TaxTMI 
TaxTMI 
Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2008.
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....lowing shall be substituted, namely:- "(q) "mutual fund" means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities including money market instruments or gold or gold related instruments or real estate assets; (b) after clause (s), the following clause shall be inserted, namely:- "(sa) "real estate mutual fund scheme" means a mutual fund scheme that invests directly or indirectly in real estate assets or other permissible assets in accordance with these regulations;" (ii) in regulation 7, clause (g) shall be substituted with the following namely:- "(g) appointment of custodian in order to keep custody of the securities or gold and gold related instrument or other assets of the mutual fund held in terms of these regulations, and provide such other custodial services as may be authorised by the trustees;" (iii) in regulation 26, in sub-regulation (1), after the existing proviso, the following proviso shall be inserted, namely:- "Provided further that in case of a real estate mutual fund scheme, the....
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....mic Zones Act, 2005 (28 of 2005); (ii) on which construction is complete and which is usable; (iii) which is evidenced by valid title documents; (iv) which is legally transferable; (v) which is free from all encumbrances; (vi) which is not subject matter of any litigation; but does not include- I. a project under construction; or II. vacant land; or III. deserted property; or IV. land specified for agricultural use; or V. a property which is reserved or attached by any Government or other authority or pursuant to orders of a court of law or the acquisition of which is otherwise prohibited under any law for the time being in force; (b) "real estate valuer" means a qualified valuer of real estate assets who has been accredited by a credit rating agency registered with the Board. Applicability 49B. (1) The provisions of this Chapter shall apply to real estate mutual fund schemes. (2) Unless the context otherwise requires, all other provisions of these regulations and the guidelines and circulars issues thereunder shall apply to real estate mutual fund schemes, and trustees an....
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....t. of the net assets of the scheme in- (i) real estate assets; (ii) mortgage backed securities (but not directly in mortgages); (iii) equity shares or debentures of companies engaged in dealing in real estate assets or in undertaking real estate development projects, whether listed on a recognized stock exchange in India or not; (b) the balance in other securities; (3) Unless otherwise disclosed in the offer document, no mutual fund shall, under all its real estate mutual fund schemes, invest more than thirty per cent. of its net assets in a single city. (4) No mutual fund shall, under all its real estate mutual fund schemes, invest more than fifteen per cent. of its net assets in the real estate assets of any single real estate project. Explanation: For the purposes of this regulation, "single real estate project" means a project by a builder in a single location within a city. (5) No mutual fund shall, under all its real estate mutual fund schemes, invest more than twenty five per cent. of the total issued capital of any unlisted company. (6) No mutual fund shall invest more than fifteen per cent of the net assets of any of its r....
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....agement company shall exercise due care while appointing real estate valuers for valuing the real estate assets held by the real estate mutual fund scheme and shall ensure that there is no conflict of interest. (4) The asset management company shall lay down an adequate system of internal controls and risk management. (5) The asset management company shall put in place systems to ensure that all financial transactions are done through banking channels and exclude transactions in cash or unaccounted transactions. (6) The asset management company shall exercise due diligence in maintenance of the assets of a real estate mutual fund scheme and shall ensure that there is no avoidable deterioration in their value. (7) The asset management company shall ensure that the real estate assets held by a real estate mutual fund scheme are adequately insured against impair, damage or destruction. (8) The asset management company shall ensure that the cost of maintenance and insurance of real estate assets is within reasonable limits and that no funds of the scheme are utilized towards development of such assets. (9) The asset management company shall ensure that a real estate v....
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....es shall ensure that all financial transactions of the real estate mutual fund scheme are made only through banking channels and that systems exist to exclude transactions in cash and unaccounted transactions. (7) The trustees shall lay down the criteria for empanelment of real estate brokers. (8) The trustees shall lay down the broad procedure to be followed by the assert management company while transacting in real estate assets. (9) The trustees shall require the asset management company to set up such systems and submit such reports to trustees, as may be necessary for them to effectively monitor the performance and functioning of the real estate mutual fund schemes. (10) The trustees shall include a confirmation on compliance with sub regulation (9) in their half yearly reports made to the Board. Disclosures in offer document and other disclosures 49J. (1) The offer documents of real estate mutual fund schemes shall contain disclosures which are adequate for investors to make informed investment decisions and such further disclosures as may be specified by the Board. (2) The portfolio disclosures and financial results in respect of a real estate mutual fun....
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....e' means the amount for which an asset could be exchanged between knowledgeable parties in an arm's length transaction and certified by the real estate valuer; (b) "'knowledgeable' means that both the buyer and the seller are reasonably informed about the nature and characteristics of the real estate asset, its actual and potential uses, and market conditions at the balance sheet date; 2. A real estate asset that is held by a real estate mutual fund scheme shall be valued at fair value. 3. Where a portion of the real estate asset is held to earn rentals or for capital appreciation and if the portions can be sold or leased separately, the real estate mutual fund scheme shall account for the portions separately. Initial Recognition 4. A real estate mutual fund scheme shall recognise a real estate asset if : (a) it is probable that the future economic benefits that are associated with the real estate asset will flow to the real estate mutual fund scheme; and (b) the cost of the asset can be measured reliably. 5. A real estate mutual fund scheme shall evaluate all its real estate asset costs including those incurred initially to acquire a real ....
