How will the GDP growh outlook pan out?

IMF's (International Monetary Fund) GDP forecasts for 2011 and 2012 do not really paint a rosy picture. As today's chart of the day shows, although China and India lead the pack, growth rates would still not match what they were in the last couple of years. This is not surprising given that both economies are battling inflation as a result of which their central banks have been tightening interest rates. Despite this, both these countries are way ahead of the rest of the pack in terms of growth. 

Source: The Economist

SEBI releases Concept Paper on Regulation of Investment Advisors

CONCEPT PAPER ON REGULATION OF INVESTMENT ADVISORS

1. Background 

1.1 Section 11 (2)(b) of SEBI Act empowers SEBI to register and regulate working of Investment Advisors and such other intermediaries who may be associated with securities market in any other manner.

1.2 As decided by SEBI Board in its meeting dated March 22, 2007, SEBI had posted a consultative paper on the “Regulation of Investment Advisors” on its website inviting public comments. Based on public comments received on the consultative paper as also the USAID (Fire Project), a memorandum was placed before the SEBI Board proposing a regulatory approach for Investment Advisors. It was proposed that the Regulations shall be implemented through an SRO. As Investment Advisors offer products across asset classes, it was felt that the respective regulators may take a view and formulate similar norms and code of conduct. Accordingly a reference was made to the HLCC on Financial and Capital Markets.

1.3 HLCCFM in its meeting held on December 22, 2008 set up the D. Swarup Committee to re‐examine the issue. The committee submitted its report to government in December 2009 which was discussed in the HLCCFM meeting in March 2010. Subsequently, regulatory issues relating to Wealth Management and / Private Banking undertaken by banks were discussed by the FSDC Sub‐Committee in its meeting on March 4, 2011.

1.4 In this background, SEBI has developed a framework for regulation of investment advisors through the SRO route.

2. Tackling Conflict of Interest in Distribution of Financial Products 

2.1 It is axiomatic that any industry, in order to achieve scale and high productivity, must be free of internal contradictions and conflicts of interest. Financial sector is no exception. The financial product distribution space is particularly fraught with these conflicts between the manufacturers of financial products like banks, mutual funds, and insurance companies, etc. and the distributors which sell these products who call themselves by various names like agents, financial advisors, financial planners, etc.

2.2       It is necessary to resolve or at least mitigate these conflicts, especially in the case of financial products because of their two peculiar characteristics. Firstly, the products are intangible and conceptually more difficult to understand. Secondly, the pay‐offs are in a distant future and can be camouflaged by several factors external to the product. It is in this context that the distributors occupy a key role; all the more so considering the low levels of financial literacy and awareness in India.

2.3 Two major conflicts of interest in the financial product distribution space are the following:

a. Dual role played by distributors as an agent of investors as well as of the manufacturers. This is due to the fact that with respect to many financial products, agents receive their payments from two sources: commissions from the manufacturers (either directly or through deductions from the investment amount of investors), and advisory fees or other charges received from the investors. This immediately raises the question: whose interests do they represent: the manufacturers’ or the investors’? This question has also been raised in the Devendra Swaroop Committee report on ‘Minimum Common Standards for Financial Advisors and Financial Education’. This prevalence of divided loyalties may not be in the best interest of all the stakeholders concerned. It often results in a situation where the distributors are loyal to only themselves. They would happily churn investors’ portfolio and also squeeze more commission from the manufacturer.

b. A situation might arise where distributors are likely to be partial to, and would sell more products of the manufacturer who is the best paymaster; and ultimately, other manufacturers would scramble to do the same, thus leading to a race to the bottom. Thus, there is an inherent conflict in the activities of an agent/distributor distributing similar products of various manufacturers.

2.4 There could be many possible solutions to these issues ‐ the most obvious and the easiest being enhanced disclosures. However, in a country like India where levels of literacy are low and financial literacy even lower, disclosures have a limited effect.

