1. The application for the approval of the asset management company shall be made in Form D.

2. The provisions of regulations 5, 6 and 8 shall, so far as may be, apply to the application made under sub-regulation (1) as they apply to the application for registration of a mutual fund.

1. The sponsor or, if so authorised by the trust deed, the trustee shall, appoint an asset management company, which has been approved by the Board under sub-regulation (2) of regulation 21.

2. The appointment of an asset management company can be terminated by majority of the trustees or by seventy five per cent of the unit-holders of the scheme.

3. Any change in the appointment of the asset management company shall be subject to prior approval of the Board and the unitholders.

1. For grant of approval of the asset management company the applicant has to fulfil the following: -

   1. (a) in case the asset management company is an existing asset management company it has a sound track record, general reputation and fairness in transactions;

   Explanation: For the purpose of this clause sound track record shall mean the networth and the profitability of the asset management company.

   (aa) the asset management company is a fit and proper person.

   2. the directors of the asset management company are persons having adequate professional experience in finance and financial services related field and not found guilty of moral turpitude or convicted of any economic offence or violation of any securities laws

   3. the key personal of the asset management company have not been found guilty of moral turpitude or convicted of economic offence or violation of securities laws or worked for any asset management company or mutual fund or any intermediary during the period when its registration has been suspended or cancelled at any time by the Board;

   4. the board of directors of such asset management company has at least fifty percent directors, who are not associate of, or associated in any manner with, the sponsor or any of its subsidiaries or the trustees;

   5. the Chairman of the asset management company is not a trustee of any mutual fund;

   6. the asset management company has a networth of not less than rupees ten crores:

       Provided that an asset management company already granted approval under the provisions of Securities and Exchange Board of India (Mutual Funds) Regulations, 1993 shall within a period of twelve months from the date of notification of these regulations increase its networth to rupees ten crores.

       Provided that the period specified in the first proviso may be extended in appropriate cases by the Board upto three years for reasons to be recorded in writing.

       Provided further that no new schemes shall be allowed to be launched or managed by such asset management company till the net worth has been raised to Rupees ten crores.

   Explanation: For the purposes of this clause, "net worth" means the aggregate of the paid up capital and free reserves of the asset management company after deducting therefrom miscellaneous expenditure to the extent not written off or adjusted or deferred revenue expenditure, intangible assets and accumulated losses.

2. The Board may, after considering an application with reference to the matters specified in sub-regulation (1), grant approval to the asset management company.

The approval granted under sub-regulation (2) of regulation 21 shall be subject to the following conditions, namely :-

1. any director of the asset management company shall not hold the office of the director in another asset management company unless such person is an independent director referred to in clause (d) of sub-regulation (1) of regulation 21 and approval of the board of asset management company of which such person is a director, has been obtained;

2. the asset management company shall forthwith inform the Board of any material change in the information or particulars previously furnished, which have a bearing on the approval granted by it;

3. no appointment of a director of an asset management company shall be made without prior approval of the trustees;

4. the asset management company undertakes to comply with these regulations;

5. no change in the controlling interest of the asset management company shall be made unless, -

   1. prior approval of the trustees and the Board is obtained;

   2. a written communication about the proposed change is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the Head Office of the mutual fund is situated; and

   3. the unitholders are given an option to exit on the prevailing Net Asset Value without any exit load

      Provided that in case of an open ended scheme , the consent of the unitholders shall not be necessary if ;

      1. the change in control takes place after one year from the date of allotment of units

      2. the unitholders are informed about the proposed change in the controlling interest of asset management company by sending individual communication and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated.

      3. the unitholders are given an option to exit at the prevailing Net Asset Value without any exit load."

6. The asset management company shall furnish such information and documents to the trustees as and when required by the trustees.

Where an application made under regulation 19 for grant of approval does not satisfy the eligibility criteria laid down in regulation 21, the Board may reject the application.

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.

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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.

1. The asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of these regulations and the trust deed.

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2. The asset management company shall exercise due diligence and care in all its investment decisions as would be exercised by other persons engaged in the same business.