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....ost shall be measured at the carrying amount of the asset given up. 11. A real estate mutual fund scheme determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction Explanation: An exchange transaction has commercial substance if: (a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred, or (b) the real estate mutual fund scheme-specific value of the portion of the real estate mutual fund scheme's operations affected by the transaction changes as a result of the exchange, and (c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged. For the purpose of determining whether an exchange transaction has commercial substance, the real estate mutual fund scheme-specific value of the portion of the real estate mutual fund scheme's operations affected by the transaction should reflect post-tax cash flows. The result of these analyses may be clear without an real estate mutual fund scheme having....
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....ing: (a) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences; (b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and (c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. vi. In some cases, the various sources listed in the previous paragraph may suggest different conclusions about the fair value of a real estate asset. The reasons for those differences shall be considered, in order to arrive at the most reliable estimate of fair value within a range of reasonable fair value estimates. vii. (a)Where the fair value of the ....
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....re benefits from this future expenditure. x. Where a real estate mutual fund scheme expects that the present value of its payments relating to a real estate asset (other than payments relating to recognised liabilities) will exceed the present value of the related cash receipts it shall apply Accounting Standard (AS) 29, Provisions, Contingent Liabilities and Contingent Assets to determine whether to recognise a liability and, if so, how to measure it. 15. To determine the fair value of a real estate asset in accordance with the above-mentioned paragraphs, a real estate mutual fund scheme is required to use the services of two independent and approved valuers having recent experience in category of the real estate asset being valued and use the lower of the two valuations. 16. For accounting for rental income on real estate asset, Accounting Standard (AS) 19, Leases, shall be followed. Such income shall be accrued on a daily basis, till the currency of the lease agreements. 17. Where the rental income receivable by a real estate mutual fund scheme in respect of real estate asset, has accrued but has not been received for the period specified by the Board. Further,....
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....ns, 2008, the unamortised portion of the expenses shall be included in the calculation of the NAV. However, such portion shall not be included in the NAV for the purposes of determining the asset management company's investment management and advisory fees or for determining the limitation of expenses under regulation 52 of these regulations." (xiii) for the Eleventh Schedule, the following shall be substituted, namely:- "ELEVENTH SCHEDULE ANNUAL REPORT 1. Annual Report The annual report shall contain- (ii) Report of the Board of Trustees on the operations of the various schemes of the fund and the fund as a whole during the year and the future outlook of the fund; (iii) Balance Sheet and Revenue Account in accordance with paras 2, 3 and 4, respectively of this Schedule; (iv) Auditor's Report in accordance with paragraph 5 of this Schedule; (v) Brief statement of the Board of Trustees on the following aspects, namely:- (a) Liabilities and responsibilities of the Trustees and the Settlor; (b) Investment objective of each scheme; (c) Basis and policy of investment underlying the scheme; (d) If the scheme permits investmen....
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....e shall be recognised, not on the date the dividend is declared, but on the date the share is quoted on an ex-dividend basis. For investments in shares which are not quoted on the stock exchanges, the dividend income must be recognised on the date of declaration. iv. In respect of all interest-bearing investments, income shall be accrued on a day to day basis as it is earned. Therefore when such investments are purchased, interest paid for the period from the last interest due date upto the date of purchase, shall not be treated as a cost of purchase, but shall be treated to Interest Recoverable Account. Similarly, interest received at the time of sale for the period from the last interest due date upto the date of sale must not be treated as an addition to sale value but shall be credited to Interest Recoverable Account. v. In determining the holding cost of investments and the gains or loss on sale of investments, the "average cost" method shall be followed. vi. Transactions for purchase or sale of investments shall be recognised as of the trade date and not as of the settlement date, so that the effect of all investments traded during a financial year are recorded and r....
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....) The Trustees of the Board of the Trustee Company may, if necessary, transfer a portion of the distributable profits to a dividend equalisation reserve. Such a transfer would be independent of the requirement to operate an Equalisation Account as provided in (x)(a). xi. In a close-ended scheme which provides to the unitholders the option for an early redemption or repurchase their own units, the par value of the unit shall be debited to Capital Account and the difference between the purchase price and the par value, if positive, should be debited to reserves and, if negative, should be credited to reserves. In case of such schemes launched prior to the commencement of the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2008 a proportionate part of the unamortised initial issue expenses shall also be transferred to the reserves so that the balance carried forward on that account is proportional to the number of units remaining outstanding. xii. The cost of investments acquired or purchased shall, inter alia, include brokerage, stamp charges and any charge customarily included in the broker's bought note. In respect of privately placed debt instr....
