Mutual funds are regulated under the SEBI (MF) regulations, 1996. In the next section, you will study the guidelines of SEBI for mutual funds. The regulation has laid down a detailed procedure for launching schemes, disclosures in the offer document, advertisements, listing and repurchasing of close-ended schemes offer period, transfer of units, and investments, among others. All the MFS have to be registered with SEBI.
Regulation/Guidelines of SEBI for Mutual Funds
RBI also supervises the operations of bank-owned MFS while SEBI regulates all market-related and investor-related activities of the bank/ Fl-owned funds; any issue concerning the ownership of the AMCS by banks falls under the regulatory ambit of RBI. The following are the guidelines of SEBI for mutual funds:
1. A mutual fund scheme should invest at most 15% of its NAV in debt investments issued by single issues rated not below investment grade by a credit-rated agency authorized to carry out a such activity under the Act.
2. AMF scheme should invest at most 10% of its NAV in unrated debt investment issued by a single issuer, and the total investment in the such instrument should be at most 25% of the NAV of the scheme.
3. No mutual fund under all its schemes should own more than 10% of any company paid up capital carrying voting rights.
4. A scheme may invest in another scheme under the same assets management company or any other mutual funds without changing any fees, provided that aggregate inter-scheme investment made by all schemes under the management of any asset management company should not exceed 5% of the net assets value of MF. However, this does not apply to any fund of funds schemes.
5. The initial issue expenses for any scheme of debt securities market can be at most 6% of the funds raised under the scheme.
6. Pending the development of a scheme’s funds signifies the turn of the investment objective of the scheme of MFS can. Exist the funds of the scheme are short-turn deposits of scheduled commercial banks.
7. No MFS [scheme] should make any investment:-
- Any unlisted security as associate of a group company of the sponsor or
- Any security issued through private placement by an associate or group companies of the shorter, which is more than 25% of the net assets.
8. No scheme of a mutual fund should make any investment in any fuels of funds scheme.
9. No MFS scheme should exist more than 10% of its NAV in the equity shares of equity-related instruments of any company, provided that the limit of 10% should not be applicable for investments in a case of an index fund or sector or industry-specific schemes.
10. A mutual funds scheme should not be more than 5% of its NAV, the unlisted equity shares or equity-related instruments in the open-ended scheme, and 10% of its NAV in the case of the ended scheme.
11. A fund-of-funds scheme will be subject to the following investment instructions:-
- A fund of funds scheme should not invest in any other funds of funds schemes.
- Fund of funds scheme should not invest its assets other than in schemes of mutual funds, except to the extent of funds required for meeting the liquidity requirements for repurchases or rejections, as disclosed in the fund of funds scheme document.