MF schemes need minimum 20 investors

No single investor to account for more than 25%: Sebi

The Securities and Exchange Board of India (Sebi) said yesterday that new mutual fund schemes launched from now on should have a minimum of 20 investors, and no single investor should account for more than 25 per cent of the scheme's corpus.

The Sebi's diktat is not only applicable to each scheme but also each individual plan under a scheme. Sebi further stipulated that offer documents must contain appropriate disclosures to this effect.

Sebi has given fund houses a three months breather to regularise the situation if in the case of open-ended schemes, either of the above two conditions have not been met.

Alternatively, fund houses have to ensure compliance with these two conditions at the end of succeeding calendar quarter from the close of the initial public offering.

Sebi also threatened that the schemes will have to be wound up if the fund houses cannot ensure compliance within the due dates.

After the IPO and the three-months balancing period, in each subsequent calendar quarter thereafter, on an average basis, the schemes should meet with both the conditions.

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.

In respect of Fixed Maturity Plans (FMPs) and close-ended schemes, the above conditions are required to be complied with immediately after the close of the IPO itself that is at the time of allotment and therefore the time period of three months to balance will not be available. Again non-compliance will mean winding up of the schemes or plans.

Incidentally these guidelines are not applicable to Exchange Traded Funds (ETFs).

For existing schemes and plans, Sebi has said that they should meet with the requirements latest by December 31, 2004, failing which they will be wound up.

For close ended schemes, FMPs and ETFs already in existence, the guidelines shall not be applicable considering the nature of the schemes and plans and in the interests of the investors.

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

Sebi issuing the circular said that the action was taken following instances where a few investors are holding substantial portion of units in schemes or plans of mutual funds.

Sebispeak

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• The diktat is not only applicable to each scheme but also to each individual plan under a scheme.
• Offer documents must contain appropriate disclosures to this effect.
• Fund houses get three months' breather to regularise the situation if, in the case of open-ended schemes, either of the above two conditions have not been met.
• Schemes will have to be wound up if the fund houses cannot ensure compliance within the due dates.