Mutual Fund Asset Protection - Aarvi Insurance

Mutual Fund Asset Protection

The Mutual Fund industry has evolved in India over the years with ever increasing presence of global fund houses, increased interest from global and domestic institutional investors and substantial retail investors from India. Whilst it has grown in size and investor base it is still vulnerable to volatility of global stock markets, the constant battle to deliver investor value and growing investor’s and regulator’s activism. Sensing this stock market regulator SEBI has been proactive in advising and mandating risk management requirements of all MF players: The Mutual Fund must buy insurance cover against third party losses arising from errors and omissions. Third party liabilities refer to liabilities arising out of financial loss to investors or any other third party, incurred due to errors and omissions of directors, officers, employees, trustees, R&T agents, etc.

What worries investment managers:

Improper trading
Disputes over fees
Inappropriate Investments
Breach of investment guidelines
Failure to properly disclose risks
Inappropriate Valuation of Investment securities
Breach of fiduciary duty trust
Mutual Fund Asset Protection Insurance policy is tailored to meet the specialized needs of mutual fund professionals like you.

Who is Protected

This policy is specifically designed to address the structure common in the fund management industry, namely

The Mutual Fund
The Corporate Trustee
The Investment Management Company
The policy offers protection for the firm's critical contributors, including present and future directors, officers and employees of the Corporate Trustee and or lnvestment Manager.

Customized Insurance Protection

It covers activities of fund management firms including

Errors, omissions, misstatements, misleading statements, neglect, breach of duty or breach of trust while performing or falling to perform professional services

Errors, omissions, misstatements, misleading statements, neglect, breach of duty or breach of trust by a trustee, director or officer of the Corporate Trustee or Investment Management Company

Discovery

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Research & Brand Srategy

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Sketching

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Revisions

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Presentation

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Delivery & Support

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Typography

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Policy Features

The definition of a claim includes civil or criminal proceedings administrative investigations and written demands

Claims made policy
Acts of an Insured / knowledge possessed by an Insured will not be imputed to other insured
Insurance solution for any combination of unit trusts, Trustees. Investment managers and their directors, officers and employees
Extended reporting period is available
In the event of acquisition/ change in management control of the Insured, the policy will run till its natural expiry without termination
Advancement of defense costs prior to final disposition of a claim
Defense costs are provided within the limit of liability
Insureds have the right to choose their own legal counsel subject to prior approval
Worldwide cover
Spousal liability extension
Estates and legal representatives of incapacitated or deceased insured individuals are covered

What is excluded

Pending or prior litigation, demands or judgments
Claims against the fiduciaries or administrators of any retirement or employee benefit plan for employees
Investment banking and dealer exclusions
Defamation, wrongful entry, eviction, false arrest or imprisonment, malicious prosecution, assault or battery
Claims of deliberate fraud, willful violation of regulations or statutes, illegal profit or advantage are excluded where they are established in fact
Assumption of the liability of third parties pursuant to contract
Intentional breach of contract where established at final adjudication
Claims brought by security holders of trustee or investment manager
Counterparty insolvency exclusion

Claim examples

EXAMPLE : 1

ABC Company made an error while amortizing its investment by entering the wrong cost of acquisition. The error was observed 30 days later and it resulted in an inflated NAV and hence the AMC, with the specific instructions from the Trustee and approval of an Independent Counsel, had to transfer around US$ 500,000 for rectifying the error to avoid a possible dispute from the investors.

EXAMPLE : 2

ABC Scheme invested US$ 3 Mn in XYZ with a call/put option and a fixed maturity date. Just before the maturity, in investment committee meeting it was decided to transfer this security from scheme ABC to another scheme DEF. Inadvertently, the same was not executed. At the same time, on maturity, call/put option was also not exercised. This was later discovered during periodic checks. ABC tried with XYZ to exercise the option during the next few days with no avail. In view of repercussions and possible disputes with Investors, the Trustees advised the fund to effect the transfer of this scrip as per market rates prevailing on the date of transfer to DEF scheme. This resulted in a loss of US$ 100,000 to ABC scheme investors which was to be made good by ABC scheme Investment manager.

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