What is SEBI?
Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations.
SEBI was founded on April 12, 1992, under the SEBI Act, 1992. Headquartered in Mumbai, India, SEBI has regional offices in New Delhi, Chennai, Kolkata and Ahmedabad along with other local regional offices across prominent cities in India.
The objective of SEBI is to ensure that the Indian capital market works in a systematic manner and provide investors with a transparent environment for their investment. To put it simply, the primary reason for setting up SEBI was to prevent malpractices in the capital market of India and promote the development of the capital markets.
SEBI Categorisation and Rationalisation of Mutual Funds
Given below are the different mutual funds categorised and rationalised by SEBI-
|Large Cap Fund||An open-ended equity scheme primarily investing in large cap stocks. Minimum 80% total assets are invested in equity & equity related securities of large cap companies|
|Mid Cap Fund||An open-ended equity scheme primarily investing in mid cap stocks. Minimum 65% of total assets are invested in equity & equity related instruments of mid cap companies|
|Small Cap Fund||An open-ended equity scheme primarily investing in small cap stocks. Minimum 65% of total assets are invested in equity & equity related securities of small cap companies|
|Multi Cap Fund||An open-ended equity scheme investing in stocks across market capitalisation (large, small, mid cap). Minimum 65% of total assets are invested in equity and equity related instruments|
|Large & Mid Cap Fund||An open-ended equity scheme investing in stocks from both large cap & mid cap companies. Minimum 35% of total assets are invested in equity of large cap companies and 35% in mid cap companies|
|Dividend Yield Fund||An open-ended equity scheme primarily investing only in corporations that have significantly high dividend yielding stocks. Minimum 65% of total assets invested in equity|
|Value Fund||A Value Fund is a type of Mutual Fund which follows value investing strategy. Minimum 65% of total assets is invested in equity & equity related instruments|
|Contra Fund||A Contra Fund is a type of Mutual Fund which follows contrarian investing strategy. Minimum 65% of total assets is invested in equity & equity related instruments|
|Focused Fund||An open-ended equity scheme investing in maximum 30 stocks from either of the market caps. Minimum 65% of total assets are invested in equity related instruments|
|Sectoral/Thematic fund||An open-ended equity scheme investing in businesses that operate in a particular sector or industry. Minimum 80% of total assets are invested in equity of a particular sector/theme|
|ELSS||An open-ended equity linked tax saving scheme with a lock-in of three years. Minimum 80% of total assets are invested in equity related securities|
|Overnight Fund||An open ended debt scheme which invests in overnight securities having maturity of 1 day|
|Liquid Fund||An open ended debt scheme which invests in debt & money market instruments with maturity up to 91 days|
|Ultra Short Duration Fund||An open ended debt scheme which primarily invests in debt instruments with Macaulay duration between 3 to 6 months|
|Low Duration Fund||An open ended debt scheme which invests in debt instruments with Macaulay duration between 6 to 12 months|
|Money Market Fund||An open ended debt scheme which invests in debt & money market instruments having maturity up to 1 year|
|Short Duration Fund||An open ended debt scheme which invests in debt instruments with Macaulay duration between 1 to 3 years|
|Medium Duration Fund||An open ended debt scheme which invests in debt instruments with Macaulay duration of 4 to 7 years|
|Long Duration Fund||An open ended debt scheme which invests in debt instruments with Macaulay duration greater than 7 years|
|Dynamic Bond Fund||An open ended debt scheme which invests in debt instruments across durations|
|Corporate Bond Fund||An open ended debt scheme which invests in highest rated corporate bonds. Minimum 65% of total assets are allocated in corporate bonds|
|Credit Risk Fund||An open ended debt scheme which invests in below highest rated corporate bonds. Minimum 65% of total assets are allocated in below highest rated corporate bonds|
|Banking and PSU Fund||An open ended scheme which invests in debt instruments of Banks, Public Sector Undertakings and Public Sector Financial Institutions. Minimum 80% of total assets are allocated in securities from these sectors|
|Gilt Fund||An open ended scheme which invests in government securities across maturity|
|Gilt Fund with 10 year constant duration||An open ended debt scheme investing in government securities having a constant maturity of 10 years|
|Floater Fund||An open ended debt scheme primarily investing in floating rate instruments|
|Conservative Hybrid Fund||An open ended hybrid scheme which primarily invests 75% to 90% of total assets in debt instruments and 10% to 25% in equity|
|Balanced Hybrid Fund||An open ended balanced scheme which invests 40% to 60% of total assets in debt instruments and and 40% to 60% in equity instruments|
|Aggressive Hybrid Fund||An open ended aggressive scheme which primarily invests 65% to 80% of total assets in equity & equity related instruments. 20% to 30% assets are placed in debt securities|
|Dynamic Asset Allocation or Balanced Advantage Fund||An open ended fund which invests in equity/debt that is managed dynamically|
|Multi Asset Allocation Fund||An open ended scheme investing in different asset classes with a minimum of 10% allocated in each asset class|
|Arbitrage Fund||An open ended scheme investing in arbitrage opportunities with a minimum of 65% of total assets allocated in equity & equity related securities|
|Equity Savings||An open ended scheme investing at least 65% in equity & equity related instruments and at least 10% in debt securities|
- Solution Oriented Schemes
|Retirement Fund||An open ended retirement solution oriented scheme which comes with a lock-in of 5 years or till retirement age (whichever is earlier)|
|Children’s Fund||An open ended fund for investment for children which comes with a lock-in for minimum 5 years or till the child attains the age of majority|
|Index Funds/ETF||An open ended scheme which replicates/tracks the index. Minimum 95% of securities are invested in the securities of a particular index|
|FoF (Overseas/Domestic)||An open ended fund of fund scheme which invests 95% of the total assets in the underlying fund|
SEBI Regulations on Mutual Fund
Mutual Funds are managed by Asset Management Companies (AMC) which need to be approved by SEBI. A Custodian who is registered with SEBI holds the securities of various schemes of the fund. The trustees of the AMC monitor the performance of the mutual fund and ensure that it works in compliance of SEBI Regulations.
