Sebi Drafts Standard Offer Document For Mfs

The Securities and Exchange Board of India (Sebi) has made it compulsory for mutual funds launching new schemes to disclose in detail the risk factors, past performance of the previous schemes, illiquid assets in an open-ended scheme, asset allocation pattern, constitution of the mutual fund and transactions undertaken in an abridged standard offer document (SOD).

According to a Sebi release, the draft SOD has been prepared in consultation with the Association of Mutual Funds in India (Amfi) and experts from Price Waterhouse under the FIRE project.

Sebi has sought comments from the public and the press by February 28.

The SOD will be applicable to all mutual fund schemes launched from March 1998. The disclosure of assured return schemes by funds would include:

 

The number of schemes of the mutual fund which have already been launched with assured returns and the size of the corpus,

The name of the guarantor of the past schemes and the present scheme,

The resources available to the guarantor such as the net worth and liquidity position and the basis on which the guarantor is providing the guarantee for the new scheme and a declaration that the resources of the guarantor would be adequate to meet the shortfall, if any, in the assured return scheme including past schemes and

Details of the schemes of the mutual fund in which there has been shortfall in the past and the manner in which the shortfall has been met.

Disclosure of the percentage of illiquid assets for an open ended scheme, if such assets are expected to be greater than 10 per cent of the value of net assets of the scheme, and a discussion on the extent to which such asset composition would impair the ability of the scheme to meet redemptions within the time period stipulated in the regulations. For this, assets for which there is no established market, as defined in the NAV Committee Report, would be treated as illiquid.

Disclosure of the fundamental attributes of the scheme which would include the type of scheme, investment objective of the scheme including asset allocation pattern (with the option to alter this pattern for a short period on defensive considerations) and terms of the issue. Also a disclosure to the effect that these scheme attributes cannot be changed without the consent of the unitholders as specified in the regulations.

A section containing full disclosure of associate transactions undertaken by the mutual fund for the last three fiscal years along with the policy being followed by the fund for investments in group companies of the sponsor and the AMC.

This section will include additional disclosures on a) the aggregate market value of investments in group companies of the sponsor and the AMC by all the schemes of the mutual fund, b) the aggregate net asset value of the mutual fund, the maximum investments in those companies proposed by the scheme to be launched.

A separate disclosure in case any scheme of the mutual fund has invested more than 25 per cent of its net assets in group companies. Names of associates of the sponsor or the AMC with which the mutual fund proposes to have dealings and transactions and those whose services may be used for marketing and distributing the scheme and the commissions that may be paid to them, shall be disclosed in this section.

Mutual funds would also have to disclose in a separate section all penalties awarded by any regulatory body, any pending material litigation proceedings, criminal cases or economic offense cases and any enquiry or adjudication proceedings under the Sebi Act and the regulations made thereunder.