Operations of Mutual Funds
1. Investment of Funds
The moneys collected under any scheme of a mutual fund shall be invested' only in transferable securities in the money market or in the capital market or in privately placed debentures or securitized debts.
The mutual fund having an aggregate of securities, which are worth RS.10 crore or more, as on the latest balance sheet date, shall settle their transactions only through dematerialized securities.
The mutual fund shall not borrow except to meet temporary liquidity needs of the mutual funds for the purpose of repurchase, redemption of units or payment of interest or dividend to the unit holders. In any case mutual fund shall not borrow more than 20% of the net asset of the scheme and the duration of such a borrowing shall not exceed a period of six months.
The mutual fund shall not advance any loans for any purpose. However, mutual fund may lend securities in accordance with the Stock Lending Scheme of the Board.
The funds may enter into derivatives transactions in a recognized stock exchange for the purpose of hedging and portfolio balancing, in accordance with the guidelines issued by the Board. Mutual funds may enter into underwriting agreement to carry on activities as underwriters, Provided that the underwriting obligation of a mutual fund shall not at any time exceed the total net asset value of the scheme.
2. Valuation of investment
Mutual fund values the traded securities on a mark to market basis. They are valued at a date known as valuation date. The untraded securities are valued by the SEBI given principles of valuation. When a security is not traded on any stock exchange for a period of 30 days prior to the valuation date, the scrip must be valued as non-traded scrip.
3. Pricing of units
Mutual fund shall provide to the investors the price at which the units of the scheme may be subscribed. In case of open-ended scheme the mutual funds shall publish at least in once a week in daily newspaper of all India circulations, the sale and repurchase price of units. It should ensure that. the repurchase price is not lower than 93% of the NAV and the sale price is not higher than 107% of the NAV. The difference between repurchase price and the sale price of the unit shall not exceed 7% calculated on sale price. In case of close-ended scheme, repurchase price shall not be lower than 95% of the NAV.
4. To Maintain proper books of accounts/records etc.
Every asset management company for each scheme shall keep and maintain proper books' of accounts, records and documents, for each scheme. Every asset management company shall maintain and preserve for a period of 8 years its books of accounts, records and documents. The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund shall have the annual statement of accounts audited by an auditor.
5. Dividend distribution
6. Apportionment of expenses
The AMC incur various expenses such as initial expenses, recurring expenses and investment management and advisory fees. Whatever are the expenses but it should clearly identify all the expenses and apportion it in the individual schemes. The initial expenses of floating the scheme shall not exceed six percent of the initial resources raised under that scheme. Any excess over the 6% initial issue expense shall be borne by the asset management company. The Asset Management Company may charge the mutual fund with investment and advisory fees which are fully disclosed in the offer document subject to the following namely:
(i) One and a quarter of one per cent of the weekly average net assets outstanding in each accounting year for the scheme concerned, as long as the net assets do not exceed Rs. 100 crore, and One per cent of the excess amount over Rs. 100 crore, where net assets so calculated exceeds Rs. 100 crore.
(iii) For schemes launched on a no load basis, the asset management company shall be entitled to collect an additional management fee not exceeding 1 % of the weekly average net assets outstanding in each financial year.
7. Advertisement of schemes
An advertisement relating to any scheme of the mutual fund has to comply with the provisions of Advertisement code prescribed by SEBI in VIth schedule of its regulations. The advertisement shall be submitted to SEBI 7 days prior to date of issue.
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