Financial Income

Important Steps taken by SEBI to Regularize Mutual Funds in India

SEBI is an integral body that takes several reformative steps every year for regulating the mutual fund schemes in India. These steps are aimed at maximizing the profit-earning capacity of the investors. Here are some of the important steps taken by SEBI for regularizing the mutual funds in India:

  • Formation: Several structural changes are being made every now and then in the mutual fund industry. As a part of these changes, the mutual fund schemes are required for setting up the asset management organizations with around 50 percent independent directors along with the individual board of trustee organizations which should consist of a minimum of 50 percent of the independent trustees and for appointing the independent custodians.

This is aimed at ensuring the strong relationship between the fund managers, trustees and the custodians. Therefore, the overall processes of forming as well as floating of the mutual funds have been made a tripartite form of exercise by several authorities.

  • Registration: During the time of January 1993, SEBI had prescribed the registration of different mutual fund schemes by taking into account the track record of the particular sponsor, integrity of the business transactions, and even financial soundness with respect to granting permissions. This move by SEBI was aimed at curbing the excessive growth of the different kinds of mutual funds and also for protecting the interests of the investors by registering only the financially strong promoters with a reliable track record and sound functioning.

 

  • Documents: The document of an offer for the mutual fund schemes was launched by the different mutual funds. The particulars of the scheme are required for vetting by the SEBI. A particular standard format for the prospectuses of the mutual fund schemes is being formulated by the SEBI.

 

  • Code of Advertising: The different mutual funds are required for adhering to a certain code of making advertisements about their schemes.

 

  • Assurance on Returns: SEBI has also introduced a modification in the Securities Control and Regulations Act that governs the different mutual funds. In the current scenario, the mutual funds are prevented from offering any kind of assurance on the landing of returns that they would be granting. However, under pressurized situations from the mutual funds, SEBI has again revised the guidelines that allow the assurances on the subject of returns under certain conditions.

Therefore, only those mutual fund companies that have been in the industry for more than five years are given the permission to offer an assurance of maximum 12 percent of return for one year. You can check out online platforms that provide the required information regarding the best portfolios, and get high returns.

  • Minimum Corpus: As per the current guidelines of SEBI upon the mutual fund, it has prescribed that a minimum corpus for starting up would be around 50 crore INR for the scheme that tends to be open-ended and around 20 crore INR for the schemes that are closed ended. Upon failure of the same, the application money needs to be refunded under all circumstances.

The main idea behind the forwarding of such a proposal to SEBI is with respect to the fact that in the past, the requirements of minimum corpus have forced the AMCs for soliciting funds from the various corporate bodies. As a result, it resulted into the reduction of the mutual funds into some form of quasi-portfolio management scenario.

  • Institutionalization: The various efforts of SEBI have been towards the institutionalization of the market by means of introducing the proportionate allotment as well as by increasing the amount of minimum deposit to around 5000 INR. These dedicated efforts by SEBI are meant for channelizing the investment of the investors into the various mutual funds.

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