepted and also send confirmation specifying the number of units allotted to the applicant by way of email and/or SMSs to the applicants registered email address and/or mobile number as soon as possible but not later than five working days from the date of closure of the initial subscription list and/or from the date of receipt of the request from the unit holders

Consolidated Account Statement: As per regulation, AMCs shall issue consolidated account statement for each calendar month to the investors in whose folios transaction(s) has/have taken place during that month.

Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) or Systematic Withdrawal Plan (SWP):

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Mutual Funds may dispatch the Statement of Accounts to the unit holders under SIP or STP or SWP, once every quarter ending March, June, September and December within 10 working days of the end of the respective quarter. The first Statement of Accounts shall however be issued within 10 working days of the initial transaction. Mutual funds shall also provide Statement of Accounts to unit holders within 5 working days, without any charges, if specific requests are received from the investors. Further, if so mandated, a soft copy of the Statement of Accounts shall be e-mailed to the unit holders on a monthly basis.

AMFI Guidelines for Mutual Funds

AMFI Guidelines & Norms for IntermediariesRole of Intermediaries in the Indian Mutual Fund Industry The mutual fund industry in India started in 1964 with the establishment of the Unit Trust of India. In 1987, other public sector institutions entered this business, and it was in 1993 that the first of the private sector participants commenced its operations. From the beginning, UTI and other mutual funds have relied extensively on intermediaries to market their schemes to investors. It would be accurate to say that without intermediaries, the mutual fund industry would not have achieved the depth and breadth of coverage amongst investors that it enjoys today. Intermediaries have played a pivotal and valuable role in popularizing the concept of mutual funds across India. They make the forms available to clients, explain the schemes and provide administrative and paper work support to investors, making it easy and convenient for the clients to invest.

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Intermediation itself has undergone a change over the past few decades. While individual agents provided the foundations for growth in the early years, institutional agents, distribution companies and national brokers soon started to play an active role in promoting mutual funds. Recently, Banks, Financial companies, Secondary market brokers and even Post offices have also began to market mutual funds to their existing and potential client basis. It is, thus clear that all types of intermediaries are required for the growth of the industry, and their well being, quality orientation and ways of doing business will have a significant impact on how the mutual fund industry in India involves in the future.

Guidelines for Selling and Marketing Mutual Funds

Background: Investors can purchase and sell Mutual Fund units through various types of intermediariesindividual agents, distribution companies, national/regional brokers, banks, post offices etc. As well as directly from AMC Investors of mutual funds can be broadly classified into 3 categories: Those who wants product information, advice on financial planning and investment strategies. Those who required only a basic level of service and execution support i.e. delivering and collecting application forms and cheques, and other basic paper work and post sale activities. Those who prefer to do it all themselves, including choice of investments as well as process/paper work related to investments. To carter to different types of investors the mutual fund industry comprising of AMCs and intermediaries at present offers the following two levels of services Value added services include product information and advice on financial planning and investment strategies. The advice encompasses analyzing an investors financial goals depending upon the segment of investor, assessing his/her resources, determining his/her bearing capacity/preference and then using this information to

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recommend an asset allocation/specific investments that are in tandem with the investors needs. Investors may also receive information on taxation, estate planning and portfolio rebalancing to remain aware about the changes/developments in market conditions and adjust the portfolios from time to time according to their needs. In such advisory services, the emphasis is on building and ongoing relationship with the investors. In India, given that mutual funds are relatively new, there is a low level of awareness amongst investors about the working and benefits of mutual funds. Also, very few investors take an organized approach to financial planning. Therefore, it is clear that the vast majority of investors would benefit significantly from the value-added services enumerated above. Basic services includes providing the basic information on schemes launched to investors, assisting them in filling application forms, submission of application forms along with cheques at the respective offices, delivering redemption proceeds and answering scheme related queries investors may have. What investors receives here is convince and accesses to mutual funds through agents and employees of brokers who visit them and facilitate the paper work related to investment. These services are also given through branches and front office staff of AMCs and intermediaries. These are transaction-oriented service where investors make the investment decision themselves, and relay on the AMC and intermediaries mostly for execution and logistic support.