2.5 The Financial Services Authority, UK, had outlined plans to ban commission payments for product providers and enforce financial advisors to agree on fee payments with clients upfront. It defined two categories of service: independent and restricted, on the basis of which advisors would charge the fee. Examples of restricted advice may be where advisors offer advice only about the products of a particular manufacturer; or about the products from a defined list of manufacturers. Independent advice would include unrestricted advice based on a comprehensive and fair analysis of the relevant  market. However, there is a kind of restricted advice called ‘basic advice’. With Basic Advice, the consumer is asked some pre‐scripted questions about their income, savings and other circumstances to identify the consumer’s financial priorities and suitability for a stakeholder product, but a full assessment of their needs is not conducted nor is advice offered on whether a non‐stakeholder product may be more suitable. ‘Basic advice’ is excluded from the new rules i.e. in case of basic advice, commissions can be paid and the new advisor charging rules are not applicable to the same. Also, non‐ advised or execution only sales would be remunerated only by commission and would not fall within the ambit of the advisor charging rules. Thus, in the FSA model, the first conflict of interest as per para 2.3(a) seems to have been addressed by ensuring that the distributor/advisor owes allegiance to only one paymaster at a time‐either the manufacturer or the investor.

2.6 SEBI, with effect from August 01, 2009, had banned entry loads in mutual fund investments and had mandated that the upfront commission should be paid directly by the investors to the distributors based on factors like assessment of the service of the distributor. However, the distributor continued to earn trail commissions from the Asset Management Company at the same time. Thus, the first conflict of interest was only partially mitigated in this model.

2.7 In this paper, we are attempting to deal with only the first type of conflict of interest. The possible model for tackling this conflict of interests may be the following:

a. The person who interfaces with the customer should declare upfront whether he is a financial advisor or an agent of the manufacturer.

b. If he is an advisor, he would be subject to the Investment Advisors Regulations; and would require a much higher level of qualifications. He would act as an advisor to the investor on all financial products. He would receive all payments from the investor and there would be no limits set on these payments. On the other hand, there will be agents who will be associated with the manufacturer and would receive their remuneration from them. However, they will be prevented from styling themselves as financial advisors and will have to call themselves as agents only.

c. This will resolve the first conflict of interest as in para 2.3 (a).

3. Structure of Proposed Regulations

3.1 The proposed regulatory framework intends to regulate the activity of providing investment advisory services in various forms by a wide range of entities including  independent financial advisors, banks, distributors, fund managers etc. The investment advice may be provided for investments in various financial products including but not limited to securities, insurance products, pension funds, etc. While the activity of giving investment advice will be regulated under the proposed framework through an SRO, issues relating to financial products other than securities shall come under the jurisdiction of the respective sectoral regulators such as action for mis‐selling, violation of code of conduct, conflict of interest etc. The SRO set up for the regulation of Investment Advisors shall follow the rules/regulations laid down by respective regulators for products falling in their jurisdiction, including but not limited to suitability and appropriateness of the products.

3.2 The SRO formed to regulate investment advisors will be registered under the SEBI (Self Regulatory Organization) Regulations, 2004. SRO will have sufficient resources to perform its functions. Its duties would include registering and setting minimum professional standards, including certification of investment advisors, laying down rules and regulations and enforcing those; informing and educating the investing public; setting up and administering a disputes resolution forum for investors and registered entities etc. Persons desirous of registration as Investment Advisors shall obtain registration with the SRO established for the purpose. The SRO will be entitled to charge a fee for granting registration and an annual fee.

3.3 Complaints / disputes arising out of investment advisory services will be taken up by the SRO with the respective regulatory authority, while the complaints regarding the financial products and their manufacturers will be handled by the respective regulators. 