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....nvestment properties. A real estate asset shall be regarded as non-performing if it has provided no returns in the form of rental income for a period specified by the Board. (iv) The Balance Sheet shall indicate the extent of provision made in the Revenue Account for the depreciation/loss in the value of non-performing investments in securities. However, if the investments in securities are valued at marked to market, provisions for depreciation shall not be necessary. (v) The Balance Sheet shall disclose the per-unit net asset value (NAV) as at the end of the accounting year. (vi) As in case of companies, the Balance Sheet shall give against each item, the corresponding figures as at the end of the preceding accounting year. (vii)(A) The notes to the balance sheet should disclose the following information regarding investments:- (a)all investments shall be grouped under the major classification given in the balance sheet; (b) under each major classification, the total value of investments falling under each major industry group (which constitutes not less than 5% of the total investment in the major classification) shall be disclosed together with the....
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....94 15 (15) 105 Less: Distributed to unitholders 80 Transfer to reserve 5 (85) 20 (vii)(B) In respect of real estate asset, the following additional disclosures shall be made in the balance sheet: (a). a reconciliation between the carrying amounts of real estate investment properties at the beginning and end of the period, showing the following: 1. Additions resulting from purchase during the period; 2. Additions resulting from acquisitions through business combinations; 3. Deletions resulting from sales during the period; 4. Deletions resulting from disposal through business combinations; 5. Net gain or loss from fair value adjustments; 6. Other changes. (b) the method and significant assumptions applied in determining the fair value of each real estate investment asset including a statement whether the determination of fair value was supported by market evidence or was more heavily based on other factors (which the real estate mutual fund scheme should disclose) because of the nature of the asset and lack of comparable data. ....
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.... particulars of the income, expenditure and surplus of the mutual fund. These particulars shall contain information enumerated in Annexure 2 of this Schedule. (ii) If profit on sale of investments including real estate asset shown in the Revenue Account includes profit/loss on inter-scheme transfer of investments including real estate asset within the same mutual fund the aggregate of such profit recognised as realised, shall be disclosed separately without being clubbed with the profit/loss on sale of investments to third parties. (iii) Unprovided depreciation in value of investments in securities representing the difference between their aggregate market value and their carrying cost shall be disclosed by way of a note forming part of the Revenue Account. Conversely, unrealised profit on investment representing the difference between their aggregate market value and carrying cost, shall be disclosed by way of note to accounts. However, if investments are marked to market, depreciation may not be provided. (iv) The Revenue Account shall indicate the appropriation of surplus by way of transfer to reserves and dividend distributed. (v)(A) The following disclosures shall ....
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....; (iv) transfer to revenue account from past year's reserve, per unit. (c) aggregate of expenses, write off, amortisation and charges, per unit; (d) net income, per unit; (e) unrealised appreciation/depreciation in value of investments, per unit; (f) if the units are traded or repurchased/resold, the highest and the lowest prices per unit during the year and the price-earning ratio ; (g) per unit, ratio of expenses to average net assets by percentage; (h) per unit, ratio of gross income to average net assets by percentage (excluding transfer to revenue account from past year's reserve but including unrealised appreciation on investments) ; (i) per unit NAV. ANNEXURE 1A [Refer para 3] Contents of schemewise Balance Sheet ASSETS SIDE OF THE BALANCE SHEET: I. The assets of the balance sheet shall be grouped into the following categories: - Investments - Deposits - Other Current Assets - Fixed Assets II. INVESTMENTS: (a) The following types of investment in securities shall be separately disclosed: (i) Equity shares; (ii) Preference shares; ....
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....e Bank of India; - From Settlor; - From Other Commercial Banks; - From others; - If the above loans are secured, the nature and extent of security should be disclosed; - Borrowings by the scheme with amount, rate of borrowings, rate of interest, source and other terms shown separately, source-wise. V. Current liabilities and provisions Distinguishing between the following current liabilities and provisions Current liabilities: - Sundry creditors; - Interest payable on loans; - Contract for purchase of investments in securities; - Bank account overdrawn as per books; - Unclaimed distributed income; - Others. Provisions: - Provisions for loss/depreciation in value of investments in securities (separately with reference to each type of investment in securities) (optional, if marked to market); - Provision for doubtful deposits; - Provision for outstanding any accrued income considered doubtful; - Provision for gratuity; - Provision for staff welfare fund; - Proposed income distributed on initial capital and unit-c....
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....not be separately shown but can be aggregated. (iv) Profit on sale/redemption of investments and loss on sale/redemption of investments need not be shown on a gross basis but only the net profit or loss need be shown. (v) The total income and expenditure expressed as a percentage of average net assets, calculated on a weekly basis should be indicated. (vi) Appropriation of the surplus by way of transfer to reserves and dividends distributed shall be disclosed in the Abridged Revenue Account itself. (vii) The Balance Sheet and the Revenue Account shall be signed by the schemewise fund manager/s and the Board of Trustees, and reported upon by the Auditors. The financial statements of the scheme should be approved at a meeting of the Board of Directors of the Asset Management Company and also at a meeting of the trustees or in the case of a trustee company by the Board of Directors of the trustee company." C. B. BHAVE CHAIRMAN SECURITIES AND EXCHANGE BOARD OF INDIA [ADVT III/IV/69-ZB/2008/Exty.] Footnotes: (1) The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the Principal Regulations were published in the Gazette of India on De....