The Securities and Exchange Board of India (SEBI) regulates all mutual fund schemes in India. It establishes tight standards that asset management companies (AMCs) must follow while managing money. As outlined in the standards, comprehensive transparency is required in relation to a mutual fund scheme, which includes full disclosure of the following information: fund value expenditures fund utilisation according to the scheme’s goals
In the mutual fund business, there have been several regulatory modifications implemented. The Securities and Exchange Board of India (Sebi) has introduced new laws on a regular basis in order to make the system fair, safe, and transparent for the end-users, the investors, who are the ultimate beneficiaries. Last year, the Securities and Exchange Board of India (Sebi) made a few adjustments for mutual funds that would become effective in 2021.
Applicability of NAV
According to a circular issued by the Securities and Exchange Board of India (Sebi) in September 2020, you will receive the same-day NAV only if your money reaches the fund house on the same day when acquiring or redeeming units from your mutual fund scheme. As a result, till the circular is implemented, mutual fund investors will receive the same-day NAV if the investment amount is less than Rs 2 lakh and the investment is made before the NAV cut-off time.
The Securities and Exchange Board of India (Sebi) has adopted labelling standards for mutual fund dividend options, which will take effect on April 1, 2021. Mutual funds will be required to rebrand dividend options as income distribution cum capital withdrawal in order to comply with the new regulations.
The dividend alternatives that are now available are as follows:
Dividend payout refers to the process through which the dividend is deposited into our accounts. Dividend reinvestment refers to the process through which a dividend is paid out and then reinvested back into the plan.
Dividend transfer plans: These plans provide for the automatic reinvestment of dividends into another scheme when they are earned. This is a feature available only to select fund companies. While the essence of these choices remains the same, they will be renamed as of April 1, 2021, to better reflect their new status. Changes to the riskometer will take effect on January 1, 2021.
The Securities and Exchange Board of India (Sebi) has issued specific rules for evaluating where a mutual fund should be placed on its riskometer tool, which can be seen here. This will be in effect as of January 1, 2021. This approach replaces the previous system, which assessed risk without thoroughly examining the real portfolio’s characteristics.
Mutual funds will also be obliged to update the riskometer on their website as well as the AMFI’s website once a month, 10 days before the end of the month in which it is published. In the event that a change occurs, investors must be kept fully informed. New categories have been added to the riskometer, including “very high” risk, which has been designated as “very high.” In accordance with the new riskometer, there are six categories of risk ranging from low to extremely high in severity.
Among the most significant rules to be aware of are:
Every mutual fund must be registered with the Securities and Exchange Board of India (SEBI).
In order to operate, a mutual fund must be structured as a trust with sponsors, trustees, an asset management firm (“AMC”), and a custodian as its constituent parts.
Mutual fund administrators should have at least 50 per cent independent directors, a separate board of trustees with at least 50 per cent independent trustees, and independent custodians in order to manage any potential conflicts of interest among fund managers, custodians, and trustees of the mutual fund in question.
A single mutual fund can float many schemes, but each plan must be separately authorised by the trustees, and all offer documents must be submitted with the Securities and Exchange Board of India (SEBI).
The Securities and Exchange Board of India (SEBI) has imposed some limitations on the fees that asset management companies (AMCs) can charge for mutual funds, as well as a ceiling on the expenditures that can be added to the fund.
Mutual funds are permitted to market, but ads cannot contain representations that are false or deceptive. For example, no mutual fund can guarantee a return because returns are dependent on the success of the market.
The Securities and Exchange Board of India (SEBI) mandates the following for both open-ended and closed-ended funds:
A minimum capital of Rs. 50 crores are required for an open-ended programme.
A closed-ended programme requires a minimum capital of Rs. 20 crores.
Every year, the Securities and Exchange Board of India (SEBI) inspects mutual funds to ensure that they are in compliance with applicable legislation and norms.