A scheme invests in another scheme of the same or a different mutual fund. What is the rule on fees?
SEBI limits what schemes can do, to keep risk under control: • Schemes buy and sell on a delivery basis (no speculative intraday trading). Derivatives and short selling are allowed only within SEBI's frameworks. • Investments should generally be in listed or to-be-listed securities. Exceptions include government securities and money market instruments (other than commercial paper). • A scheme may invest in another scheme without charging fees on that portion, within limits. • A fund of funds (FoF) invests in other mutual fund schemes, but an FoF cannot invest in another FoF, and ordinary schemes cannot invest in FoFs. • Money waiting to be invested may be parked in short-term deposits of scheduled commercial banks.
Worked example
A debt scheme has just received ₹200 crore in subscriptions but the bonds it wants will be issued next week. It may park the money in short-term deposits of a scheduled commercial bank until then.
Exam trap: Unlisted commercial paper is not allowed under the listed-securities rule; unlisted government securities and other money market instruments are.