Recommendations: While institutions can continue to be service by AMCs and intermediaries, it is proposed that AMCs and the intermediary community focus more on individual investors and take every effort to Provide high quality advice and product information to such customers. Explain and position this service in such a way clients recognize it as a specialized and value added service, a task which may be difficult to accomplish on their own.

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Convince investors that the transaction and intermediations cost they are paying is justified in lieu of the long-term benefits accruing from such counseling and guidance.

The mutual fund industry has to now take the more difficult but long term sustainable root of gathering assets from individual investors by providing them value added, financial planning services and ensuring that mutual funds are integral part of their overall portfolio. Only if this happens will AMCs and intermediaries command higher margins and levels of profitability, and not suffer from the low margins associated with dispensing only basic types of services.

While doing this, the mutual fund industry in India should take care to ensure that Each investor, institutional or individual, receives the exact level of service they choose and correct advice based on clear and concentrate facts and figures. Correspondingly, the intermediaries and transaction cost investors incur should reflect the value of the service and advice they received. Mutual Funds are accurately represented and appropriately positioned to investors, whichever channel or mode they choose to invest in. The industry should safeguard the investor right towards correct description of the product, good service, transparency and ability to take informed decisions. There is comprehensive knowledge and understanding of mutual funds amongst all individual instrumental in selling the mutual fund schemes to investors including employees of intermediaries, individual agents and financial planners.

The AMFI certification is designed to be a professional qualification that provides intermediaries with a thorough understanding of mutual funds and how to present them appropriately to clients. The AMFI certification is needed both for individuals and corporate distributors. The certification is required for all individual selling and representing mutual funds to clients, whether they are employees of an intermediary organization or they are an individual financial planner/agent.

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Code of Conduct for Intermediaries Adhere to SEBI mutual fund regulation and guidelines issued from time to time related to selling, distribution and advertising practices. Be fully conversant with the key provisions of the Scheme Information Document and Key Information Memorandum as well as the operational requirements of various schemes. Provide full and latest information of schemes to investors in the form of SID, performance reports, fact sheet, portfolio disclosure and brochures and recommend schemes appropriate for the client situation and needs. Highlight risk factors of each scheme, avoid misrepresentation and exaggeration and urge investor to go through SID/KIM before deciding to make investments. Disclose to the investors all material information including all the commissions (in the form of trail or any other mode) received the different competing schemes of various mutual funds from amongst which the scheme is being recommendation to the investor. Abstain from indicating or assuming returns in any type of scheme, unless the SID is explicit in this regard. Maintain necessary infrastructure to support the AMCs in maintaining high service standards to investor and ensure that critical operations such as forwarding forms and cheques to AMCs/registrars and dispatch of statements of account and redemption of cheques to investors are done within the time frame prescribed in the SID/SAI and SEBI Mutual Fund Regulations. Avoid colluding with clients in faulty business practices such as bouncing cheques, wrong claiming of dividend/redemption cheques, etc. Avoid commission driven malpractices like recommending inappropriate products solely because the intermediaries is getting higher commissions there from. Encouraging over transacting and churning of mutual fund investment to earn higher commissions, even if they mean higher transaction and tax for investors. Avoid making negative statements about any AMC or scheme and ensure that comparisons if any are made with similar and comparable products.

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Ensure that all investor related statutory communications (such as changes in fundamental attributes, load, exit option and other material aspects) are sent to investors reliably and on time.

Maintain confidentiality of all investor deals and transaction. When marketing various schemes, remember that a client interest and suitability to their financial needs is paramount, and that extra commission or incentive earned should never from the basis for recommending a scheme to the client.

Intermediaries will not rebate commission back to investors and avoid attracting clients through temptations of rebate/gifts etc. A focus on financial planning and advisory services ensures correct selling, and also reduces the trend towards investors asking for pass back of commission. All employees engaged in sales and marketing should obtain AMFI certification. Employee in other functional areas should also be encouraged to obtain the same certification.

