Regulatory updates

As per the Securities and Exchange Board of India (SEBI) (Mutual Funds) Regulations, 1996 (MF regulations), every Asset Management Company (AMC) is required to keep and maintain proper books of account, records and documents for each scheme of a mutual fund. Such books of account, records and documents should explain the transactions and disclose the financial position of the mutual fund scheme at any point in time.

On 25 January 2022, SEBI issued the SEBI (Mutual Funds) (Amendment) Regulations, 2022 that mandate the AMCs to prepare the financial statements and accounts of the Mutual Fund schemes in accordance with Ind AS with effect from 1 April 2023.

Additionally, on 4 February 2022, SEBI issued certain accounting guidelines (including formats) for the preparation of financial statements under Ind AS by AMCs. Following are important points of the circular:

• Opening balance sheet : Mutual Fund Schemes should prepare an opening balance sheet as on date of transition (1 April 2022) and the comparatives as per the requirements of Ind AS (FY 2022-23).
• Historical per unit statistics: Mutual Fund schemes are required to disclose scheme wise perspective historical per unit statistics for the past three years¹.

Mutual Fund schemes may not be mandatorily required to restate the previous years published perspective historical per unit statistics, in accordance with the provisions of Ind AS for the first two years from first time adoption of Ind AS. However, mutual fund schemes would need to provide the following additional information in the perspective historical per unit statistics:

• State the previous Generally Accepted Accounting Principles (GAAP) information prominently as not being prepared in accordance with Ind AS and
• Disclose the nature of adjustments that are required to be made for compliance with Ind AS (quantification of adjustments is not required).

• MF regulations to prevail over Ind AS: Proviso to clause 50(1A) of the MF regulations states that in case there is any conflict between the requirements of Ind AS and the MF Regulations and guidelines issued thereunder, the mutual funds shall follow the requirements specified under the MF Regulations
• Brokerage and transaction costs: Currently, under the MF regulations, brokerage and transaction costs incurred for the purpose of execution of trade, up to a prescribed threshold are required to be capitalised to the cost of investment. As per the amendments, these brokerage and transaction costs incurred for the purpose of execution of trade will now be charged to the mutual fund scheme as provided under Regulation 52 (6A) of the MF regulations:
  • Up to 12 bps and 5 bps for cash market transactions and derivatives transactions respectively
  • Any payment towards brokerage and transaction costs, over and above the limits specified in (a) may be charged to the mutual fund scheme within the maximum limit of Total Expense Ratio (TER) prescribed in MF regulations.
• Other disclosures: The circular also prescribes other disclosures such as accounting policies on recognition of revenue, accounting policies on valuation of investments, contingent liabilities, and other disclosures as part of Ind AS to be provided in the notes to account.

1. As per clause 6 of the Eleventh Schedule of MF regulations

To access the text of the SEBI (Mutual Funds) (Amendments) Regulations, 2022, please click here

To access the text of SEBI circular dated 4 February 2022, please click here

Regulation 30(11) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) requires mandatory confirmation, denial or clarification of any reported event or information in the mainstream media (which is not general in nature), and which indicates that rumours of an impending specific material event or information are circulating amongst the investing public.

These requirements were applicable to top 100 listed entities by market capitalisation* w.e.f. 1 October 2023 and top 250 listed entities w.e.f. 1 April 2024. In September 2023, SEBI had extended the timeline for top 100 and 250 listed entities to 1 February 2024 and 1 August 2024 respectively.

SEBI, vide a circular dated 25 January 2024 has now again extended the aforementioned timelines in the manner given below:

* As per market capitalisation as at the end of the immediately preceding financial year

To access the text of the circular, please click here

Offer For Sale (OFS) is a mechanism used by large promoters of eligible listed companies in India to offer their shares to investors through an auction process. The OFS is generally done through a stock exchange platform⁸ SEBI, vide the Master Circular dated 16 October 2023 has prescribed the comprehensive framework on OFS of shares through stock exchange mechanism. . Currently, OFS through the stock exchange is available to retail investors, institutional investors, etc. (but not to employees).

The existing procedure of OFS to employees takes place outside the stock exchange mechanism and is time consuming, involves additional costs and multiple activities. Thus, in order to address these concerns, SEBI, on 23 January 2024, issued the framework for OFS of shares to employees through stock exchange mechanism (the framework). The framework provides an additional option to the existing OFS procedure to offer shares to the employees outside the stock exchange mechanism.

Effective date: The circular would come into effect from the 30th day of issuance of the circular (i.e. 22 February 2024).

To access the text of the circular, please click here

On 5 January 2024, SEBI amended the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) with respect to AIFs holding their investments in dematerialised form and appointment of a custodian.
Subsequent to this, SEBI vide a circular dated 12 January 2024 has issued guidelines for AIFs with respect to holding their investments in dematerialised form and appointment of custodian (the guidelines). The guidelines inter-alia provide the following:

• Holding investments of AIFs in dematerialised form

• Any investment made by an AIF on or after 1 October 2024 , must be in dematerialised form. This applies irrespective of whether the investment is made directly in the investee company or acquired from another entity.
• The investments made by an AIF prior to 1 October 2024 are exempted from the requirement of being held in dematerialised form, except in certain cases.

• Appointment of custodian for AIFs

• The custodian for a scheme of an AIF should be appointed prior to the date of first investment of the scheme.
• Existing schemes of Category I and II AIFs having corpus less than or equal to INR500 crore and holding at least one investment as on date of this circular should appoint custodian on or before 31 January 2025.

• Reporting of investments of AIFs under custody

• Managers of AIFs and custodians should adopt and adhere to implementation standards formulated by the Standard Setting Forum for AIFs (“SFA”) in consultation with SEBI.

To access the text of the notification amending the AIF regulations, please click here

To access the text of the guidelines, please click here