SECP issues new rules for Mutual Funds to ensure best practices

ISLAMABAD, March 27 2009: The Securities and Exchange Commission of Pakistan (SECP) on Thursday issued a circular for bringing the country’s mutual fund industry into sync with international best practices.

Under the 11th circular of this year, the commission has directed all the asset management companies (AMCs) to comply with the new rules in respect of collective investment schemes being management by AMCs. The circular is primarily aimed at improving transparency to catalyse growth of the industry, a spokesman of the SECP said.

According to the circular, AMCs shall designate and disclose the location of its official points for acceptance of applications for issuance, redemption, conversion of units in the offering document of the open-end scheme(s) as well as on their website.

AMCs shall receive applications only at designated points, which should have proper date and time stamping mechanism for timely acknowledgement of applications.

The AMCs should also clearly specify cut-off timings for acceptance of application for issuance, redemption, conversion etc., of units of their open-end schemes including approved administrative plants in the constitutive documents, on the websites of AMCs and at the designated points. Such cut-off timings shall uniformly apply on all the investors/unit holders.

The AMCs shall announce net asset value (NAV) of all open-end schemes (except for fund or funds of scheme) being managed by them latest by 1830 hours daily on their own as well as on the website of the Mutual Funds Association of Pakistan (MUFAP). However, the NAV of fund of funds scheme shall be announced by 1030 hours of the next business day.

The circular states that AMCs shall ensure that in case of suspension of redemption of units of open-end scheme due to extraordinary circumstances in terms of provisions of the constitutive documents and Non-Bank Finance Companies (NBFCs) and Notified Entities Regulations, 2008, the issuance of fresh units shall also be kept suspended until and unless redemption is resumed.

The register of unit holders of open-end scheme may be closed for the purpose of declaration of dividend for a period not exceeding the maximum time period as specified in the constitutive documents for payment of redemption proceeds to the unit holders. Any cost associated with sales, marketing and advertisement of collective investment schemes and Shariah Advisor’s fee (in case of Islamic collective investment schemes) shall not be charged to the collective investment scheme.

All expenses incurred in connection with the incorporation, establishment and registration of collective investment scheme (formation cost) in terms of regulations shall be reimbursable by a collective investment scheme to an AMC subject to audit expenses.The circular has been issued with immediate effect and the requisite amendments in the constitutive documents if any shall be incorporated by collective investment schemes within 90 days from today.

The SECP says these measures are expected to create a level-playing field for all players in the industry.

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