Important steps taken by SEBI for the regulation of mutual funds are listed below:

(1) Formation:

Certain structural changes have also been made in the mutual fund industry, as part of

which mutual funds are required to set up asset management companies with fifty

percent independent directors, separate board of trustee companies, consisting of a

minimum fifty percent of independent trustees and to appoint independent custodians.

This is to ensure an arms length relationship between trustees, fund managers and

custodians, and is in contrast with the situation prevailing earlier in which all three

functions were often performed by one body which was usually the sponsor of the fund or

a subsidiary of the sponsor.

Thus, the process of forming and floating mutual funds has been made a tripartite

exercise by authorities. The trustees, the asset management companies (AMCs) and the

mutual fund shareholders form the three legs. SEBI guidelines provide for the trustees to

maintain an arms length relationship with the AMCs and do all those things that would

secure the right of investors.

With funds being managed by AMCs and custody of assets remaining with trustees, an

element of counter-balancing of risks exists as both can keep tabs on each other.

ADVERTISEMENTS:

(2) Registration:
In January 1993, SEBI prescribed registration of mutual funds taking into account track

record of a sponsor, integrity in business transactions and financial soundness while

granting permission.

This will curb excessive growth of the mutual funds and protect investors interest by

registering only the sound promoters with a proven track record and financial strength. In

February 1993, SEBI cleared six private sector mutual funds viz. 20th Century Finance

Corporation, Industrial Credit & Investment Corporation of India, Tata Sons, Credit Capital

Finance Corporation, Ceat Financial Services and Apple Industries.

(3) Documents:

ADVERTISEMENTS:

The offer documents of schemes launched by mutual funds and the scheme particulars

are required to be vetted by SEBI. A standard format for mutual fund prospectuses is

being formulated.

(4) Code of advertisement:

Mutual funds have been required to adhere to a code of advertisement.

(5) Assurance on returns:

SEBI has introduced a change in the Securities Control and Regulations Act governing the

mutual funds. Now the mutual funds were prevented from giving any assurance on the

land of returns they would be providing. However, under pressure from the mutual funds,

SEBI revised the guidelines allowing assurances on return subject to certain conditions.

ADVERTISEMENTS:

Hence, only those mutual funds which have been in the market for at least five years are

allowed to assure a maximum return of 12 per cent only, for one year. With this, SEBI, by
default, allowed public sector mutual funds an advantage against the newly set up

private mutual funds.

As per basic tenets of investment, it can be justifiably argued that investments in the

capital market carried a certain amount of risk, and any investor investing in the markets

with an aim of making profit from capital appreciation, or otherwise, should also be

prepared to bear the risks of loss.

(6) Minimum corpus:

The current SEBI guidelines on mutual funds prescribe a minimum start-up corpus of

Rs.50 crore for a open-ended scheme, and Rs.20 crore corpus for closed-ended scheme,

failing which application money has to be refunded.

The idea behind forwarding such a proposal to SEBI is that in the past, the minimum

corpus requirements have forced AMCs to solicit funds from corporate bodies, thus

reducing mutual funds into quasi-portfolio management outfits. In fact, the Association of

Mutual Funds in India (AMFI) has repeatedly appealed to the regulatory authorities for

scrapping the minimum corpus requirements.

(7) Institutionalisation:

The efforts of SEBI have, in the last few years, been to institutionalise the market by

introducing proportionate allotment and increasing the minimum deposit amount to

Rs.5000 etc. These efforts are to channel the investment of individual investors into the

mutual funds.

(8) Investment of funds mobilised:

In November 1992, SEBI increased the time limit from six months to nine months within

which the mutual funds have to invest resources raised from the latest tax saving

schemes. The guideline was issued to protect the mutual funds from the disadvantage of

investing funds in the bullish market at very high prices and suffering from poor NAV

thereafter.
(9) Investment in money market:

SEBI guidelines say that mutual funds can invest a maximum of 25 per cent of resources

mobilised into money-market instruments in the first six months after closing the funds

and a maximum of 15 per cent of the corpus after six months to meet short term liquidity

requirements.