Following are some of the regulations on Mutual Fund:
- A sponsor of a mutual fund scheme, a group of the company or an associate which involves asset management company (AMC) of the fund, cannot hold the following in any form:
- 10% or above of the voting rights and shareholding in the AMC or any other mutual fund scheme
- An AMC cannot have representation on the board of any other mutual fund
- Shareholders can’t hold more than 10% of the shares both directly and indirectly in AMC of the Mutual Fund
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Structure of SEBI
SEBI, just like any corporate firm has a hierarchical structure and consists of numerous departments headed by their respective heads. Following is a list of some of the departments of SEBI:
- Foreign Portfolio Investors and Custodians
- Human Resources Department
- Information Technology
- Investment Management Department
- Office of International Affairs
- Commodity and Derivative Market Regulation Department
- National Institute of Securities Market
Apart from the department heads, the senior management of SEBI consists of a Board of Directors who are appointed as follows:
- 1 chairman nominated by the Union Government of India
- 2 members from the Union Finance Ministry of India
- 1 member from the Reserve Bank of India (RBI)
- 5 members nominated by the Union Government of India
Functions of SEBI
The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the needs of three parties operating in the Indian Capital Market. These three participants are mentioned below:
- Issuers of the Securities: Companies that issue securities are listed on the stock exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a healthy and transparent way.
- Protects the Interests of Traders & Investors: It is a fact that the capital markets are functioning just because the traders exist. SEBI is responsible for safeguarding their interests and ensuring that the investors do not become victims of any stock market fraud or manipulation.
- Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that all the market transactions take place in a secure and smooth manner. It monitors every activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc
What are the Powers of SEBI
Securities and Exchange Board of India has the following three powers:
Quasi-Judicial: With this authority, SEBI can conduct hearings and pass ruling judgements in cases of unethical and fraudulent trade practices. This ensures transparency, fairness, accountability and reliability in the capital market. SEBI PACL case is an example of this power.
Quasi-Legislative: Powers under this segment allow SEBI to draft rules and regulations for the protection of the interests of the investor. One such regulation is SEBI LODR (Listing Obligation and Disclosure Requirements). It aims at consolidating and streamlining the provisions of existing listing agreements for several segments of the financial market like equity shares. This type of regulation formulated by SEBI aims to keep any malpractice and fraudulent trading activates at bay.
Quasi-Executive: SEBI is authorised to file a case against anyone who violates its rules and regulation. It is empowered to inspect account books and other documents as well if it finds traces of any suspicious activity.
What is the procedure for registering a mutual fund with SEBI?
As per SEBI’s guidelines, the applicant must apply for registration in Form A prescribed under Schedule I of SEBI Regulations 1996. It must be noted that any person who holds equal to or more than 40% of the net worth of the Asset Management Company shall be deemed as a Sponsor and must apply in Form A.
- An applicant proposing to sponsor a mutual fund must submit an application in the Form A along with a non-refundable fee of Rs.5lakh
- The application will then be examined in correspondence with the eligibility criteria
- If the sponsor meets the eligibility conditions, it will have to complete the remaining formalities such as including inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two-thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian
- Once the mentioned conditions are met, SEBI will issue the registration certificate subject to the payment of registration fees of INR 25 lakh
FAQs on SEBI
Ques. What is the history of Mutual Funds in India and role of SEBI in the mutual funds industry?
Ans. It was in the early 1990s when the Government of India allowed all the public sector banks to set up mutual funds. After this, on 12 April 1992, SEBI was founded when the Securities and Exchange Board of India Act was passed.
SEBI is responsible to formulate, regulate and supervise the mutual fund industry in the country in order to protect the interests of the investors and encourage them to invest.
Ques. How can investors redress their complaints?
Ans. Investors can register their complaints with SEBI by filling an online form available on the SEBI website. If there are any complaints with the AMC, the investor may first consider registering the complaint on the AMC’s website. Additionally, investors can also send their complaints to-
Securities and Exchange Board of India
Office of Investor Assistance and Education (OIAE)
Plot No.C4-A , “G” Block, 1st Floor,
Bandra (E), Mumbai – 400 051.
After receiving your complaint, SEBI will take the matter to the respective mutual fund house and ensure that your issues are settled.
Ques. What is SEBI Complaints Redress System (SCORES)?
Ans. SCORES is a web-based centralized grievance redressal system set up by the SEBI. The system allows market intermediaries and listed companies to receive complaints from online investors and redress them.
Ques. What is the duration of validity of SEBI observations on SID?
Ans. The scheme will be launched within six months from the date of issuance of final observations from SEBI. However, if the AMC intends to launch the scheme at a later date, it must refile the SID with SEBI along with the filing fees.