The Association of Mutual Funds in India (Amfi) has published a compliance manual for its members. The manual outlines procedures to be followed to independently verify that basic compliance standards are adhered. Amfi had set up a working group and also received assistance from Price Waterhouse, Fire Project for drafting the document.
The preface written by Amfi chairman AP Kurian indicates that UTI has been exempted from following the compliance manual. It says: Considering that UTI has been set up as a corporation under an Act of Parliament, it may not be required or feasible for UTI to comply completely with the requirements of the manual. Hence, it will follow the manual to the extent it is feasible within UTIs existing framework.
Amfi is expected to consider several issues in its future meetings on the manual. Price Waterhouse has listed out some of them. There are certain clarifications that have been sought by them from the Sebi.
It says that the responsibilities and liabilities of trustees and directors trustee companies should be clearly defined. Curr-ently, there is limited liability associated with being a director on the board of a trustee company since the trustee company structure is governed by the Companies Act, whereas being a trustee on the board of trustees of a mutual fund has potentially unlimited liability. Sebi clarification has been sought on the circumstances under which trustees are liable and the extent of such liability.
The Sebi (mutual fund) Regulation 16(6) states that in case a company is appointed as a trustee then its directors can act as trustees of any other trust provided that the object of the trust is not in conflict with the object of the mutual fund. The Sebi clarification has been sought on what constitutes conflicting objectives.
The Fire project has called for an explicit statement on the term fundamental attributes and said that it should include objectives, policies to achieve stated investment objectives, the policy on diversification, concentration limits in any given industry, portfolio allocation between debt and equity, limitation on fees and expenses, intent to underwrite, sales and redemption policies, and any other policies or strategic terms which may cause the unitholder to invest in a scheme.
It has been suggested that to prevent sales and advertisements based upon illusory guarantees, the word, resources should be defined as an account fully backed by a dedicated reserve with segregated assets. This collateral should be highly liquid, and instruments that are marked to market daily to reflect changes in the guarantors liability under the guarantee. The AMCs or sponsors net worth should be net of such dedicated reserves.
Clarification has also been sought on the term diversification and diversified. All funds that advertise that they are diversified must abide by a definition of diversification and diversified.
