GENERAL MANAGER

 

INVESTMENT MANAGEMENT DEPARTMENT

SEBI/IMD/CIR No. 10/22701/03

December 12, 2003

All Mutual Funds registered with SEBI

Association of Mutual Funds in India (AMFI)

 

 

Dear Sirs,

 

 

 

Sub: Minimum Number of Investors in Schemes/Plans of Mutual Funds

 

 

Instances had come to SEBI’s notice wherein individual/a few investors were holding substantial portion of units in schemes/plans of mutual funds. 

Keeping in view the interest of investors, SEBI had initiated a dialogue with the industry including AMFI. Taking into account the inputs received, the following guidelines are being issued: 

 

A. For New Schemes/Plans launched on and after the date of this Circular

 

 

     

     

  1. Each scheme and individual plan(s) under the schemes should have a minimum of 20 investors and no single investor should account for more than 25% of the corpus of such scheme/plan(s).  

    2.  

  2. The disclosures of aforesaid requirements shall be made in the Offer Document before filing with SEBI under Regulation 28 (1) of SEBI (Mutual Funds) Regulations, 1996. 

    3.  

  3. In case of open ended schemes:
     
    1. In the case of non-fulfillment with either of the above two conditions i.e. minimum of 20 investors and no single investor should account for more than 25% of the corpus of the scheme/plan, a three months time period or the end of succeeding calendar quarter, whichever is earlier, from the close of the Initial Public Offering (IPO) of open ended schemes will be available to balance and to ensure compliance with these two conditions, failing which the provisions of Regulation 39 (2) (c) of SEBI (Mutual Funds) Regulations, 1996 would become applicable automatically without any reference from SEBI. Accordingly, schemes /plans shall be wound up by following the guidelines laid down by SEBI.
       
    2. After the IPO and the three-months balancing period, in each subsequent calendar quarter thereafter, on an average basis, the schemes/plans should meet with both the conditions (mentioned at point 1). The average would be calculated on the basis of number of investors as at the end of the business hours of the scheme on a daily basis. The average would be calculated at the end of each calendar quarter. 

    4.  

  4. In respect of Fixed Maturity Plans (FMPs) and Close ended schemes, the above conditions are required to be complied immediately after the close of the IPO itself i.e. at the time of allotment and therefore the time period of three months to balance will not be available, failing which the provisions of Regulation 39 (2) (c) of SEBI (Mutual Funds) Regulations, 1996 would become applicable automatically without any reference from SEBI. Accordingly, schemes /plans shall be wound up by following the guidelines laid down by SEBI. 

    5.  

  5. The guidelines shall not be applicable to Exchange Traded Funds (ETFs). 

 

B. For Existing Schemes/Plans

 

  1. Open ended schemes/plan(s) already in existence would also be required to comply with the following conditions as soon as possible but not later than December 31, 2004: 

       

    1. Each scheme and individual plan(s) under the schemes should have a minimum of 20 investors and no single investor should account for more than 25% of the corpus of the scheme/plan(s). 
       
    2. In each subsequent calendar quarter thereafter, on an average basis, the schemes/plans should meet with both the conditions i.e. a minimum of 20 investors and no single investor should account for more than 25% of the corpus of the scheme/plan(s). 

failing which the provisions of Regulation 39 (2) (c) of SEBI (Mutual Funds) Regulations, 1996 would become applicable automatically without any reference from SEBI. Accordingly, schemes /plans shall be wound up by following the guidelines laid down by SEBI. 

    2 The disclosures of aforesaid requirements shall be included in the offer document by the existing schemes/plan(s) by way of an addendum. 

    3 However, for close ended schemes, FMPs and ETFs already in existence, the guidelines shall not be applicable considering the nature of the schemes/plans and in the interest of the investors. 

 

C. Redemptions 

In all the cases where redemption is being done by the mutual fund pursuant to the applicability of these guidelines to the scheme/plans of the mutual fund, the redemption would be done within 10 days of the winding up of the scheme/plan. 

 

 

D. Reporting to SEBI 

The compliance of the Circular should be reported to SEBI in all the Compliance Test Reports as well as the Half Yearly Trustee Reports. 

The above clarifications are being issued in accordance with Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996.

 

Yours faithfully,

 

SURESH GUPTA