From November 1, 2024, major changes in the rules for mutual funds will come into effect, which could impact how mutual fund companies operate. The Securities and Exchange Board of India (SEBI) has issued fresh guidelines targeting insider trading in mutual funds. These rules are primarily aimed at making transactions more transparent and preventing any unfair advantages through insider information.
New Reporting Rules for Mutual Fund Transactions
One of the key changes that will impact Asset Management Companies (AMCs) is the requirement to disclose transactions exceeding Rs 15 lakh made by nominees, trustees, and their close relatives. SEBI has made it mandatory for AMCs to report any such transactions within two trading sessions to their compliance officers. The Rs 15 lakh limit applies to all schemes, excluding exempted schemes, and can be reached through either a single transaction or multiple transactions within a quarter.
This change means that AMCs will now have a stricter reporting obligation, ensuring that any major transactions are disclosed quickly, and reducing the chances of insider trading within mutual fund operations.
Quarterly Reporting Requirements for AMCs
In addition to reporting large transactions within two days, SEBI has also introduced a rule requiring AMCs to provide quarterly updates on the investments made by their nominees, trustees, and close relatives in the company’s mutual fund schemes. AMCs will need to submit these reports within 10 days of the quarter’s end.
For the first time, mutual fund investments made before October 31, 2024, must be reported to the stock exchanges by November 15, 2024. This requirement ensures that any past transactions are properly documented, adding a layer of transparency to mutual fund investments.
Explanation Required for Short-Term Transactions
Another significant change introduced by SEBI is the rule that discourages employees from making quick profits by trading in the same security within 30 days. If such a transaction occurs, the employee must provide a valid reason to the compliance officer of the AMC. The compliance officer will then report this to the Board of Directors and Trustees, ensuring accountability within the company.
This measure aims to curb short-term trading that could potentially exploit insider knowledge, thus protecting the integrity of the market.
Impact on Mutual Fund Operations
The implementation of these rules is expected to bring more scrutiny and transparency into mutual fund operations. For mutual fund managers and employees, these changes mean tighter controls and more detailed reporting requirements, making it harder to engage in insider trading activities.
With SEBI’s updated insider trading regulations, the mutual fund industry will be held to higher standards of accountability, ensuring fairer practices and boosting investor confidence.
AMCs and their employees must now adapt to these new rules and ensure they follow the guidelines to avoid any potential penalties or legal issues.
