Risk Management Framework (RMF) for Mutual Funds
- In order to ensure that mutual funds render, at all times, high standards of service, exercise due diligence, ensure proper care in their operations and to protect the interests of investors, SEBI vide Circular No.MFD/CIR/15/19133/2002, dated September 30, 2002 prescribed certain systems, procedures and practices that must be followed by all mutual funds with regard to risk management in various areas like fund management, operations, customer service, marketing and distribution, disaster recovery and business contingency, etc.
- Since the date of issuance of the aforesaid circular,there have been significant developments in the mutual fund industry and in the financial markets as a whole, including in the area of product innovation, investment in newer asset classes, distribution landscape, technological evolution, investor penetration and awareness, increase in risk elements, etc. Accordingly,it has been decided to review the extant Risk ManagementFrameworkfor Mutual Funds. The matter was deliberated in the Mutual FundsAdvisory Committee (MFAC) based onthe inputsreceived from the mutual fund industry. The recommendations of MFAC have been suitably incorporated in the Risk Management Framework for mutual funds.
- With the overall objective of management of key risks involved in mutual fund operation, the revised Risk Management Framework (RMF) shall provide a set of principles or standards, which inter alia comprise the policies, procedures, risk management functions and roles & responsibilities of the management, the Board of AMC andthe Board of Trustees.
- The detailed RMF for mutual funds are placed at Annexure-A.
- The elements of RMF, wherever applicable, have been segregated into ‘mandatory elements’which should be implemented by the AMCs and ‘recommendatory elements’which address other leading industry practices that can be considered for implementation by the AMCs, to the extent relevant to them.
- AMCs shall perform a self-assessment of their RMF and practices and submit a report,thereon,to their Board along with the roadmap for implementation of the framework. The aforesaid exercise must be completed and the necessary systems must be in place at the AMCs to enable compliance with the provisions of this circular with effect from January 01, 2022. The Circular No. MFD/CIR/15/19133/2002, dated September 30, 2002 on “Risk Management System” shall be rescindedwith effect fromJanuary 01, 2022.However, AMCs may choose to adopt the provisions of thiscircular before the effective date.
- Compliance with the RMF should be reviewed annually by the AMC. Reports of such reviews shall be placed before the Board of AMC and Trustees for their consideration and appropriate directions, if any. Trustees may forward the findingsand steps taken to mitigatethe risk along with their comments to SEBI in the half-yearly trustee reports.
- This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
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