scorecardresearch2022 in Review: 5 new mutual fund rules set by SEBI to bring in more transparency

2022 in Review: 5 new mutual fund rules set by SEBI to bring in more transparency

Updated: 31 Dec 2022, 10:07 AM IST
TL;DR.

Asset management companies witnessed major changes in the rules and regulations for mutual funds with SEBI now mulling the idea of regulating financial influencers soon.

There were numerous rules introduced to improve the working of mutual funds in 2022.

There were numerous rules introduced to improve the working of mutual funds in 2022.

Mutual fund investors saw several changes in rules and new regulations in 2022. While some changes or regulations were related to the security of assets in debt mutual funds, others made transactions more secure. In the coming days, we may see market regular SEBI making rules to regulate the content shared by financial influencers on various social media platforms.

There were numerous rules introduced to improve the working of mutual funds in 2022. Some of these include:

Change in rules regarding winding up of mutual fund schemes

SEBI issued new rules for the liquidation of mutual fund schemes in January 2022. Mutual fund trustees will be required by the new rules to obtain unitholder consent when the majority of trustees decide to close a scheme or prematurely redeem the units of a closed-ended scheme.

The trustees must now obtain unitholder consent by seeking the consent of a simple majority of the unitholders present and voting on the basis of one vote per unit held. The fund house must then publish the results of the voting within 45 days of the publication of the notice of circumstances resulting in the winding up of a particular scheme.

Mandating two-factor authentication for mutual fund transactions

SEBI issued a circular on Two-factor Authentication (2FA) for Mutual Fund Redemption in March 2022. Users will authenticate themselves using two separate authentication factors in a two-step security procedure known as two-factor authentication, according to the new rule (2FA). Authentication factors can include a username, password, security questions, an OTP, a fingerprint, or a face ID.

Changed rules for rebalanced portfolios

SEBI issued a timetable for portfolio rebalancing in March to ensure consistency among mutual funds. The SEBI-mandated rebalancing period for all mutual fund schemes barring index funds and exchange-traded funds (ETFs) will be 30 business days. If the rebalancing is not completed within the timeframes specified, a written justification, including details of the efforts made to rebalance the portfolio, should be presented to the investment committee concerned. In the event of a rebalancing rule violation, the mutual fund house is not permitted to launch any new schemes.

New guidelines on dividends and maturity proceeds

In November, SEBI announced new rules for transferring dividend and redemption proceeds to mutual fund unitholders. Every mutual fund and fund house must now transfer dividend payments and redemption or repurchase proceeds to unitholders within a time frame specified by the organization under the new rule.

Limit on investment based on debt paper’s credit rating

SEBI directed fund houses in November this year to limit their investments in AAA-rated debt and money market instruments from a single issuer to not more than 10 percent of the scheme's net asset value (NAV). Schemes must limit their exposure to AA-rated issuers to eight percent, while securities with ratings below A must limit their exposure to six percent. The industry applauded this move as it would heighten the safety aspect regarding debt mutual fund investments.

Article
Higher the credit score, easier it is to procure a loan
First Published: 31 Dec 2022, 10:07 AM IST