Mutual funds are the modern day's go-to investment option. Therefore, it is important to know who regulates the mutual fund industry in India. The Securities and Exchange Board of India or SEBI regulates all aspects of mutual funds in India. It has laid down strict rules and regulations to ensure transparency, fairness, and investor protection in the mutual fund industry.
SEBI was established in 1988 and derives its power from the Securities and Exchange Board of India Act 1992 by law.
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. AMC approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is required to be registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of supervision and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two-thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent.
SEBI is typically in charge of the following:
Registration and Approval: A mutual fund needs to be registered with SEBI; it can mobilize funds from the public under each of its schemes.
Investor Protection: SEBI sets guidelines to ensure fair and ethical practices, preventing fraudulent activities and conflicts of interest that could harm investors.
Disclosure Requirements: Mutual funds are required to adhere to specific disclosure norms set by SEBI from time to time.
Code of Conduct: SEBI establishes a code of conduct for mutual funds, fund managers, and other key personnel involved in the mutual fund industry to ensure ethical behavior and professional standards.
Periodic Reviews and Updates: SEBI makes sure that the regulatory framework remains robust and responsive to changing market conditions.
Continuous Monitoring and Surveillance: SEBI conducts ongoing monitoring and surveillance of mutual funds to ensure compliance with regulatory norms. It has the authority to take corrective actions, impose penalties, or issue directives in case of any violations.
All the above functions are carried out by Securities and Exchange Board of India to protect the interests of investors in securities and to promote the development of, and to regulate securities market, by such measures as it thinks fit.
Disclaimer
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
