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Introduction of SEBI & MUTUAL FUND

Introduction of SEBI & MUTUAL FUND

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Published by Abhishek Jha

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Published by: Abhishek Jha on Feb 05, 2011
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In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through anexecutive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In placeof Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover bothdevelopment & regulation of the market, and independent powers have been set up. Paradoxically this is a positiveoutcome of the Securities Scam of 1990-91.
The basic objectives of the Board were identified as:
to protect the interests of investors in securities;
to promote the development of Securities Market;
to regulate the securities market and
for matters connected therewith or incidental thereto.Since its inception SEBI has been working targetting the securities and is attending to the fulfillment of its objectiveswith commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements,margining, establishment of clearing corporations etc. reduced the risk of  credit and also reduced the market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, thecode of obligations and the code of conduct for different intermediaries like,bankersto issue, merchantbankers,brokersand sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. Ithas framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges,surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.Another significant event is the approval of  tradingin stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:
It acts as a barometer for market behavior;
It is used to benchmark portfolio performance;
It is used in derivative instruments like index futures and index options;
It can be used for passive fund management as in case of Index Funds.Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify thetrading products, so that there is an increase in number of traders including banks,financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.SEBI appointed the
in 1998 to recommend the regulatory framework for derivatives tradingand suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phasedintroduction of derivatives trading in India beginning with Stock Index Futures. The Board also approved the"Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading andSettlement of Derivatives Contracts.SEBI then appointed the
to recommend Risk Containment Measures (RCM) in the Indian
Stock Index Futures Market. The report was submitted in november 1998.However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in thedefinition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carriedout by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 thenew framework was approved.Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in 1969 under anotification issued by the Central Government was revoked. Thereafter SEBI formulated the necessaryregulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India atNSE in 2000 and BSE started trading in the year 2001.
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) withstatutory powers for (a) protecting the interests of investors in securities (b) promoting the development of thesecurities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in theissuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securitiesmarket. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, ithas powers for:
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection,conducting inquiries and audits of the stock exchanges, intermediaries, self - regulatory organizations,mutual funds and other persons associated with the securities market.
Sri C.B.Bhave is the Chairmain of 
Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back itsshares on a continuous basis and use the capital thus raised to invest in securities of different companies. This articlehelps you to know in depth on:
Is it possible to diversify investment if invested in mutual funds?
Find more on the working of mutual fund
Know more about the legal aspects in relation to the mutual fundsAt the beginning of this millennium, mutual funds out numbered all the listed securities in New York Stock Exchange.Mutual funds have an upper hand in terms of diversity and liquidity at lower cost in comparison to bonds and stocks.The popularity of mutual funds may be relatively new but not their origin which dates back to 18th century. Hollandsaw the origination of mutual funds in 1774 as investment trusts before spreading to Anglo-Saxon countries in itscurrent form by 1868.We will discuss now as to what are mutual funds before going on to seeing the advantages of mutual funds. Mutualfunds are investment companies that pool money from investors at large and offer to sell and buy back its shares ona continuous basis and use the capital thus raised to invest in securities of different companies. The stocks these
mutual funds have are very fluid and are used for buying or redeeming and/or selling shares at a net asset value.Mutual funds posses shares of several companies and receive dividends in lieu of them and the earnings aredistributed among the share holders.
A Brief of How Mutual Funds Work
Mutual funds can be either or both of open ended and closed ended investment companies depending on their fundmanagement pattern. An open-end fund offers to sell its shares (units) continuously to investors either in retail or inbulk without a limit on the number as opposed to a closed-end fund. Closed end funds have limited number of shares.Mutual funds have diversified investments spread in calculated proportions amongst securities of various economicsectors. Mutual funds get their earnings in two ways. First is the most organic way, which is the dividend they get onthe securities they hold. Second is by the redemption of their shares by investors will be at a discount to the currentNAVs (net asset values).
Are Mutual Funds Risk Free and What are the Advantages?
One must not forget the fundamentals of investment that no investment is insulated from risk. Then it becomesinteresting to answer why mutual funds are so popular. To begin with, we can say mutual funds are relatively risk freein the way they invest and manage the funds. The investment from the pool is well diversified across securities andshares from various sectors. The fundamental understanding behind this is not all corporations and sectors fail toperform at a time. And in the event of a security of a corporation or a whole sector doing badly then the possiblelosses from that would be balanced by the returns from other shares.This logic has seen the mutual funds to be perceived as risk free investments in the market. Yes, this is not entirelyuntrue if one takes a look at performances of various mutual funds. This relative freedom from risk is in addition to acouple of advantages mutual funds carry with them. So, if you are a retail investor and planning an investment insecurities, you will certainly want to consider the advantages of investing in mutual funds.
Lowest per unit investment in almost all the cases
Your investment will be diversified
Your investment will be managed by professional money managers
Type of mutual fund
There is no one method of classifying mutual funds risk free or advantageous. However we can do the same by wayof classifying mutual funds as per their functioning and the type of funds they offer to investors. If we took the middlepath and classify broadly we get the following list.
Open End Mutual Funds
All mutual funds by default and by definition are open end funds. Here an investor can buy the shares at any point of time and exit from it at any time of his choice. Both buying and selling will be at the current NAV subject to loadfactors where ever applicable. Though this is a very broad category, one can easily say this is the most popular of thelot looking at the ease with which one can liquidate his holding (exit from position by selling or redemption to thetrust/fund). Affordability is another key factor that decides the popularity of open end funds. Those who can not affordhigh initial prices can buy with low dollar values and even on a monthly basis.
Closed End Mutual Funds

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