Who Regulates Mutual Funds in India?

Planning to invest in mutual funds? You may wonder who regulates the mutual funds in India. After all, you’re entrusting your hard-earned money to someone else, and you want to be sure it’s safe.

The mutual funds are regulated by the watchdog, the Securities and Exchange Board of India (SEBI). It sets rules and monitors compliance across the industry. Read ahead to know more.

Understanding mutual funds

Before knowing the mutual fund regulations, let’s understand what mutual funds are.

A mutual fund is a pool of money from multiple investors, managed by experts, and invested across stocks, bonds, or other assets. This setup allows you to diversify even with a small investment. However, while potential returns are attractive, risks also exist, which is why knowing who regulates mutual funds is necessary.

Which body regulates mutual funds in India?

The mutual fund industry in India is regulated by SEBI. It was established in 1988 and offered statutory powers under the SEBI Act of 1992. SEBI oversees mutual fund operations, including fund setup, management, marketing, and disclosures, to ensure that fund houses operate ethically, follow investment limits, and communicate transparently with investors.

SEBI’s mutual fund regulation framework

A few important aspects of SEBI’s mutual fund regulations include –

• All AMCs to be registered with SEBI
• AMCs must comply with SEBI (Mutual Funds) Regulations, 1996
• Mutual fund schemes can be launched in SEBI-defined categories only
• SEBI mandates AMCs to provide Scheme Information Documents, Key Information Memoranda and portfolio updates to the public
• Daily NAV disclosure is mandatory
• 50% of an AMC board must comprise independent members
• AMCs must put strong compliance monitoring in place
• Mutual funds must maintain a three-tier structure that includes sponsors, trustees and AMCs.

SEBI’s initiatives and regulations

Starting with the introductory framework laid down by the SEBI (Mutual Funds) Regulations, 1996, SEBI has regularly provided updates to regulate and uphold industry standards.

• Liquidity norms - These are guidelines on the minimum cash and liquidity requirements of debts. These norms are in place to manage the redemption requests smoothly.
• Exit load reforms - This reform eased the exit load norms, thus eliminating excessive charges on exits and switches.
• Credit Default Swap (CDS) norms - SEBI relaxed the CDS buying and selling norms for the AMCs, in a bid to raise liquidity levels in the corporate bond market.

Besides, SEBI also released a mandate on the internal fraud detection mechanism in 2024.

SEBI's mandate on internal fraud detection mechanisms

To protect investor interests, SEBI has recently mandated AMCs to implement strong internal controls and fraud detection measures.

This regulation aims to curb the use of fragmented practices to detect fraud and rely on advanced algorithms to take care of fraud risks. The mutual fund industry faces risks like front-running, insider trading, and various dubious transactions. The new regulation aims to combat these through continuous monitoring, ensuring audit trails and escalations.

Conclusion

Investing is easier and safer when you know who regulates the mutual funds in India. From setting mutual fund regulations to monitoring AMCs, SEBI ensures fairness, transparency, and accountability.

Ready to start your investment journey? Explore SEBI-regulated mutual fund options and plan your wealth creation with Tata Moneyfy today!