3.4 Investment Advisors tend to call themselves by varied names viz. wealth managers, private bankers etc. This causes much confusion as to their role and responsibility. Hence the regulations will provide that no person can carry on the activity of offering investment advice unless he is registered as an Investment Advisor under the regulations. On the other hand any person who has obtained the certificate of registration as an Investment Advisor must necessarily use the word “investment advisor” in his name.

4. Definitions

4.1 Investment Advisor

Investment advisor for the purpose of the regulations shall be any person or entity that provides investment advice directly or indirectly for a consideration, which may be received directly from the investor or who holds himself out as an investment advisor.

4.2 Investment Advice

Investment advice shall be an advice written, oral or through any other means of communication given regarding investment of funds in financial products or products that are traded and settled like financial products purportedly for the benefit of the investor. It shall include:

(a)   Financial advice; or

(b)   Financial planning service or

(c) Actions which would influence an investment decision and are incidental to making an investment/investment decision.

5. Coverage

5.1 Individuals

The following set of individuals would need to get registered under the regulations to be able to provide Investment Advisory Services:‐

a. Independent Investment Advisor– Independent Investment Advisors are professionals who offer independent advice on financial matters to their clients and recommend suitable financial products or products that are traded and settled like financial products.

b. Representatives of investment advisors or intermediaries who on behalf of the investment advisor or intermediary provide investment advice to investors: Representative would mean a person, in the direct employment of, or acting for, an investment advisor, who performs on behalf of the investment advisor any investment advisory service, whether or not he is remunerated, and whether his remuneration, if any, is by way of salary, wages, commission or otherwise, and includes any officer of an investment advisor who performs for the investment advisor any investment advisory service whether or not he is remunerated, and whether his remuneration, if any, is by way of salary, wages, commission or otherwise; 

5.2 Non‐individuals

The following set of non‐individuals (corporate entities) would need to get registered under the regulations to be able to provide Investment Advisory Service:

a. Banks providing investment advisory/ wealth management services: In India Banks are allowed to perform only Investment Advisory Services. Those banks which provide similar services would be required to get registration under these regulations.

b. Any entity, other than an individual person ‐ representing investment advisor, who on behalf of the investment advisor provides investment advice to investors : Representative would mean a person, acting for, an investment advisor, who performs on behalf of the investment advisor any investment advisory service, whether or not it is remunerated, and whether its remuneration, if any, is by way of, commission or otherwise, and includes any officer of such an entity who performs for the investment advisor any investment advisory service whether or not he is remunerated, and whether his remuneration, if any, is by way of salary, wages, commission or otherwise;

6. Persons Exempt from the regulations

6.1 A person shall be deemed not to be engaged in the business of providing investment advice, if the advice is solely incidental to some other business or profession and the advice is given only to clients of the person in the course of such other business or profession and the advice does not specify particular securities and is limited to general comments made in good faith in regard to trends in the securities market, the economic situation of the country.

6.2 The following shall be exempt from registration under these regulations:

a. An advocate and solicitor or law firm, whose offer of financial advice is solely incidental to his legal practice.

b. Chartered accountants who are registered under the Institute of Chartered Accountants of India providing of any investment advice is solely incidental to the accounting practice.

c. Any person who publishes magazine/newspaper, where —

I. the newspaper is distributed generally to the public in India;

II. the advice given, or analysis or report issued, is promulgated only through that newspaper;

III. that person receives no commission or other consideration, apart from any fee received from subscription to or purchase of the newspaper, for giving the advice, or for issuing or promulgating the analysis or report; and

IV. the advice is given, or the analysis or report is issued or promulgated, solely as incidental to the conduct of that person’s business as a newspaper proprietor.

d. Any person who owns, operates or provides an information service through an electronic, or a broadcasting or telecommunications medium, where —

I. the service is generally available to the public in India;

II. the advice given, or analysis or report issued is promulgated only through that service;

III. that person receives no commission or other consideration, apart from any fee received from subscription to the service, for giving the advice, or for issuing or promulgating the analysis or report; and

IV. the advice is given, or the analysis or report is issued or promulgated, solely as incidental to that person’s ownership, operation or provision of that service.

e. Any stock broker or sub‐broker as registered under SEBI( Stock Broker and Sub‐ Broker) Regulations, 1992, who provides any investment advice as per Regulation 7  read with Schedule II of SEBI (Stock Broker and Sub‐broker) Regulation, 1992 and not charging any consideration for such advice.

f. Any person offering exclusively insurance broking services under regulation of Insurance Development and Regulatory Authority.

