Amendment to Mutual Fund Rules | 08 May 2024

Recently, the Securities & Exchange Board of India (SEBI) approved amendments to SEBI (Mutual Funds) Regulations, 1996 and it has mandated amendments to enhance regulatory oversight within Asset Management Companies (AMCs), some other recent proposed amendments are:

Institutional Mechanism:
- AMCs are required to implement enhanced surveillance systems, internal controls, and escalation processes to identify and address specific types of misconduct.
- It aims at preventing front-running, insider trading, and misuse of sensitive information within the industry.
  - Front running refers to the unethical practice of a broker or trader, executing orders on a security based on advance knowledge of pending trades from their clients, which can impact the market price.
  - Insider trading, on the other hand, involves buying or selling a security based on material, non-public information about the security.
Recording of Communication:
- SEBI has exempted face-to-face interactions during market hours from the requirement of recording all communication by dealers and fund managers.
Prudential Norms for Passive Schemes:
- SEBI has streamlined prudential norms for passive schemes, allowing equity passive schemes to invest up to the weightage of constituents in the underlying index, with a 35% cap on investment in sponsor group companies.