Sequence of steps in the Event of Breach of Above CODE of CONDUCT by the intermediary If any breach of the above Code of Conduct for intermediary is reported to AMFI by either an investor or an AMC in writing, then AMFI will initiate the following steps Write to the intermediary (enclosing copies of the complaint and other documentary evidence) and ask for an explanation within a time limit of 3 weeks. In case an explanation is not received within the time limit, or the explanation is not satisfactory, AMFI will issue a warning letter indicating that any subsequent violation will result in cancellation og AMFI Registrations. If there is a proved second violation by the intermediary, the registration will be cancelled and intimation sent to all AMCs.

THE AMFI CODE OF ETHICS

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INTEGRITY Members and their key personnel, in the conduct of their business shall observe high standards of integrity and fairness in all dealings with investors, issuers, market intermediaries, other members and regulatory and other government authorities. Mutual Fund Schemes shall be organized, operated, managed and their portfolios of securities selected, in the interest of all classes of unit holders and not in the interest of Sponsors. Directors of Members. Members of Board of Trustees or directors of the Trustee Company. Brokers and other market intermediaries. Associates of the Members. A special class selected from out of unit holders.

DUE DILIGENCE Members in the conduct of their Asset Management business shall at all times Render high standards of service. Exercise due diligence. Exercise independent professional judgment.

Members shall have and employ effectively adequate resources and procedures which are needed for the conduct of Asset Management activities.

DISCLOSURES Members shall ensure timely dissemination to all unit holders of adequate, accurate, and explicit information presented in a simple language about the investment objectives, investment policies, financial position and general affairs of the scheme. Members shall disclose to unit holders investment pattern, portfolio details, ratios of expenses to net assets and total income and portfolio turnover wherever applicable in respect of schemes on annual basis.

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Members shall in respect of transactions of purchase and sale of securities entered into with any of their associates or any significant unit holder. All transactions of purchase and sale of securities by key personnel who are directly involved in investment operations shall be disclosed to the compliance officer of the member at least on half yearly basis and subsequently reported to the Board of Trustees if found having conflict of interest with the transactions of the fund.

PROFESSIONAL SELLING PRACTICES Members shall not use any unethical means to sell, market or induce any investor to buy their products and schemes. Members shall not make any exaggerated statement regarding performance of any product or scheme. Members shall endeavor to ensure that at all times Investors are provided with true and adequate information without any misleading or exaggerated claims to investors about their capability to render certain services or their achievements in regard to services rendered to other clients. Investors are made aware of attendant risks in members schemes before any investment decision is made by the investors. A copy of prospectus, memoranda and related literature is made available to investors on request. Adequate steps are taken for fair allotment of mutual fund units and refund of application moneys without delay and within the prescribed time limits. Complaints from investors are fairly and expeditiously dealt with.

Members in all their communications to investors and selling agents shall Not present a mutual fund scheme as if it were a new share issue. Not create unrealistic expectations.

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Not guarantee returns except as stated in the Offer Document of the scheme approved by SEBI, and in such case, the Members shall ensure that adequate resources will be made available and maintained to meet the guaranteed returns.

Convey in clear terms the market risk and the investment risks of any scheme being offered by the Members. Not induce investors by offering benefits which are extraneous to the scheme. Not misrepresent either by stating information in a manner calculated to mislead or by omitting to state information which is material to making an informed investment decision.

INVESTMENT PRACTICES Members shall manage all the schemes in accordance with the fundamental investment objectives and investment policies stated in the offer documents and take investment decisions solely in the interest of the unit holders. Members shall not knowingly buy or sell securities for any of their schemes from or to Any director, officer, or employee of the member. Any trustee or any director, officer, or employee of the Trustee Company.

OPERATIONS Members shall avoid conflicts of interest in managing the affairs of the schemes and shall keep the interest of all unit holders paramount in all matters relating to the scheme. Members or any of their directors, officers or employees shall not indulge in front running (buying or selling of any securities ahead of transaction of the fund, with access to information regarding the transaction which is not public and which is material to making an investment decision, so as to derive unfair advantage).