7.  Registration Requirements

7.1 The Individuals who wish to get registered under these regulations would need to satisfy the following criteria:

a. Individuals should acquire a Professional Qualification from a recognized institute for e.g. Chartered Accountancy form ICAI, MBA in Finance or similar qualification from a recognized university or should have at least 10 years of relevant experience; and

b. Certification from NISM or such other organization approved by SEBI for this purpose

c. The individuals should conform to the Fit and Proper Criteria s laid down in Schedule II of SEBI (Intermediaries) Regulations, 2008.

7.2  Entities who wish to get registered under these regulations would need to satisfy the following criteria:

a. Capital Adequacy Requirement: Entities would need to maintain a minimum net worth which would be separate from the net worth required for other activities.

b. Key personnel: Entities should have at least 2 key personnel having the relevant experience exclusively for such activity. Such key personnel should also acquire the certification from NISM or such other organization as approved by SEBI for this purpose and have minimum qualification as prescribed.

c. The entity should conform to the Fit and Proper Criteria laid down in Schedule II of SEBI (Intermediaries) Regulations, 2008.

d. The applicant must have adequate infrastructure to enable it to discharge its functions as an Investment Advisor.

8. Obligations of an Investment Advisor

8.1 Fiduciary Responsibility to Investors

All information received and provided by the investment advisor would be in fiduciary capacity. The investment advisor will be responsible to maintain confidentiality of the   investment advice provided to the client and information provided by the client. Advice should be given by the advisor in the best interest of the investor.

8.2 Suitability and Risk Profiling

The Investment Advisors or their representatives would be required to do adequate risk profiling of the client before any investment service is provided to them. Based upon the risk profiling performed by the investment advisor or their representative suitable investment advice should be provided. The records of such risk profiling and investment advice should be maintained by the Investment Advisor.

8.3 Advertising and Marketing Material

Investment Advisors should not use any advertisement that contains any untrue statement of material fact or that is otherwise misleading. They should not use or refer to testimonials (which include any statement of a client’s experience or endorsement).

Refer to past, specific recommendations made by the advisor that were profitable, unless the advertisement sets out a list of all recommendations made by the advisor within the preceding period of not less than one year and complies with other specified conditions.

8.4 Conflict of Interest

No financial incentives! consideration would be received from any person other than investors seeking advice. In case of advice regarding investment in entities related to the investment advisor, adequate disclosures shall be made to investor regarding the relationship.

8.5 Maintaining Records

Records in support of every investment recommendation !transaction made which indicates the data, facts and opinion leading to that investment decision would be maintained by the Investment Advisor. Records should be retained for at least 5 years. Systematic record of all advises provided would be kept including audio recording of any oral advice given.

8.6  Fees and Charges

The Investment Advisor would clearly indicate to its clients the fees and charges that are required to be paid by them. An investment advisor shall disclose to a prospective clients all material information about itself, its businesses, its disciplinary history, the terms and conditions on which it offers advisory services, its affiliations with other intermediaries and such other information as is necessary him to take an informed decision whether to avail of its services.

9. Execution Services

Investment advisors shall not accept funds / securities from investors, except the fee for investment advice. If Non‐individual investment advisors (corporate entities) offer assistance in execution services such as broking, custody services, DP services, accounting etc., they must make appropriate disclosures, clarify that the investor is under no obligation to use their services and maintain arms length relationship through creation of Chinese walls. The choice of opting for execution services offered by investment advisor should be left to the investors. Fees and charges paid to service providers should be paid directly to them and not through investment advisors.