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3. The asset management company shall be responsible for the acts of commissions or omissions by its employees or the persons whose services have been procured by the asset management company.

4. The asset management company shall submit to the trustees quarterly reports of each year on its activities and the compliance with these regulations.

5. The trustees at the request of the asset management company may terminate the assignment of the asset management company at any time:

    Provided that such termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company.

6. Notwithstanding anything contained in any contract or agreement or termination, the asset management company or its directors or other officers shall not be absolved of liability to the mutual fund for their acts of commission or omissions, while holding such position or office.

7.  

   1. An asset management company shall not through any broker associated with the sponsor, purchase or sell securities, which is average of 5% or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes.

          Provided that for the purpose of this sub-regulation, aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund.

          Provided further that the aforesaid limit of 5% shall apply for a block of any three months.

   2. An asset management company shall not purchase or sell securities through any broker other than a broker referred to in clause (a) of sub-regulation (7) which is average of 5% or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes, unless the asset management company has recorded in writing the justification for exceeding the limit of 5% and reports of all such investments are sent to the trustees on a quarterly basis.

    Provided that the aforesaid limit shall apply for a block of three months.

8. An asset management company shall not utilise the services of the sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction and distribution and sale of securities:

       Provided that an asset management company may utilise such services if disclosure to that effect is made to the unit holders and the brokerage or commission paid is also disclosed in the half yearly annual accounts of the mutual fund.

       Provided further that the mutual funds shall disclose at the time of declaring half-yearly and yearly results;

   1. any underwriting obligations undertaken by the schemes of the mutual funds with respect to issue of securities associate companies,

   2. devolvement, if any,

   3. subscription by the schemes in the issues lead managed by associate companies

   4. subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies have acted as arranger or manager.

9. The asset management company shall file with the trustees the details of transactions in securities by the key personnel of the asset management company in their own name or on behalf of the asset management company and shall also report to the Board, as and when required by the Board.

10. In case the asset management company enters into any securities transactions with any of its associates a report to that effect shall be sent to the trustees at its next meeting.

11. In case any company has invested more than 5 per cent of the net asset value of a scheme, the investment made by that scheme or by any other scheme of the same mutual fund in that company or its subsidiaries shall be brought to the notice of the trustees by the asset management company and be disclosed in the half yearly and annual accounts of the respective schemes with justification for such investment provided the latter investment has been made within one year of the date of the former investment calculated on either side.

12. The asset management company shall file with the trustees and the Board -

    1. detailed bio-data of all its directors along with their interest in other companies within fifteen days of their appointment; and

    2. any change in the interests of directors every six months.

    3. a quarterly report to the trustees giving details and adequate justification about the purchase and sale of the securities of the group companies of the sponsor or the asset management company as the case may be, by the mutual fund during the said quarter.

13. Each director of the Asset Management Company shall file the details of his transactions of dealing in securities with the trustees on a quarterly basis in accordance with the guidelines issued by the Board.

14. The asset management company shall not appoint any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws.

15. The asset management company shall appoint registrars and share transfer agents who are registered with the Board.

        Provided if the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme and for rates higher than the competitive market rates, prior approval of the trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts.

16. The asset management company shall abide by the Code of Conduct as specified in the Fifth Schedule.

1. The mutual fund shall appoint a custodian to carry out the custodial services for the schemes of the fund and sent intimation of the same to the Board within fifteen days of the appointment of the custodian.

2. No custodian in which the sponsor or its associates hold 50% or more of the voting rights of the share capital of the custodian or where 50% or more of the directors of the custodian represent the interest of the sponsor or its associates shall act as custodian for a mutual fund constituted by the same sponsor or any of its associate or subsidiary company.

The mutual fund shall enter into a custodian agreement with the custodian, which shall contain the clauses which are necessary for the efficient and orderly conduct of the affairs of the custodian.

    Provided that the agreement, the service contract, terms and appointment of the custodian shall be entered into with the prior approval of the trustees.