Exploring Who Regulates Mutual Fund Industry In India: Investing your money is slowly becoming a norm in India. But before you put your hard-earned money into a mutual fund have you ever wondered if they are safe enough and reliable?
Yes, they are subject to market risks. But when it comes to trust we can get a better picture of the industry by understanding who regulates the mutual fund industry In India. Read ahead and learn more about mutual funds and Who Regulates Mutual Fund Industry In India!
Mutual funds have been the latest passive investment vehicles that have seen a sharp rise in demand over the past few years. As of July 2022, India’s mutual fund industry had an Asset Under Management (AUM) of ₹37.75 lakh crore. (Source – Association Of Mutual Funds in India )
Just 8 years prior, in 2014, total AUM stood at ₹10 lakh crore. That’s a 275% growth in a span of 8 years.
What Are Mutual Funds?
Investing used to be a rich man’s game but mutual funds changed that perception. Instead of a few people pooling in crores, mutual funds have allowed investors with little capital to be a part of the investors club.
As the name suggests, mutual funds are a mix of securities, diversified across industries. These securities could be equity, debt and bonds, with each fund offering a mix of the three.
Did You Know? The first mutual fund in India was set up in 1963 – The Unit Trust Of India.
Who Regulates Mutual Fund Industry In India?
Thankfully, mutual funds are indeed regulated in India. That means AMCs cannot just take your money and disappear. In fact, to set up an AMC, you need to register with SEBI and obtain a license.
The fees that mutual fund companies charge you are regulated and limited by SEBI itself. The main priority is to protect the investors from any sort of discrepancies that could result in losses due to illegal and otherwise unethical actions of the AMCs.
How Are Mutual Funds Regulated In India?
Now that you know Who Regulates Mutual Fund Industry In India, let’s take a look at how it’s regulated. In 1992, the Securities and Exchange Board of India (SEBI) Act was passed. The main objective of SEBI is to protect the interests of investors and develop and regulate the securities market.
SEBI holds the authority to regulate, supervise and formulate policies regarding mutual funds in India. SEBI had notified regulations for mutual funds to private institutions in 1993, which was revised again in 1996.
Since then, the policies have been regularly amended to protect investors.
SEBI regularly issues circulars to mutual fund institutions, keeping in view the safety of investors. Irrespective of whether the mutual funds are international or domestic, public sector or private – all funds that are issued in India have to follow the same regulations formulated by SEBI.
There are no special exceptions and all funds are subject to scrutiny and monitoring by SEBI.
Some Important Regulations on Mutual Funds by SEBI are
- SEBI Regulations require that at least two-thirds of the directors of a company or board of trustees must be independent i.e. they should not be associated with the sponsors
- 50% of the directors of AMC must be independent
- A mutual fund is required to be registered with the Securities and Exchange Board of India (SEBI) before it can collect funds from the public.
- SEBI has mandated that no entry load can be charged for any mutual fund scheme in India.
- SEBI has mandated mutual funds to compulsorily launch a direct plan for direct investments, i.e., investments not routed through a distributor, from 01 January 2013.
- In case of failure to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present) for the period of delay
- Mutual funds can mobilize funds from investors by launching schemes only after getting registered with SEBI as mutual funds.
Also Read: What Are The Disadvantages Of Direct Plan Mutual Fund?
In Closing
Want to learn more about how mutual funds work?
Here is a course and blog that takes you through the basics of mutual fund investing here. That’s all for this blog on – Who Regulates Mutual Fund Industry In India? Happy Investing!
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