10.  Outsourcing

Other than sourcing of research reports, no other part of investment advisory activity can be outsourced.

11. Liability

The investment advisors shall not be liable for civil or criminal liability in respect of advice given unless the advice is negligent or mala‐fide in nature. Any dispute between the investment advisor and his client would be resolved through grievance redressal mechanism or arbitration created by SEBI

12. Entities registered as Portfolio Managers

Portfolio Managers who provide only investment advice would need to be registered only as investment advisors after their present registration expires. Portfolio Manager Regulations would be amended in view of the proposed AIF Regulations as well as the Investment Advisor Regulations.

13. Public Comments

Public Comments are invited on the Concept Paper on Regulation of Investment Advisors. All comments may be forwarded by e‐mail to Shri Manish Tekriwal, Manager, Investment Management Department, Division of Funds ‐ 1 at manisht@sebi.gov.in  latest by 1730 hours on October 31, 2011.

Easier PAN norms for FIIs, foreign nationals

In a move which could improve the fund flow and provide some stability to the choppy Indian bourses, the finance ministry has relaxed norms for foreign nationals and foreign institutional investors to obtain Permanent Account Numbers (PAN) that could also double up as KYC (know your customer) compliance for any investment they make in Indian stocks. 

Till now, FIIs or foreign nationals had to obtain a PAN and separately meet KYC requirements prescribed by the market regulator before investing in stocks. The tax obligation on any transaction is twice the due amount if they fail to mention PAN. 

In the revised rules that come into effect from October 1, a foreign national will have to only produce either h/his citizenship number or taxpayer identification number to obtain a PAN. The government is making amendments in Rule 114 and Form 49A of the Income Tax Rules and has proposed to introduce a new Form 49AA. While Form 49A will be used for Indian citizens, the other is for foreign nationals and FIIs. 

Earlier rules stipulated that citizenship or taxpayer identification number would not be accepted as proof of identity in case of foreign nationals seeking PAN card. The applicant is required to take prescribed documents to an officer of Indian Embassy or High Commission where he is a resident to get them attested. 

The revised guidelines ensure that a foreign national or an FII need not make rounds of Indian Embassies or High Commissions anymore. They can get copies of their documents attested by recognized authorities in their respective countries. Several countries and trade and industry organizations had represented the finance ministry seeking changes in the rules, in particular documents to be accepted as proof of identity and address and their attestation. 

The department of economic affairs and the central board of direct taxes (CBDT) also worked on harmonizing the requirements of PAN and meeting KYC obligation. "Since most of the basic information for both are common, it was decided to harmonize them into one so that compliance burden for a foreign investor is substantially reduced," said a senior finance ministry official. The directorate of Income Tax has devised a single integrated form that incorporates the requirements of both PAN and KYC.

SEBI: Circular for Mutual Funds

Securities and Exchange Board of India

CIRCULAR

Cir/ IMD/ DF/13/ 2011

August 22, 2011

All Registered Mutual Funds/ Approved Asset Management Companies (AMCs)

Sir/Madam,

Sub: Circular for Mutual Funds

A. Transaction charges

1. Please refer to SEBI circular no. SEBI/IMD/CIR No. 4/168230/09 dated June 30, 2009 regarding empowering investors through transparency in payment of commission and load structure.

2. It has been represented to SEBI that distributors incur expenditure on traveling and incidentals for reaching investors and procuring business for Mutual Funds. Distributors are also required to set up appropriate infrastructure for servicing investors as well as incur certain expenses while marketing the units of Mutual Funds.

