Mutual funds are considered one of the secure investment options as they are regulated instruments in India. Mutual funds are managed by Asset Management Companies (AMCs), also known as fund houses that disclose all the relevant information. They are subject to complete regulation and adhere to a transparent policy regarding investment strategies and the types of instruments in which they invest your money.
In this article, you’ll get your answer about who regulates the mutual fund industry in India and what are the important rules and regulations created for this industry.
Why Are Mutual Funds Regulated?
Regulators regulate mutual funds to safeguard the interests of investors and protect their capital. Also, the regulations are necessary so that the overall mutual fund industry works on the same line and there are no operational flaws.
This provides clarity in the minds of the investors on where they want to invest. Also, the mutual fund houses are clear on what they can offer to investors as per the regulatory requirements. The streamlining of regulations increases investor’s involvement and promotes fair practices in the industry.
Who Regulates Mutual Fund Industry in India?
SEBI (Securities and Exchange Board of India) regulates the mutual fund industry in India. The regulator is responsible for keeping the investor’s interest at the utmost high level. SEBI (Mutual Funds) Regulations, 1996 includes all the rules that govern the Indian mutual fund industry.
This regulation clearly outlines the rules concerning the registration of mutual funds, the constitution and management of mutual funds, as well as the roles of the AMC, custodian, and trustees. Additionally, it includes procedures for launching schemes, defining investment objectives, and detailing the valuation process.
SEBI’s Roles & Responsibilities in Mutual Fund Regulations
The main roles and responsibilities in SEBI’s mutual fund regulations are as follows:
- Registration of Mutual Funds
A sponsor has to give an application to the Board in Form A to register a mutual fund. The applicant must fulfill all eligibility criteria; otherwise, SEBI reserves the right to reject the application.
- Inspection of Mutual Funds
The board can appoint an inspecting officer or a team. They can inspect the books of account, documents, systems and procedures to investigate the operations of a mutual fund. He can also inspect the working of a trustee and AMC for any listed matters.
- SEBI Categorization of Mutual Funds
SEBI has done the categorization of mutual funds on the basis of types – equity fund, debt fund, or hybrid funds. In each type of scheme, the SEBI has mentioned how much should be invested in different instruments and for which time period.
Important Mutual Fund Regulations
Some of the key mutual fund regulations are:
- Disclosures Made in Offer Document
The mutual fund should disclose all the relevant details in the offer document and the advertisements should not include any misleading or false statements such as the guaranteed returns.
- Investment Objective of a Mutual Fund
The mutual fund can invest in different instruments such as stocks, money market instruments, securitized debt instruments, gold or related instruments in accordance with the set investment objective.
- Statement of Portfolio
A mutual fund must provide all its investors with a detailed report of its scheme portfolio before ten days at the end of each half-financial year, i.e., on March 31st and September 30th.
Structure of Mutual Funds Per SEBI Guidelines
SEBI, the regulator of mutual funds in India has properly made the rules regarding the structure of mutual funds. The three-tier structure of mutual funds includes the following members:
- Sponsor
A sponsor must establish a Trust under the Indian Trust Act, 1882, and ensure its registration with SEBI. The sponsor is the one who establishes a mutual fund and it acts like someone who is a promoter of a company.
- Trustees
The trust or trustees hold the property of the mutual funds and see that the mutual fund is not doing any illegal activity and follows a proper allocation according to the scheme rules.
- AMC
An asset management company (AMC) works as a fund manager and manages the fund on a day-to-day basis and handles the money of the investors.
With these guidelines in place by SEBI, investors feel safe to park their money in mutual funds.
Conclusion
The answer to the question of who regulates mutual fund industry in India is SEBI. The Securities and Exchange Board Of India (Mutual Funds) Regulations, 1996, document all the rules concerning the registration and inspection of a mutual fund. The regulatory requirements make investing in mutual funds a safe avenue for investors.
FAQs
Are mutual funds regulated by SEBI or AMFI?
SEBI regulates mutual funds to protect the interests of investors and to establish rules and regulations for the mutual fund industry.
Is AMFI a regulator?
AMFI (Association of Mutual Funds in India), a body registered with SEBI, issues licenses to mutual funds distributors and assigns them an AMFI Registration number (ARN).
Is mutual fund regulated by RBI?
The RBI does not regulate mutual funds. Instead, it regulates the sponsored banks that are part of the mutual funds framework.
What is SEBI regulation for mutual funds?
Every mutual fund participant must adhere to all the rules set by SEBI, as outlined in the Securities and Exchange Board Of India (Mutual Funds) Regulations, 1996.
📌 You can also read:
- Is Mutual Fund Safe?
- Difference Between Mutual Funds And Bonds
- Types of Risk in Mutual Funds
- How Mutual Funds Make Money: ₹39.46 Trillion Industry!
Happy Investing 💰
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.