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Members or any of their directors, officers or employees shall not indulge in self dealing (using their position to engage in transactions with the fund by which they benefit unfairly at the expense of the fund and the unit holders). Members shall not engage in any act, practice or course of business in connection with the purchase or sale, directly or indirectly, of any security held or to be acquired by any scheme managed by the Members, and in purchase, sale and redemption of units of schemes managed by the Members, which is fraudulent, deceptive or manipulative. Members shall not, in respect of any securities, be party to Creating a false market. Price rigging or manipulation. Passing of price sensitive information to brokers, Members of stock exchanges and other players in the capital markets or take action which is unethical or unfair to investors. Employees, officers and directors of the Members shall not work as agents/ brokers for selling of the schemes of the Members, except in their capacity as employees of the Member or the Trustee Company. Members shall not make any change in the fundamental attributes of a scheme, without the prior approval of unit holders except when such change is consequent on changes in the regulations. Members shall avoid excessive concentration of business with any broking firm, and excessive holding of units in a scheme by few persons or entities.

REPORTING PRACTICES Members shall follow comparable and standardized valuation policies in accordance with the SEBI Mutual Fund Regulations. Members shall follow uniform performance reporting on the basis of total return. Members shall ensure scheme wise segregation of cash and securities accounts.

UNFAIR COMPETITION
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Members shall not make any statement or become privy to any act, practice or competition, which is likely to be harmful to the interests of other Members or is likely to place other. Members in a disadvantageous position in relation to a market player or investors, while competing for investible funds.

OBSERVANCE OF STATUTES, RULES AND REGULATIONS Members shall abide by the letter and spirit of the provisions of the Statutes, Rules and Regulations which may be applicable and relevant to the activities carried on by the Members.

RBI guidelines for Mutual Funds

Reconciliation Procedure for Investment in Government Securities: According to the RBI guidelines issued to all SGL account holders, to make transactions in government securities transparent, a monthly reconciliation system has been introduced between RBI and Mutual Funds maintaining SGL/CSGL accounts with respect to Government Securities on an ongoing basis. Mutual Funds shall reconcile the balances reported in the monthly statements furnished by RBI with the transactions undertaken by them. The reconciliation procedure shall be made part of internal audit and the auditors shall on a continuous basis, check the status of reconciliation and submit a report to the Audit Committee. These reports shall be placed in the meetings of the Board of the AMC and Trustees. Mutual Funds shall submit, on a quarterly basis to the RBI, a certificate confirming compliance with these requirements and any other guidelines issued by the RBI from time to time in this regard. Compliance shall also be reported to the Board in the CTRs of AMC(s) and Half Yearly Trustee Reports.

Mutual Fund business

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(i) Prior approval of the RBI should be obtained by banks before undertaking mutual fund business. Bank-sponsored mutual funds should comply with guidelines issued by SEBI from time to time. (ii) The bank-sponsored mutual funds should not use the name of the sponsoring bank as part of their name. Where a bank's name has been associated with a mutual fund, a suitable disclaimer clause should be inserted while publicising new schemes that the bank is not liable or responsible for any loss or shortfall resulting from the operations of the scheme. (iii) Banks may enter into agreements with mutual funds for marketing the mutual fund units subject to the following terms and conditions: Banks should only act as an agent of the customers, forwarding the investors applications for purchase / sale of MF units to the Mutual Funds/ the Registrars / the transfer agents. The purchase of units should be at the customers risk and without the bank guaranteeing any assured return. Banks should not acquire units of Mutual Funds from the secondary market. Banks should not buy back units of Mutual Funds from their customers. If banks propose to extend any credit facility to individuals against the security of units of Mutual Funds, sanction of such facility should be in accordance with the extant instructions of RBI on advances against shares / debentures and units of mutual funds. Banks holding custody of MF units on behalf of their customers, should ensure that their own investments and investments made by / belonging to their customers are kept distinct from each other. Banks should put in place adequate and effective control mechanisms in this regard. Besides, with a view to ensuring better control, retailing of units of mutual funds may be confined to certain select branches of a bank.

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