3. In order to enable people with small saving potential and to increase reach of Mutual Fund products in urban areas and smaller towns, it has been decided that a transaction charge per subscription of `10,000/- and above be allowed to be paid to the distributors of the Mutual Fund products from the date of this circular. However, there shall be no transaction charges on direct investments. The transaction charge shall be subject to the following:

i. For existing investors in a Mutual Fund, the distributor may be paid ` 100/- as transaction charge per subscription of ` 10,000/- and above.

ii. As an incentive to attract new investors, the distributor may be paid ` 150/- as transaction charge for a first time investor in Mutual Funds.

iii. The terms and conditions relating to transaction charge shall be part of the application form in bold print.

iv. The transaction charge, if any, shall be deducted by the AMC from the subscription amount and paid to the distributor; and the balance shall be invested.

v. The statement of account shall clearly state that the net investment as gross subscription less transaction charge and give the number of units allotted against the net investment.

vi. Distributors shall be able to choose to opt out of charging the transaction charge. However, the ‘opt-out’ shall be at distributor level and not investor level i.e. a distributor shall not charge one investor and choose not to charge another investor.

vii. The AMCs shall be responsible for any malpractice/mis-selling by the distributor while charging transaction costs.

viii. There shall be no transaction charge on subscription below ` 10,000/-

ix. In case of SIPs, the transaction charge shall be applicable only if the total commitment through SIPs amounts to ` 10,000/- and above. In such cases the transaction charge shall be recovered in 3-4 installments.

x. There shall be no transaction charge on transactions other than purchases/ subscriptions relating to new inflows.

4. Mutual Funds shall institute systems to detect if a distributor is splitting investments in order to enhance the amount of transaction charges and take stringent action including recommendations to AMFI to take appropriate action.

5. Mutual Funds/AMCs shall carry out an exercise of de-duplication of folios across all Mutual Funds within a period of 6 months from the date of this circular.

6. It is also clarified that as per SEBI circular no. SEBI/IMD/CIR No. 4/ 168230/09, dated June 30, 2009, upfront commission to distributors shall continue to be paid by the investor directly to the distributor by a separate cheque based on his assessment of various factors including the service rendered by the distributor.

B. Distributors of Mutual Fund products

1. It has been felt that in the interest of investors there is a need to regulate the distributors through AMCs by putting in place a due diligence process to be conducted by AMCs as follows:

i.The due diligence process shall be initially applicable for distributors satisfying one or more of the following criteria:

a. Multiple point presence (More than 20 locations)

b. AUM raised over ` 100 Crore across industry in the non institutional category but including high networth individuals (HNIs)

c. Commission received of over ` 1 Crore p.a. across industry

d. Commission received of over ` 50 Lakh from a single Mutual Fund

ii.At the time of empanelling distributors and during the period i.e. review process, Mutual Funds/AMCs shall undertake a due diligence process to satisfy ‘fit and proper’ criteria that incorporate, amongst others, the following factors:

a. Business model, experience and proficiency in the business.

b. Record of regulatory / statutory levies, fines and penalties, legal suits, customer compensations made; causes for these and resultant corrective actions taken.

c. Review of associates and subsidiaries on above factors.

d. Organizational controls to ensure that the following processes are delinked from sales and relationship management processes and personnel:

i.) Customer risk / investment objective evaluation.

ii.) MF scheme evaluation and defining its appropriateness to various customer risk categories.

iii.In this respect, customer relationship and transactions shall be categorized as:

a. Advisory – where a distributor represents to offer advice while distributing the product, it will be subject to the principle of ‘appropriateness’ of products to that customer category. Appropriateness is defined as selling only that product categorization that is identified as best suited for investors within a defined upper ceiling of risk appetite. No exception shall be made.

b. Execution Only – in case of transactions that are not booked as ‘advisory’, it shall still require:

i.) The distributor has information to believe that the transaction is not appropriate for the customer, a written communication be made to the investor regarding the unsuitability of the product. The communication shall have to be duly acknowledged and accepted by investor.

