REGULATIONS OF MUTUAL

FUND
 REGULATIONS OF MUTUAL FUND

 Regulated by the securities and exchange board of India.

 In 1996, SEBI formulated the mutual funds regulations.
 Along with sebi, mutual funds are regulated by RBI, companies act, stock exchange,
Indian trust act and ministry of finance.
 In order to provide a guaranteed return scheme, mutual funds needs to take approval
from RBI.
 The ministry of finance acts as supervisor of RBI and SEBI and appellate authority under
SEBI regulations.
 Mutual funds can appeal to the ministry of finance on the SEBI ruling.
 REGULATIONS OF MUTUAL FUND
 The association of mutual funds in India (AMFI) has been made to develop this mutual
fund industry of India on professional and ethical lines and to enhance and maintain
standard in all areas with a view to protect and promote the mutual funds and their unit
holders.
 AMFI was incorporated on 22nd august 1995 as a non profit organization.
 It is an association of SEBI registered mutual funds in India of all the registered asset
management companies.
 STRUCTURE OF MUTUAL FUNDS IN INDIA
• Mutual funds have a three tier system in India.
• 1st tier is sponsor, 2nd tier is public trust and third tier is asset management company.
• A sponsor is a person who establishes a mutual fund and is associated with another
corporation.
• Necessary for a sponsor to seek approval from the SEBI.
• After the approval the sponsor has to make the public trust as per the Indian trust act
1882.
• The sponsor and trust are two separate entities.
 STRUCTURE OF MUTUAL FUNDS IN INDIA

• The trust acts as internal regulator of the mutual funds and trustee appoint an asset
management company to manage and collect the money through the mutual fund.

• The approval of SEBI is required for AMC’s.

 GENERAL GUIDELINES
 The AMC’s should have a minimum net worth of Rs.5 crores at all times.
 The SEBI is given the power to withdraw the authorisation given to any AMC if it found to
be not serving the best interest of the investors as well as capital market.
 Not applicable to banks sponsored AMC’s.
 BUSINESS ACTIVITIES
• Both AMC and Trustee should be treated as two separate legal entities.
• AMC should not be permitted to under take any other business activity except mutual
funds.
• One AMC can not act as the asset management company for other mutual funds.
 SCHEMES
• Each scheme of mutual funds must be compulsorily registered with SEBI before it is
floated in the market.
• The minimum size of the funds should be depends on AMC and Mutual fund scheme.
• Close ended schemes should not be kept open for subscription for more than 45 days.
For open ended schemes the first 45 days should be considered for determining the
target figure or the minimum size investors.
 INVESTMENT NORMS
• Mutual funds should invest only in transferable securities either in the capital market or
money market or securitised debt. Can not exceed 10% in case of growth funds and 40
percent in in case of income funds.
• Should not invest more than 5 percent of its schemed in any one company's shares of
mutual funds are taken together.
• No scheme invest in and other scheme under the same AMC case of those schemes
which are specifically floated for the investment in one or more specified industry.
 OTHER NORMS
 The initial expenses should not exceed 6% of the funds raised under each scheme.
 Expenses: the AMC may charge the mutual funds with investment management and
advisory fees. Should be disclosed in the prospectus.
 Excepting the initial expenses all other expenses to be charged to the fund should not
exceed 3 percent of the weekly average assets outstanding during the current year.
Must be disclosed through advertisement, accounts etc.
 OTHER NORMS
 All mutual funds shall segregate their earning as current income, short term capital.
 Gains and long term capital gains accounting for all the schemes must be done for the
same year ending.
 Each close ended scheme should be wound up or extended with the permission of sebi
as soon as the predetermined period.
 An open scheme shall be wound up if the total number of units outstanding after
repours investigation impose penalties on mutual funds for violating the guidelines as
may be necessary.