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Informal Guidance Sought by M/s. Reliance Capital Asset Management Ltd. - Splitting of Units - SEBI (Mutual Funds) Regulations, 1996

May 12, 2004
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Informal Guidance

General Manager

Investment Management Department

IMD/SG/9676/04

May 12, 2004

M/s Reliance Capital Asset Management Ltd.

Kamala Mills Compound,

Trade World, B Wing, VII Floor, S.B. Marg

Lower Parel (W)

Mumbai 400 013

 

Dear Sir,

 

Sub: Informal Guidance sought by you regarding splitting of mutual fund units

 

By your letter dated 25/2/04 you had made an application under the SEBI (Informal Guidance) Scheme, 2003 seeking our opinion with regard to the legality and procedure involved for splitting of units of your mutual fund schemes.

We opine that splitting of units can be legally done subject to the following procedure. Our view on the procedure to be followed for such splitting is given below:

 

  1. An application for the splitting of units of each scheme has to be made by the concerned AMC to SEBI with the details of the proposal, reasons for splitting of par value of units and justification as to how such splitting is in the interest of investors along with supporting documents, if any.

    2.  

  2. The approval for such splitting of the par value of the units would be subject to compliance of the following requirements by the concerned AMC :

       

    1. Splitting of units would amount to a change in the fundamental attributes of the scheme attracting regulation 18(15A) of the SEBI (Mutual Funds) Regulations, 1996 ["the said regulations"]. Accordingly, a written communication about the splitting of units shall be sent to all the unit-holders of the scheme and they should be given an option to exit the scheme at the prevailing Net Asset Value without any exit load in terms of Regulation 18(15A).

      2.  

    2. An advertisement regarding the said splitting of units shall be published in 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.

      3.  

    3. The denomination of the par value of the existing units shall not be altered to be in fractions of Rupee; and,

      4.  

    4. There shall be uniform denomination of the par value for all units of a given scheme.

 

Further, the intimation to the unit holders should disclose fully as to what are the requirements to be fulfilled by the unit-holder consequent upon splitting. The intimation shall also elaborate on the effect of such splitting in the existing holding of the investor by way of an illustration. It shall also be shown by an illustration, (in bold, to appear prominently) that the splitting of the par value of the units would not result in any appreciation or depreciation in the total value of his existing holding of the unit-holders.

 

The advertisement regarding the splitting of units shall also contain the aforesaid illustration, in bold, to appear prominently. The AMC should also ensure that the liquidity of units held by the unitholders should not be directly or indirectly affected by the splitting of units.

 

This letter is based on the representation made to the Division of Funds in your letters. Different facts or conditions might require a different result. This letter expresses the Division’s position on enforcement action only. It does not express decision of the Board on the Questions presented.

 

Yours faithfully,

SURESH GUPTA