Sebi eases norms for MF investments in derivatives

Proceedings have been approved under the takeover regulations and relevant provisions of the Sebi Act, the market regulator has told the Delhi High Court

Existing mutual fund schemes will not require approval of a majority of unit holders to invest in derivatives segment provided the investors are given the exit option, Sebi said today.

Among other conditions, the relaxation, effective immediately, would be in place only if the mutual fund scheme concerned provides the investors 30 days time to exit the scheme without any charges.

It would be applicable for existing mutual funds, whose Scheme Information Documents (SIDs) do not envisage investments in derivatives.

The latest decision has been taken in view of the challenges involved in seeking the consent of a majority of unit holders due to their vast geographical spread, according to the regulator.

Prudent investment norms are in place for investment in derivatives by mutual funds, Sebi said.

Earlier, existing mutual fund schemes were required to obtain positive consent from a majority of the unit holders before commencing investment in derivatives.

"It has been decided that for introduction of derivative investments in an existing scheme, whose SIDs do not currently envisage such investments, the requirement of obtaining positive consent from majority of unit holders shall no longer be applicable," Sebi said in a circular.

All investors of such schemes would be given exit option with no exit load for 30 days as against the current requirement wherein exit option is only given to dissenting unit holders.

Existing schemes of mutual funds, whose SIDs do not envisage investments in derivatives, can participate in that segment provided the risks associated with such participation would be disclosed and explained by suitable numerical examples to the unit holders.

In addition, the extent and the manner of the proposed participation in derivatives should be disclosed to the unit holders.

The scheme would have to comply with the provisions of mutual funds regulations and all unit holders would be given at least 30 days to exercise option to exit at prevailing NAV (net asset value) without charging any exit load.