Regulation 24 - Restrictions on business activities of the asset management company - Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

1 [Restrictions on business activities of the asset management company 24. The asset management company shall, - (a) not act as a trustee of any mutual fund; (b) not undertake any business activities other than in the nature of management and advisory services provided to pooled assets including offshore funds, insurance funds, pension funds, provident funds, 2 [or 6 [ such categories of foreign portfolio investor subject to such conditions, as maybe specified by the Board from time to time ] ], if any of such activities are not in conflict with the activities of the mutual fund: Provided that the asset management company may itself or through its subsidiaries undertake such activities, as permitted under clause (b), if, - (i) it satisfies the Board that bank and securities accounts are segregated activity wise; (ii) it meets with the capital adequacy requirements, if any, separately for each such activity and obtain separate approval, if necessary under the relevant regulations; (iii) it ensures that there is no material conflict of interest across different activities; (iv) the absence of conflict of interest shall be disclosed to the trustees and unit holders in scheme information document and statement of additional information; (v) there are unavoidable conflict of interest situations, it shall satisfy itself that disclosures are made of source of conflict, potential material risk or damage to investor interests and detailed parameters for the same; (vi) it appoints separate fund manager for each separate fund managed by it unless the investment objectives and asset allocation are same and the portfolio is replicated across all the funds managed by the fund manager 9 [ **** ] 10 [ : ] 3 [Provided that the requirements of this clause shall not apply if the funds managed are of 7 [ such categories of foreign portfolio investor subject to such conditions, as maybe specified by the Board from time to time ] ] (vii) it ensures fair treatment of investors across different products that shall include, but not limited to, simultaneous buy and sell in the same equity security only through market mechanism and a written trade order management system; and (viii) it ensures independence to key personnel handling the relevant conflict of interest is provided through removal of direct link between remuneration to relevant asset management company personnel and revenues generated by that activity: 8 [ Provided further that an asset management company may become a proprietary trading member for carrying out trades in the debt segment of the recognised stock exchanges, on behalf of its mutual fund schemes and may also become a self-clearing member of the recognised clearing corporations to clear and settle trades in the debt segment on behalf of its mutual fund schemes. ] (i) it satisfies the Board that key personnel of the asset management company, the system, back office, bank and securities accounts are segregated activity wise and there exist system to prohibit access to inside information of various activities; (ii) it meets with the capital adequacy requirements, if any, separately for each of such activities and obtain separate approval, if necessary under the relevant regulations. 4 [Provided further that the asset management company may become a proprietary trading member for carrying out trades in the debt segment of a recognised stock exchange, on behalf of a mutual fund.] Explanation:─For the purpose of this regulation 5 [, with the exception of proviso to clause (vi) of first proviso to clause (b)], the term broad based fund shall mean the fund which has at least twenty investors and no single investor account for more than twenty five percent of corpus of the fund.] *********** NOTES:- 1 Substituted by the SEBI (Mutual Funds) (Amendment) Regulations, 2011, w.e.f. 30-8-2011. Prior to its substitution, regulation 24 read as under: *[24. Restrictions on business activities of the asset management company.─The asset management company shall- (1) not act as a trustee of any mutual fund; (2) not undertake any other business activities except activities in the nature of [portfolio management services,] management and advisory services to offshore funds, pension funds, provident funds, venture capital funds, management of insurance funds, financial consultancy and exchange of research on commercial basis if any of such activities are not in conflict with the activities of the mutual fund : Provided that the asset management company may itself or through its subsidiaries undertake such activities if it satisfies the Board that the key personnel of the asset management company, the systems, back office, bank and securities accounts are segregated activity-wise and there exist systems to prohibit access to inside information of various activities : Provided further that asset management company shall meet capital adequacy requirements, if any, separately for each such activity and obtain separate approval, if necessary under the relevant regulations. (3) The asset management company shall not invest in any of its schemes unless full disclosure of its intention to invest has been made in the offer documents [in case of schemes launched after the notification of these regulations] : Provided that an asset management company shall not be entitled to charge any fees on its investment in that scheme.] [*amended by the SEBI (Mutual Funds) (Amendment) Regulations, 1999, w.e.f. 8-12-1999 and SEBI (Mutual Funds) (Amendment) Regulations, 1998, w.e.f. 12-1-1998] 2 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2015, w.e.f. 15-05-2015 3 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2015 w.e.f. 15-5-2015 4 Inserted by the SEBI (Mutual Funds) (Third Amendment) Regulations, 2013 w.e.f 19-8-2013 5 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2015 w.e.f. 15-5-2015 6. Substituted vide Notification No. SEBI/LAD-NRO/GN/2019/37 dated 23-09-2019 w.e.f. 15-10-2019 before it was read as Category I foreign portfolio investor as specified in Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 7. Substituted vide Notification No. SEBI/LAD-NRO/GN/2019/37 dated 23-09-2019 w.e.f. 15-10-2019 before it was read as Category I foreign portfolio investors and/or Category II foreign portfolio investors which are appropriately regulated broad based funds, as specified in Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 8. Substituted vide Notification No. SEBI/LAD-NRO/GN/2020/39 dated 29-10-2020 before it was read as Provided further that the asset management company may, itself or through its subsidiaries, undertake portfolio management services and advisory services for other than broad based fund till further directions, as may be specified by the Board, subject to compliance with the following additional conditions:- 9. Omitted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 before it was read as , within a period of six months from the date of notification of Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2011 10. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 before it was read as ;