June 20, 2002

All Mutual Funds Registered with SEBI
Unit Trust of India
Association of Mutual Funds in India

Dear Sirs,

The SEBI Advisory Committee on Mutual Funds, in its meeting held on May 28,2002 has made certain recommendations. After examining these recommendations, it has been decided that all mutual funds shall take steps to implement the following guidelines.

  1. Transactions of mutual funds in Government Securities in dematerialised form

  2. As you are aware, according to Regulation 44(1A), the mutual fund having an aggregate of securities worth Rs. 10 crore or more are required to settle their transactions only through dematerialised securities. It is further advised to all mutual funds to enter into transactions relating to government securities only in dematerialised form.

  3. Treatment and disposal of illiquid securities/NPAs at the time of maturity/ closure of the scheme

Some of the investments made by mutual funds may become non-performing (NPAs) or illiquid at the time of maturity/closure of schemes. In due course of time, these NPAs and illiquid securities may be realised by the mutual funds i.e. after the winding up of the schemes.

You are therefore advised to distribute such amount, if it is substantial and is realised within two years, to the old investors. In case the amount is not substantial or it is realised after two years, it may be transferred to the Investor Education Fund maintained by each mutual fund as specified in SEBI circular MFD/CIR/9/120/2000 dated November 24, 2000. The decision as to the determination of substantial amount shall be taken by the trustees of mutual funds after considering the relevant factors.

3. Applicability of Insider Trading Regulations

It is clarified that the Securities and Exchange Board of India (Insider Trading) (Amendment) Regulations, 2002 shall be followed strictly by the trustee companies, asset management companies and their employees and directors.

These guidelines are being issued in accordance with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.


Yours faithfully,

P.K. Nagpal