The Indian mutual fund industry witnessed robust growth and stricter regulation from SEBI since 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Safeguarding the interests of investors is one of the duties of SEBI. Consequently, SEBI (Mutual Funds) Regulations, 1996 and certain other guidelines have been issued by SEBI that sets uniform standards for all mutual funds in India. The key provisions of the “SEBI Regulations, 1996” include:
  • All the schemes to be launched by the AMC needs to be approved by the Board of Trustees and copies of offer documents of such schemes are to be filed with SEBI.
  • The offer documents shall contain adequate disclosures to enable the investors to make informed decisions.
  • The listing of close-ended schemes is mandatory and they should be listed on a recognized stock exchange within six months from the closure of subscription. However, the listing is not mandatory in case-
  1. The scheme provides for monthly income or caters to senior citizens, women, children and physically handicapped.
  2. If the scheme discloses details of repurchase in the offer document; or
  3. If the scheme opens for repurchase within six months of closure of subscription.
  • Units of a close-ended scheme can be opened for sale or redemption at a predetermined fixed interval if the minimum and maximum amount of sale, redemption, and periodicity is disclosed in the offer document.
  • Units of a close-ended scheme can be converted into an open-ended scheme with the consent of a majority of the unit-holders and disclosure is made in the offer document about the option and period of conversion.
  • Units of close-ended scheme may be rolled over by passing a resolution by a majority of the shareholders.
  • No scheme other than unit-linked scheme can be opened for subscription for more than 45 days. Further, the minimum subscription and the extent of oversubscription that is intended to be retained should be specified in the offer document. In the case of over-subscription, all applicants applying up to 5,000 units must be given full allotment subject to oversubscription.
  • The AMC is required to refund the application money if the minimum subscription is not received, and also the excess oversubscription within six weeks of closure of subscription.
  • A close-ended scheme shall be wound up on redemption date, unless it is rolled over, or if 75% of the unit-holders of a scheme pass a resolution for winding up of the scheme; if the trustees on the happening of any event require the scheme to be wound up; or if SEBI, so directs in the interest of investors.
In addition, the SEBI took various measures and issued guidelines to facilitate operations of mutual funds. Some of them are-
  • As far as structural changes are concerned, mutual funds are required to set up asset management companies with fifty percent independent directors, a separate board of trustee companies, consisting of a minimum fifty percent of independent trustees and to appoint independent custodians.
  • SEBI also prescribed registration of mutual funds taking into account track record of a sponsor, integrity in business transactions and financial soundness while granting permission.
  • As per SEBI guidelines, a minimum start-up corpus of ₹50 crore for an open-ended scheme, and ₹20 crore corpus for closed-ended scheme, is required.
  • SEBI guidelines also say mutual funds can invest a maximum of 25 percent of resources mobilized into money-market instruments in the first six months after closing the funds and a maximum of 15 percent of the corpus after six months to meet short-term liquidity requirements. They are also not allowed to invest in equity shares or equity related instruments of a single company in excess of 10% of the NAV of a scheme.
  • SEBI has also prescribed an advertisement code. Advertisements in respect of every scheme shall be in conformity with the Advertisement Code. The advertisement for each scheme shall disclose investment objective for each scheme and shall not be misleading or contain any statement or opinion, which is incorrect or false. In addition, all promotional material must contain an express warning note to the fact that risk is connected with the investment and are not allowed to guarantee future returns unless mentioned in the offer document by the sponsor or AMC.
  • SEBI has also prescribed the accounting and valuation norms. While determining the prices of the units, the mutual fund shall ensure that the repurchase price is not lower than 93% of the NAV and the sale price is not higher than 107% of the NAV. Provided that the difference between the repurchase price and the sale price of the unit shall not exceed 7% calculated on the sale price.
  • SEBI has also laid down a detailed code of conduct for mutual fund intermediaries i.e. agents and distributors. With a view to implementing this code of conduct effectively, the AMFI certification examination was made mandatory for all distributors and agents of mutual funds.
  • Every mutual fund has to appoint a compliance officer. The compliance officer ensures the compliance of the mutual fund schemes with SEBI regulations. It receives circulars notifications from SEBI and puts the same to the respective department for necessary action. The officer receives relevant information from various departments/officers of the trust, compiles the same into standard formats and submits to SEBI/AMFI etc. He also vets the offer document to ensure the offer document discloses all the information as required by SEBI. This helps SEBI to do a continuous offsite inspection.
In order to ensure a greater degree of transparency in the mutual fund industry and protecting the investors’ interests, SEBI introduced an apex body of all the Asset Management Companies (AMC) which has been registered with SEBI in the form of Association of Mutual Funds in India (AMFI). It was incorporated on 22nd August 1995 and was generated to function as a non-profit organization. all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. It works on the following set of objectives:
  • To define and maintain high professional and ethical standards in all areas of operation of the mutual fund industry.
  • To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services.
  • To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry.
  • To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry.
  • To develop a cadre of well-trained Agent distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry.
  • To undertake nationwide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds.
  • To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.
Apart from SEBI, mutual funds are also regulated by RBI, Ministry of Finance, Self-Regulatory Organisations, Companies Act, Indian Trusts Act, but in a limited manner.


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