INVESTMENT MANAGEMENT DEPARTMENT
SEBI/IMD/CIR No. 1/ 91171 /07
April 16, 2007
All Mutual Funds Registered with SEBI
Association of Mutual Funds in India (AMFI)
Sub: Parking of Funds in Short Term Deposits of Scheduled Commercial Banks by Mutual Funds – Pending deployment
Please refer to clause 8 of Schedule VII of SEBI (Mutual Funds) Regulations 1996 pertaining to investment in short term deposits of scheduled commercial banks, pending deployment.
In order to ensure that the funds collected in a scheme are invested as per the investment objective stated in the offer document, following guidelines are issued for parking of funds in short term deposits of scheduled commercial banks – pending deployment:
1. “Short Term” for such parking of funds by mutual funds shall be treated as a period not exceeding 91 days.
2. Such short term deposits shall be held in the name of the concerned scheme.
3. No mutual fund scheme shall park more than 15% of the net assets in Short term deposit(s) of all the scheduled commercial banks put together. However, it may be raised to 20% with prior approval of the trustees. Also, parking of funds in short term deposits of associate and sponsor scheduled commercial banks together shall not exceed 20% of total deployment by the mutual fund in short term deposits.
4. No mutual fund scheme shall park more than 10% of the net assets in short term deposit(s), with any one scheduled commercial bank including its subsidiaries.
5. Trustees shall ensure that no funds of a scheme may be parked in short term deposit of a bank which has invested in that scheme.
6. Asset Management Company (AMC) shall not be permitted to charge any investment management and advisory fees for parking of funds in short term deposits of scheduled commercial banks in case of liquid and debt oriented schemes.
7. All funds parked in short term deposit(s) shall be disclosed in half yearly portfolio statements under a separate heading. Details such as name of the bank, amount of funds parked, percentage of NAV may be disclosed.
8. Trustees shall certify in the half-yearly reports that the provision of the Regulation pertaining to parking of funds in short term deposits - pending deployment is being complied with at all points of time. Further the AMC shall also certify the same in its bi-monthly compliance test report.
1. The above conditions shall be applicable to all fresh investments whether in a new scheme or an existing scheme.
2. In case of an existing scheme where the scheme has already parked funds in short term deposits, the AMC shall ensure that such mutual fund schemes conform with the above conditions within a period of 3 months, from the date of the issue of these guidelines.
This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
R K Nair