Real Estate Mutual Fund – Application Procedure for Registration by Ozg NBFC Consultant

Real Estate Mutual Fund
Application Procedure for Registration
Ozg NBFC Consultant
Ozg Center, New Delhi & Mumbai, INDIA
Ozg Helpline # 0091-9811415701-06-10-74-92-97
   An application for registration of a mutual fund shall be made to the SEBI in Form A by the sponsor.
   A Draft for non-refundable application fee as specified in the Second Schedule.
Eligibility criteria
(i)                 The sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions.
(ii)               Explanation: For the purposes of this clause “sound track record” shall mean the sponsor should —
a.      be carrying on business in financial services for a period of not less than five years; and
b.      the net worth is positive in all the immediately preceding five years; and
c.       the net worth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company; and
d.      the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year;
(iii)             the applicant is a fit and proper person
(iv)              in the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has been approved by the Board;
(v)                the sponsor has contributed or contributes at least 40% to the net worth of the asset management company:
(vi)              Provided that any person who holds 40% or more of the net worth of an asset management company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in the regulations;
(vii)            the sponsor or any of its directors or the principal officer to be employed by the mutual fund should not have been guilty of fraud or has not been convicted of an offence involving moral turpitude or has not been found guilty of any economic offence;
(viii)          appointment of trustees to act as trustees for the mutual fund
(ix)              appointment of asset management company to manage the mutual fund and operate the scheme of such funds
(x)                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.
Grant of Certificate of Registration
The Board may register the mutual fund and grant a certificate in Form B on the applicant paying the registration fee as specified in Second Schedule.
How can Ozg Help you?
Ozg Helpline # provides FREE advice for general queries and for details / discussions with Ozgian [URL: http://finance.ozgian.com] you may book an appointment either online or at your nearest Ozg Center by login at ozgcenter.org/appointment
Ozg NBFC Consultant
Ozg Center, New Delhi & Mumbai, INDIA
Ozg Helpline # 0091-9811415701-06-10-74-92-97

Office Timing: Mon – Sat, 9:30 a.m. – 5:30 p.m. IST

Email: nbfc.consultant@ozg.co.in
Note: To visit at any Ozg Center, an appointment is required. 
CONSTITUTION AND MANAGEMENT OF MUTUAL FUND AND OPERATION OF TRUSTEES, ETC
Trust deed to be registered under the Registration Act
A mutual fund shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, duly registered under the provisions of the Indian Trust Registration Act, 1908 (16 of 1908), executed by the sponsor in favour of the trustees named in such an instrument.
Disqualification from being appointed as trustees
(i)                 No person shall be eligible to be appointed as a trustee unless— (a) he is a person of ability, integrity and standing; and
(ii)               has not been found guilty of moral turpitude; and
(iii)             has not been convicted of any economic offence or violation of any securities laws; and
(iv)              Have furnished particulars as specified in Form C.
(v)                No asset management company and no director (including independent director), officer or employee of an asset management company shall be eligible to be appointed as a trustee of any mutual fund
(vi)              No person who is appointed as a trustee of a mutual fund shall be eligible to be appointed as a trustee of any other mutual fund
(vii)            Two-thirds of the trustees shall be independent persons and shall not be associated with the sponsors or be associated with them in any manner whatsoever.
(viii)          In case a company is appointed as a trustee then its directors can act as trustees of any other trust provided that the object of the trust is not in conflict with the object of the mutual fund.
Approval of the Board for appointment of trustee
(i)                 No trustee shall initially or any time thereafter be appointed without prior approval of the Board.
(ii)               The existing trustees of any mutual fund may form a trustee company to act as a trustee with the prior approval of the Board.
REAL ESTATE MUTUAL FUND SCHEMES
Additional eligibility criteria for Real Estate Mutual Fund Schemes
(i)                 has been carrying on business in real estate for a period of not less than five years;
(ii)               A real estate mutual fund scheme of a mutual fund registered under sub regulation (1) shall not invest in the securities mentioned in sub-clauses (ii) to (iii) of clause (a) or in clause (b) of sub-regulation (2) of regulation 49E unless it has key personnel having adequate professional experience in finance and financial services related field.
(iii)             An existing mutual fund may launch a real estate mutual fund scheme if it has an adequate number of key personnel and directors having adequate experience in real estate.
Other conditions for real estate mutual fund schemes
a.      Every real estate mutual fund scheme shall be close-ended and its units shall be listed on a recognized stock exchange provided that the redemption of a real estate mutual fund scheme may be done in a staggered manner.
b.      The units issued by a real estate mutual fund scheme shall not confer any right on the unit holders to use the real estate assets held by the scheme and any provision to the contrary in the trust deed or in the terms of issue shall be void.
c.       The title deeds pertaining to real estate assets held by a real estate mutual fund scheme shall be kept in safe custody with the custodian of the mutual fund.
d.      A real estate mutual fund scheme shall not undertake lending or housing finance activities.
e.      All financial transactions of a real estate mutual fund scheme shall be routed through banking channels and they shall not be cash or unaccounted transactions.
How can Ozg Help you?
Ozg Helpline # provides FREE advice for general queries and for details / discussions with Ozgian [URL: http://finance.ozgian.com] you may book an appointment either online or at your nearest Ozg Center by login at ozgcenter.org/appointment
Ozg NBFC Consultant
Ozg Center, New Delhi & Mumbai, INDIA
Ozg Helpline # 0091-9811415701-06-10-74-92-97

