Mutual funds can invest unclaimed redemption and dividend amounts in a separate scheme specially created for deployment of such amounts with effect from new fiscal starting tomorrow.
Currently, mutual funds (MFs) deploy unclaimed dividend amount in call money market or money market instruments only. Investors who claim these amounts during a period of three years from the due date are paid at the prevailing Net Asset Value (NAV).
Besides, AMCs are allowed to charge a management fee of up to 50 basis points on such unclaimed amounts.
Further, asset management companies (AMCs) will not be permitted to charge any exit load in this plan and total expense ratio of such plan will be capped at 50 bps.
In a circular issued last month, Sebi said investors who claim the unclaimed amounts during a period of three years from the due date will be paid initial unclaimed amount along-with the income earned on its deployment.
Those who claim these amounts after three years, will be paid initial unclaimed amount along with the income earned on its deployment till the end of the third year. After the third year, the income earned on such unclaimed amounts will be used for the purpose of investor education.
"The unclaimed redemption and dividend amounts... Shall also be allowed to be invested in a separate plan of Liquid scheme/Money Market MF scheme floated by MFs specifically for deployment of the unclaimed amounts," Securities and Exchange Board of India (Sebi) had said.
To ensure MFs play a proactive role in tracing the rightful owner of the unclaimed amounts, fund houses and industry body Amfi will be required to disclose on their website, the list of names and addresses of investors in whose folios there are unclaimed amounts.
The website of MFs and Amfi will also provide information on the process of claiming the unclaimed amount and the necessary documents required for the same.
Further, the information on unclaimed amount along with its prevailing value will be separately disclosed to investors through the periodic statement of accounts sent to investors.
Issuing the circular, Sebi also said the existing
provisions are general in nature and do not specifically spell out the circumstances in which restriction on redemption may be applied; "leading to discretionary disclosures and practices in the industry".
Sebi said restriction on redemption should apply during excess redemption requests that could arise in overall market crisis situations rather than exceptional circumstances of entity specific situations.
The circumstances calling for restriction on redemption should be such that illiquidity is caused in almost all securities affecting the market at large, rather than in any issuer specific securities.
Besides, "when exceptional circumstances are caused by force majeure, unpredictable operational problems and technical failures. Such cases can only be considered if they are reasonably unpredictable and occur in spite of appropriate diligence of third parties, adequate and effective disaster recovery procedures and systems."
Further, Sebi said information to investors should be disclosed prominently and extensively in the scheme related documents regarding the possibility that their right to redeem may be restricted in such exceptional circumstances and the time limit for which it can be restricted.
