THE GAZETTE OF INDIA

EXTRAORDINARY

PART –II – SECTION 3 – SUB SECTION (ii)

PUBLISHED BY AUTHORITY

SECURITIES AND EXCHANGE BOARD OF INDIA

NOTIFICATION

Mumbai, the 22^nd May, 2006

SECURITIES AND EXCHANGE BOARD OF INDIA

(MUTUAL FUNDS) (SECOND AMENDMENT) REGULATIONS, 2006

S.O No.783 (E). – In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, namely :-

1. These Regulations may be called the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2006.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996:

(i) in regulation 33, in sub-regulation (3) –

(a) in clause (b), the figure and word “; and” shall be inserted at the end;

(b) after clause (b), the following clause shall be inserted, namely:

“(c) the initial issue expenses of the scheme have been amortised fully in accordance with the Tenth Schedule.”

(ii) in regulation 45, the proviso shall be substituted with the following, namely:

“Provided that a mutual fund may enter into derivatives transactions in a recognised stock exchange, subject to such Guidelines as may be specified by the Board.”

(iii) in regulation 49,

(a) in sub-regulation (3), after the two existing provisos, the following further proviso shall be inserted, namely:

“Provided further that no entry load shall be charged by any close-ended scheme after commencement of the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2006.”

(b) after sub-regulation (3), the following sub-regulation shall be inserted, namely:

“(3A) Where a mutual fund repurchases units in a close ended scheme which fulfills the conditions mentioned in sub-regulation (3B), it shall deduct an amount representing proportionate initial issue expenses or part thereof remaining unamortized, from the repurchase proceeds.

Explanation: The term ‘proportionate initial issue expenses or part thereof remaining unamortised’ refers to such proportion of the expenses of the scheme as are attributable to the units being repurchased.

(3B) The conditions referred to in sub-regulation (3A) are the following:

(a) the scheme is launched after commencement of the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2006; and

(b) initial issue expenses in respect of the scheme have been charged or are proposed to be charged to the mutual fund, as per clause (a) of sub-regulation (4) of regulation 52.

(3C) The amount recovered under sub-regulation (3A) shall be credited to the unamortized initial issue expenses of the scheme.”

(iv) in regulation 52:-

(a) in sub-regulation (4), clause (a) shall be substituted with the following, namely –

“(a) initial expenses of launching close-ended schemes, which shall be accounted in the books of account of the scheme in accordance with the Tenth Schedule;”

(b) in sub-regulation (5), the first proviso shall be substituted with the following, namely –

“Provided that initial expenses of launching a close-ended scheme shall not exceed six per cent. of initial resources raised under that scheme:”

(v) after regulation 52, the following regulation shall be inserted, namely:-

“Declaration of dividends

52A. A mutual fund may declare dividends in accordance with the offer document and subject to such Guidelines as may be specified by the Board.”

(vi) in Seventh Schedule, in clause 6, the proviso shall be substituted with the following, namely:-

“Provided that a mutual fund may enter into derivatives transactions in a recognised stock exchange, subject to such Guidelines as may be specified by the Board.”

(vii) in Tenth Schedule:-

(a) in the Heading, for the brackets, words and figures “[Regulation 52(5)]”, the brackets, words and figures “[Regulation 52(4)(a)]” shall be substituted;

(b) in the Heading, for the words “Initial Issue Expenses”, the words “Amortisation of Initial Issue Expenses for Close-ended Schemes” shall be substituted;

(d) in clause (d) the words, “and open ended schemes” occurring in the first sentence shall be omitted.

F.No. SEBI/LAD/DOP/ 2205 /2006

M. DAMODARAN

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

Footnotes:

(1) The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the Principal Regulations were published in the Gazette of India on December 9, 1996 vide S.O. No. 856(E).

(2) The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 were subsequently amended –

(a) on April 15, 1997 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 1997 vide S.O. No.327(E).

(b) on January 12, 1998 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 1998 vide S.O. No.32(E).

(c) on December 08, 1999 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 1999 vide S.O. No.1223(E).

(d) on March 14, 2000 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2000 vide S.O. No.235 (E).

(e) on March 28, 2000 by the Securities and Exchange Board of India (Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000 vide S.O. No.278(E).

(f) on May 22, 2000 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2000 vide S.O. No.484 (E).

(g) on January 23, 2001 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2001 vide S.O. No.69 (E).

(h) on May 29, 2001 by the Securities and Exchange Board of India (Investment Advice by Intermediaries) (Amendment) Regulations, 2001 vide S.O. No.476(E).

(i) on July 23, 2001 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2001 vide S.O. No.698(E).

(j) on February 20, 2002 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2002 vide S.O. No.219 (E).

(k) on June 11, 2002 by the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2002 vide S.O. No.625 (E).

(l) on July 30, 2002 by the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2002 vide S.O. No.809(E).

(m) on September 9, 2002 by the Securities and Exchange Board of India (Mutual Funds) (Fourth Amendment) Regulations, 2002 vide S.O. No.956(E).

(n) on September 27, 2002 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 vide S.O. No.1045(E).

(o) on May 29, 2003 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2003 vide S.O.No. 632(E).

(p) on January 12, 2004 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2004 vide F.No SEBI\LAD\DOP\4\2004.

(q) on March 10, 2004 by the Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004 vide S.O. No. 398(E).

(r) on January 12, 2006 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2006 vide S.O.No. 38(E).