ii.) A customer confirmation to the effect that the transaction is ‘execution only’ notwithstanding the advice of in-appropriateness from that distributor be obtained prior to the execution of the transaction.

iii.) That on all such ‘execution only’ transactions, the customer is not required to pay the distributor anything other than the standard flat transaction charge, as mentioned in part ‘A’ above.

c. There shall be no third categorization of customer relationship / transaction.

d. While selling Mutual Fund products of the distributors’ group/affiliate/associates, the distributor shall make disclosure to the customer regarding the conflict of interest arising from the distributor selling of such products.

iv.Compliance and risk management functions of the distributor shall include review of defined management processes for:

a. The criteria to be used in review of products and the periodicity of such review.

b. The factors to be included in determining the risk appetite of the customer and the investment categorization and periodicity of such review.

c. Review of transactions, exceptions identification, escalation and resolution process by internal audit.

d. Recruitment, training, certification and performance review of all personnel engaged in this business.

e. Customer on boarding and relationship management process, servicing standards, enquiry / grievance handling mechanism.

f. Internal / external audit processes, their comments / observations as it relates to MF distribution business.

g. Findings of ongoing review from sample survey of investors

2. Mutual Funds/AMCs may implement additional measures as deemed appropriate to help achieve greater investor protection.

C. Transparency of information

1. SEBI vide circular no. SEBI/IMD/CIR No. 4/ 168230/09, dated June 5, 2000, has stipulated that only compounded annualized yield shall be advertised if the scheme has been in existence for more than 1 year.

2. It has been decided, henceforth, that when the scheme has been in existence for more than three years:

i.Point-to-point returns on a standard investment of ` 10,000/- shall also be shown in addition to CAGR for a scheme in order to provide ease of understanding to retail investors.

ii.Performance advertisement shall be provided since inception and for as many twelve month periods as possible for the last 3 years, such periods being counted from the last day of the calendar quarter preceding the date of advertisement, along with benchmark index performance for the same periods.

3. Where scheme has been in existence for more than one year but less than three years, performance advertisement of scheme(s) shall be provided for as many as twelve month periods as possible, such periods being counted from the last day of the calendar quarter preceding the date of advertisement, alongwith benchmark index performance for the same periods.

4. Where the scheme has been in existence for less than one year, past performance shall not be provided.

5. For the sake of standardization, a similar return in INR and by way of CAGR must be shown for the following apart from the scheme benchmarks:

Scheme Type	Benchmark
Equity scheme	Sensex or Nifty
long term debt scheme	10 year dated GoI security
short-term debt fund	1 year T-Bill

These disclosures shall form a part of the Statement of Additional Information and all advertisements of Mutual Funds.

6. Any disclosure regarding quarterly/half yearly/yearly performance shall pertain to respective calendar quarterly/half yearly/yearly only.

7. When the performance of a particular Mutual Fund scheme is advertised, the advertisement shall also include the performance data of all the other schemes managed by the fund manager of that particular scheme.

In case the number of schemes managed by a fund manager is more than six, then the AMC may disclose the total number of schemes managed by that fund manager along with the performance data of top 3 and bottom 3 schemes (in addition to the performance data of the scheme for which the advertisement is being made) managed by that fund manager in all performance related advertisement. However, in such cases AMCs shall ensure that true and fair view of the performance of the fund manager is communicated by providing additional disclosures, if required.

Assets Under Management (AUM) disclosure

8. Wherever the Mutual Funds discloses the AUM figures for the fund, disclosure on bifurcation of the AUM into debt/equity/ balanced etc, and percentage of AUM by geography (i.e. top 5 cities, next 10 cities, next 20 cities, next 75 cities and others). The Mutual Funds shall disclose the aforesaid data on their respective websites & to AMFI and AMFI shall disclose industry wide figures on its website.

