SEBI has found that fund houses failed to comply with the investment norms under SEBI mutual fund regulations.
Earlier, SEBI had carried out an inspection of fund houses to understand the AMCs practices between April 01, 2014 and March 31, 2016. After examination, SEBI has sent a letter to AMFI citing 25 irregularities at fund houses.
Among these irregularities, SEBI has found instances of non-compliance with the investment norms. Here are some observations of the market regulator.
- Fund houses invested over 15% of net assets in short term deposits of scheduled commercial banks without taking prior approval of their trustees
- AMCs failed to comply with requirement of not having exposure of more than 20% of net assets in such deposits at any point of time
- Fund houses parked over 10% of net assets in short term deposit of one scheduled commercial bank including subsidiary
- There were instances where AMCs invested in the short term deposits of a bank who have invested in that scheme. AMCs failed to put in place checks and balances to ensure that such banks do not invest in schemes having exposure to their short term deposits
- AMCs rolled over these deposits on a continuous basis
- AMCs took blanket approval from their trustees to increase such an investment limit from 15% to 20% in short term deposit
- Instead of using these short term deposits, fund houses borrowed to meet their cash requirements
- Establishing unfair valuations of unlisted securities
- AMCs not following scheme objectives disclosed in SID
- Close end schemes investing in papers having maturities beyond the maturity of the scheme
- Not disclosing rationale for inter scheme transactions
- AMCs having exposure to debt instruments of single issuer higher than the prescribed limits. These AMCs had either taken blanket approval from their trustees or used their power for increasing the investment limits
- Fund houses not adhered to sectoral limits in debt funds, which led to concentration risk
- Instances where a scheme used Collateralized Borrowing and Lending Obligation (CBLO) margin of another scheme
SEBI has asked fund houses to take corrective measures to ensure compliance with the SEBI MF regulations.
