SEBI Introduces Guidelines for Investment and Trading by AMC Employees

Are you looking for an investment to achieve your investment objectives? Do you seek an investment that can offer inflation-beating returns over time? You could invest in mutual funds to attain your financial goals if it matches your risk profile. However, SEBI, the capital market regulator, wants to create a level playing field for all stakeholders in the mutual fund industry.

It has made rules to ensure that significant industry players such as Directors and senior employees of Asset Management Companies cannot profit at the expense of smaller investors. Let’s take a look at some guidelines introduced by SEBI to ensure the safety of small investors in mutual funds. 

What are the SEBI rules for investment and trading by AMC employees?

The Securities and Exchange Board of India (SEBI) passed a circular on Thursday introducing new guidelines for board members of mutual funds, trustees and employees of asset management companies. 

SEBI has refrained senior AMC employees from buying and selling units of their mutual fund schemes where employees have information that materially affects the Net Asset Value (NAV) or interests of unitholders. For instance, many senior employees of the Franklin Templeton AMC redeemed mutual fund units before the winding up of six of their debt fund schemes, thereby impacting smaller investors in their schemes. 

You have SEBI creating a category of ‘access persons’ who must comply with these rules and guidelines. It helps to understand that access persons include the head of the AMC, chief investment officers, executive directors, fund managers, chief risk officers and C-suite executives. 

You have scenarios where a change in the investment objectives of the concerned mutual fund schemes, winding up of these schemes, restrictions on redemptions from mutual funds and defaults in underlying securities are vital to the concerned mutual fund. 

SEBI wants senior employees of AMCs to take prior approval before personal investment transactions to protect the interest of smaller investors in their schemes. Moreover, SEBI has defined AMCs as non-executive directors, who have access to vital non-public information that materially impacts the mutual fund’s NAV, affects the securities prices and impacts unitholders interests as access persons. 

You have SEBI guidelines covering the transactions for sale or purchase of various securities such as debentures, warrants, shares, bonds and scheme units floated by mutual funds. However, SEBI has allowed a cooling-off period for access persons on sale of securities twice in a financial year by compliance officers. It is applicable only on securities held for over one year. In a nutshell, SEBI has passed rules to make sure senior AMC employees don’t profit at the cost of smaller investors in their mutual fund schemes. 

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in