Who Regulates Mutual Funds?

What are the different mutual fund regulations and guidelines to maintain transparency in the market? Read to explore.
Who Regulates Mutual Funds?
3 mins read
10-Apr-2024

Who regulates mutual funds in India?

SEBI (Securities and Exchange Board of India) regulates the securities market in India. SEBI was established in 1988. Under the Securities and Exchange Board of India Act 1992, it has been given authority to regulate the securities market. The mutual fund industry is part of this securities market. Therefore, the securities market watchdog also oversees mutual funds in India. In a word, the mutual funds are regulated by SEBI.

What are the mutual fund’s regulations of SEBI?

When it comes to mutual funds, the top 3 responsibilities of SEBI are:

  1. Formulate and enforce mutual funds’ regulations to protect the interests of the investors.
  2. Safeguard the integrity of the market.
  3. Implement measures for the growth and advancement of the mutual fund industry

The mutual fund industry in India operates within the framework of SEBI’s mutual funds regulations.

Also read: SIP Investment or Lumpsum Investment

SEBI’s mutual funds' regulation framework

SEBI’s regulatory framework for the mutual funds industry in India includes:

  • Fund distribution
  • Client grievance handling and redressal
  • Objectives and strategies of investment
  • Selection of AMCs (Asset Management Company)
  • Disclosure norms by the AMCs
  • Valuation of assets

To ensure compliance with mutual funds regulations, SEBI issues directives from time to time. The security watchdog in India also takes necessary actions to safeguard investors' interests.

By laying down strict laws and regulations for the mutual fund industry, SEBI bolsters investor confidence, on the one hand, and fosters sectoral development, on the other. In this way, the securities watchdog of India plays an important role in overseeing and regulating the mutual fund landscape.

All these steps ensure that transparency is maintained in the mutual fund market.

Also read: How to Choose Mutual Funds?

What are the SEBI guidelines for mutual fund investors in India?

SEBI, the securities watchdog in India, has laid down mutual fund regulations and recommendations for investors. They have done this to safeguard the interests of investors, infuse transparency, and increase investor trust in the market. These recommendations are intended to help investors make well-informed investment decisions.

Here are the top 5 recommendations:

Risk assessment

SEBI has recommended investors first evaluate their financial objectives and assess their risk tolerance levels before investing in mutual funds. Different types of mutual funds have varied asset allocations and that’s why they generate different returns. So, before choosing a mutual fund scheme, SEBI has asked investors to:

  • Understand the risks associated with different types of funds
  • Choose and invest only in those schemes that align with their risk tolerance levels

Diversification

SEBI recommends investors diversify their mutual fund investment among a wide range of assets including equity, debt, hybrid, tax-saver, and NFO (New Fund Offer). Diversification helps to reduce the performance of an individual investment in the overall portfolio of an investor. This, in turn, minimises the risk to investors.

Long-term investment

According to SEBI, investors should try to stay invested for a longer period of time to capitalise on the growth potential of the mutual fund market. Short-term fluctuations in the securities market wear out in the long run. To minimise the risk of investors from seasonal short-term fluctuations and volatility in the market, it is prudent for investors to invest in mutual funds for a longer period, say, 5 years or more.

Thorough research

Always check the returns generated by the mutual fund schemes in the last 1 year, 3 years, and 5 years to get an idea about their performance. Also, check the track record of fund managers. This will help you assess whether you are investing your money in the right scheme or not. Other things to research include associated risks, expense ratios, scheme documents, and more.

Portfolio simplicity

Per your risk tolerance level and investment goals, choose only a few mutual fund schemes to invest in. This will help you monitor and manage your schemes and investment portfolio easily.

Quick Summary – Who Regulates Mutual Funds

When it comes to mutual funds' regulation and supervision in India, SEBI plays a major role. By creating rules and regulations, SEBI has created a structure to promote transparency in the securities and mutual fund market. It safeguards the interests of the investors and also upholds the integrity of the market. By emphasising optimal standards and enforcing adherence to mutual funds’ regulations, SEBI has bolstered investor confidence in the mutual fund industry. This has stimulated the expansion of the mutual fund market in India.

Do you want to explore and compare mutual funds in India? If yes, you may check the 1000+ mutual funds (equity, debt, hybrid, tax saver, and NFOs) listed on the Bajaj Finserv Platform.

Calculate your expected investment returns with the help of our investment calculators

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Frequently asked questions

Are mutual funds regulated by RBI or SEBI?
Mutual funds are regulated by SEBI (Securities and Exchange Board of India) and not RBI (Reserve Bank of India).
Who regulates AMFI?
As the SEBI (Securities and Exchange Board of India) is the regulator of the mutual fund industry in India, the Association of Mutual Funds of India (AMFI) also comes under the purview of SEBI’s laws and regulations. SEBI regularly consults with AMFI (which represents AMCs in India) on multifarious issues.
What is the difference between SEBI and AMFI?

SEBI's full form is the Securities and Exchange Board of India. It is the securities watchdog of India. SEBI creates laws, rules, and regulations to monitor and regulate the stock market, mutual fund industry, and securities market in general. The full form of AMFI is the Association of Mutual Funds of India. It is a statutory body that has been created by the AMCs (Asset Management Companies) in India, who in turn issue mutual fund schemes in India. To sum up, SEBI is the watchdog of the securities market in India and AMFI is a statutory body that the mutual fund companies in India have created.

Who is the Chairman of mutual fund in India?
In September 2023, HDFC Asset Management’s MD and CEO, Navneet Munot, was elected as the Chairman of AMFI (Association of Mutual Funds in India).
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