Office Timing: Mon – Sat, 9:30 a.m. – 5:30 p.m. IST

Email: nbfc.consultant@ozg.co.in
Note: To visit at any Ozg Center, an appointment is required. 
Permissible investments
(ii)               Every real state mutual fund scheme shall invest at least thirty five percent of the net assets of the scheme directly in real estate assets.
(iii)             Every real estate mutual fund scheme shall invest-
(a)        At least seventy five per cent. 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;
Ø      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.
Ø      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.
Ø      Explanation: For the purposes of this regulation, “single real estate project” means a project by a builder in a single location within a city.
Ø      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.
Ø      No mutual fund shall invest more than fifteen per cent of the net assets of any of its real estate mutual fund schemes in the equity shares or debentures of any unlisted company.
Ø      No real estate mutual fund scheme shall invest in –
  1. any unlisted security of the sponsor or its associate or group company;
  2. any listed security issued by way of preferential allotment by the sponsor   or its associate or group company;
  3. any listed security of the sponsor or its associate or group company, in excess of twenty five per cent of the net assets of the scheme.
a.      No mutual fund shall transfer real estate assets amongst its schemes.
b.      No mutual fund shall invest in any real estate asset which was owned by the sponsor or the asset management company or any of its associates during the period of last five years or in which the sponsor or the asset management company or any of its associates hold tenancy or lease rights.
Valuation of real estates assets and declaration of net asset value
The real estate assets held by a real estate mutual fund scheme shall be valued –
(a)    at cost price on the date of acquisition; and
(b)    at fair price on every ninetieth day from the day of its purchase in accordance with the norms specified in Schedule IXB.
(c)    The asset management company, its directors, the trustees and the real estate valuer shall ensure that the valuation of assets held by a real estate mutual fund scheme are done in good faith, in accordance with the norms specified in Schedule IX B and that the accounts of the scheme are prepared in accordance with accounting principles specified in Schedule XI.
(d)    The net asset value of every real estate mutual fund scheme shall be calculated and declared at the close of each business day on the basis of the most current valuation of the real estate assets held by the scheme and accrued income thereon, if any.
Duties of asset Management Company
a.      The asset management company of a mutual fund having real estate mutual fund schemes shall appoint suitable number of qualified key personnel with relevant experience, before undertaking investment management of real estate assets of a real estate mutual fund scheme.
b.      The asset management company may appoint advisors to advise it on acquisitions or proposed acquisitions of real estate assets.
c.       The asset management 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.
d.      The asset management company shall lay down an adequate system of internal controls and risk management.
e.      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.
f.        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.
g.      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.
h.      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.
i.        The asset management company shall ensure that a real estate valuer
j.        The asset management company shall ensure that no real estate valuer continues with valuation of particular real estate asset for more than two years and that no such valuer values the same asset for a period of at least three years thereafter.
k.       The asset management company shall record in writing, the details of its decision making process in buying or selling real estate assets together with the justifications for such decisions and forward the same periodically to trustees.
l.        The asset management company shall ensure that investment of funds of the real estate mutual fund scheme is not made contrary to provisions of the trust deed.
m.    The asset management company shall obtain, wherever required under these regulations, prior in-principle approval from the recognized stock exchange(s) where units are proposed to be listed.
Usage of real estate assets of a real estate mutual fund scheme
a.      The asset management company may let out or lease out the real estate assets held by the real estate mutual fund scheme if the term of such lease or letting does not extend beyond the period of maturity of the scheme.
b.      Where real estate assets are let out or leased out, the asset management company shall diligently collect the rents or other income in a timely manner.
c.       Real estate assets held by a real estate mutual fund scheme may be let out to the sponsor, asset management company or any of their associates, at market price or otherwise on commercial terms: Provided that not more than 25% of the total rental income of the scheme shall be derived from assets so let out.
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 fund scheme shall contain such further disclosures as are specified by the Board.
(3)        Advertisements in respect of real estate mutual fund schemes shall conform to such guidelines as may be specified by the Board.
Transactions by employees etc.
49K. (1) All transactions done by the trustees or the employees or directors of the asset management company or the trustee company in real estate assets shall be disclosed by them to the compliance officer within one month of the transaction.
(2)        The compliance officer shall make a report thereon from the view point of possible conflict of interest and shall submit it to the trustees with his recommendations, if any.
(3)        The persons covered in sub-regulation (1) may obtain the views of the trustees before entering into the transaction in real estate assets, by making a suitable request to them.]
How can Ozg Help you?
Ozg Helpline # provides FREE advice for general queries and for details / discussions with Ozgian [URL: http://finance.ozgian.com] you may book an appointment either online or at your nearest Ozg Center by login at ozgcenter.org/appointment
Ozg NBFC Consultant
Ozg Center, New Delhi & Mumbai, INDIA
Ozg Helpline # 0091-9811415701-06-10-74-92-97

Office Timing: Mon – Sat, 9:30 a.m. – 5:30 p.m. IST

Email: nbfc.consultant@ozg.co.in
Note: To visit at any Ozg Center, an appointment is required. 
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