Sebi to strengthen mutual fund norms; winding up of schemes only after majority unitholders’ consent

In a move to further safeguard the interest of mutual fund investors, Sebi on Tuesday decided to mandate trustees of mutual funds to obtain the consent of unitholders when the majority of trustees decide to wind up a scheme.

As part of amending the mutual fund regulations, the watchdog will make it mandatory for the funds to follow Indian Accounting Standards (Ind AS) from the 2023-24 financial year onwards.

Mutual fund trustees will be required to obtain the consent of the unitholders when the majority of the trustees decide to wind up a scheme or prematurely redeem the units of a close-ended scheme, Sebi said in a release.

“The trustees will have to obtain the consent of the unitholders by a simple majority of the unitholders present and voting on the basis of one vote per unit held and publish the results of voting within 45 days of the publication of notice of circumstances leading to winding up,” it said.

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

The decision to amend the regulations was taken at the Sebi’s board meeting on Tuesday.

This came after the Supreme Court in July held that the trustees are required to seek the consent of majority unit-holders for closing mutual fund schemes after publishing notice, disclosing reasons for their decision to wind up of debt schemes.

The Supreme Court’s decision came in the case on winding-up of Franklin Templeton Mutual Fund’s six debt schemes.

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

The schemes – Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund – together had an estimated more than Rs 25,000 crore as assets under management.

Apart from Ind AS requirements, Sebi has decided to amend the norms on accounting-related regulatory provisions to remove redundant provisions and to bring more clarity.

Meanwhile, to enhance the role of KYC Registration Agencies (KRAs), the regulator has decided to make them responsible to carry out independent validation of the KYC records uploaded onto their system by the Registered Intermediary (RI).

Besides, such agencies will have to maintain an audit trail of the upload/modification/download with respect to KYC records of clients.

“It has also been prescribed that the systems of the RIs and KRAs should be integrated to facilitate seamless movement of KYC documents to and from RIs to KRAs,” the release said.

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