Commission disclosure

9. Mutual Funds / AMCs shall disclose on their respective websites the total commission and expenses paid to distributors who satisfy one or more of the following conditions with respect to non-institutional (retail and HNI ) investors

i.Multiple point of presence (More than 20 locations)

ii.AUM raised over ` 100 crore across industry in the non institutional category but including high networth individuals (HNIs).

iii.Commission received of over ` 1 crore p.a. across industry

iv.Commission received of over ` 50 lakh from a single Mutual Fund/AMC.

10. Mutual Funds / AMCs shall also submit the above data to AMFI. AMFI shall disclose the consolidated data in this regard on its website.

D. The aforesaid circulars stand modified to the said extent.

E. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Yours faithfully,

Asha Shetty

Deputy General Manager

Tel no. 022-26449258

Email-ashas@sebi.gov.in

Sensex could surge past 23,000 in one year: Reliance MF

Indian stock market is poised for robust growth in 12-18 months and the BSE benchmark Sensex may soar to a record 23,000 mark by next August, the country's largest fund house has said.

In its latest report on Indian equity markets, Reliance Mutual Fund said the global as well as domestic economic headwinds were expected to subside considerably in the next one year.

Besides, it added, various policy actions initiated by the government for furthering the economic reforms would also help improve the corporate and investor sentiment.

Terming the prevailing concerns as short-lived, Reliance MF said the environment might not remain as gloomy going forward and investors can expect better returns over 12 to 18 months.

Based on its estimates for corporate earnings growth and other factors, the Sensex could rise to 23,100 level by August 2012, the fund house said.

This would be higher than the record high of 21,206.77 points, which the Sensex scaled on January 10, 2008.

The Bombay Stock Exchange 30-share index currently stands at 16,866.97 points and has lost over 1,900 points or more than 10 per cent in the past one year.

The fund house further said the Sensex could rise to as high as 30,568 points by August 2012, in the best-case scenario for corporate earnings growth and other market fundamentals.

The worst-case scenario pegs the index at 15,977 points by August 2012, while the average estimates puts it at 22,852, the report said in its analysis for the one-year Sensex forecast under various earnings growth and PE (price-to- earnings) multiples.

In an earlier report published last month, Reliance MF had said that the correction trigged by concerns over debt crisis in the US and Europe could be seen as an attractive share buying opportunity for investors.

It had also asserted at that time that a doomsday scenario like the one experienced during the global financial crisis of 2008 was unlikely to return to Indian markets, as the variables are very different this time.

Taking forward its analysis in the latest report, the fund house noted, "Indian markets have remained under pressure for the last few quarters due to significant macro headwinds both on the domestic and international front.

"While the market has been pricing a lot of those concerns, we think these headwinds are peaking now. Investors should put in perspective that current concerns may be short-lived and the environment may not be as gloomy or rather be pretty decent over a year."

The fund house said that Indian markets saw an outflow of $ 3 billion last month after the US rating downgrade.

"Other than global headwinds, domestic macro concerns have led to low risk appetite and in turn dismal portfolio inflows in Indian equities," it said.

However, most of these headwinds would subside in the next one year, Reliance MF said.

It added, "Other than inflation and rates, another key reason for the investors' despondency is the Govt policy inactivity and related uncertainties.

"Govt policy disappointment resulted in lack of confidence among corporates who postponed their expansion plans and that has disappointed investors. However, in recent weeks we have seen definite steps towards improving the policy environment."

The report listed them as, "cabinet reshuffle, a much overdue fuel price hikes, revamped GST taskforce, softer stance on pesky environmental clearance issue and clearance of land acquisition bill, roadmap to cut down state electricity board's losses, etc."

The fund house said it expects further pickup in momentum in policy action over the next one year, resulting into developments like introduction of GST (Goods and Services Tax) and DTC (Direct Tax Code), new banking licenses, FDI in retail and insurance and reforms on infrastructure financing.

These developments could help assuage the investors' concerns, the report noted.

Source: ET