What Are the SEBI Guidelines for Mutual Funds

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The Securities and Exchange Board of India (SEBI) has been responsive to the issuers of securities, the investors and the market intermediaries since 1992, i.e. from the time it came into effect. Of its many powers, its one job is to lay down rules for the Mutual Funds.


Mutual Fund Regulations

Mutual Funds are not like any other investment and they have extensive rules that make the investment quite strict. These are professionally managed collective investments that are ropes in more than one investors who purchase securities and the money spent is invested for better returns.

There are four main security laws that govern the Mutual Fund market:

  • The SEBI lays restrictions on the way the you can own a fund and control it. While the advertisements of the Mutual Funds are made public, the SEBI requires these companies to state the policies clearly.
  • Another Mutual Funds guideline states that any application for the registration of a mutual fund should be made to the Board by the sponsor of the investment. It also mentions that any incomplete application will be rejected.
  • As for the eligibility criteria, the sponsor must have a fair track record of the business transactions that he/she has had in the past. He/she should also have a financial services track that is five years or more.
  • Once the Board passes an application, the SEBI requires the trustees, the sponsor, the asset management company and the custodian to comply with the provisions of the regulations. If any previously submitted information was false the mutual fund shall inform the Board. The same method needs to be followed if there is a change in the payment.
  • Another crucial rule is that the Board might not permit a mutual fund company that has not paid service fee for launching any scheme.

Why mutual funds are beneficial?

Due to the extensive guidelines of the SEBI, the Mutual funds are beneficial. They are transparent and their holdings are publicly available. They ensure liquidity to the investors, and since the SEBI requires continuous auditing, the performance track records can be easily viewed.

The SEBI guide lines for mutual funds make it safe as the shareholders receive an amount even if the mutual fund company closes down. The amount received equals the investment amount so there is no loss.

Mutual Funds are a great way to increase your money as they are under the continuous monitoring of the SEBI guide lines.

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