Private sector mutual funds, for the first time, were allowed to invest in the call money

market after this years budget. However, as SEBI regulations limit their exposure to

money markets, mutual funds are not major players in the call money market. Thus,

mutual funds do not have a significant impact on the call money market.

(10) Valuation of investment:

The transparent and well understood declaration or Net Asset Values (NAVs) of mutual

fund schemes is an important issue in providing investors with information as to the

performance of the fund. SEBI has warned some mutual funds earlier of unhealthy

market

(11) Inspection:

SEBI inspect mutual funds every year. A full SEBI inspection of all the 27 mutual funds

was proposed to be done by the March 1996 to streamline their operations and protect

the investors interests. Mutual funds are monitored and inspected by SEBI to ensure

compliance with the regulations.

(12) Underwriting:

In July 1994, SEBI permitted mutual funds to take up underwriting of primary issues as a

part of their investment activity. This step may assist the mutual funds in diversifying

their business.

(13) Conduct:
In September 1994, it was clarified by SEBI that mutual funds shall not offer buy back

schemes or assured returns to corporate investors. The Regulations governing Mutual

Funds and Portfolio Managers ensure transparency in their functioning.

(14) Voting rights:

In September 1993, mutual funds were allowed to exercise their voting rights.

Department of Company Affairs has reportedly granted mutual funds the right to vote as

full-fledged shareholders in companies where they have equity investments.

Mutual Funds:

? To provide investors with meaningful information about the operations of the

mutual fund schemes and to help them in taking well informed investment

decision; the SEBI revised and simplified the present format for unaudited half-

yearly results. The mutual funds were asked to disclose performance in terms of

rise/fall in NAV, yield, investment made in associate companies, details of large

holding etc.

? All Mutual Funds were directed to post their half-yearly results in the prescribed

format on their web sites and for investors the same may be displayed on AMFI

web site before the expiry of one month from the close of each half-year.

? To make the monitoring more broad based, the Mutual Funds were required to

disclose the portfolios on their web sites in the prescribed format before the
expiry of one month from close of each half-year and a copy of the portfolio is

required to be filed with SEBI at the time of submission of half-yearly results.

? To provide the investors objective analysis of the performance of the mutual

funds schemes in comparison with the rise & fall in the securities market, the

mutual funds were advised to disclose benchmark indices.

? To ensure that all personal securities transactions are conducted consistent

with the Mutual Funds guidelines and in such manner so as to avoid any actual or

potential conflict of interest or any abuse of an individual's position of trust and

responsibility, the SEBI issued detailed guidelines for investment/trading in

securities by employees of AMCs and mutual fund trustee companies. Further

more, Boards of AMCs and trustees are required to review the compliance of

guidelines periodically.

? The SEBI decided that mutual funds should disclose large unit holdings in the

scheme, which are above 25 percent of the NAV. The information on the number

of such investors and total holdings by them in percentage terms, shall be

disclosed in the allotment letters after the initial public offerings and also in the

annual and the half-yearly results.

? To implement the regulations in regard to independent functioning, the SEBI

decided that relatives of sponsors or directors of sponsor companies or relatives

of associate directors of the AMCs and Trustee Companies should be considered

as associate directors. The nominees of the companies who are stakeholders in

the Sponsor Company or AMC shall be considered as associate directors. Further,

a person who is an "associate" in accordance with definition in the regulations

cannot be appointed as independent director even after he ceases to be an

"associate" unless a cooling off period of three years has elapsed from the date

of his disassociation.
? To bring uniformity in calculation of NAVs and to have proper valuation of

Government Securities, all mutual funds were advised to use the prices for

government securities released by an authorised agency. Investment in Foreign

Securities by Mutual Funds

? To broaden the avenues for investments, Mutual Funds as per the Union Budget

2002-03 proposals, were permitted to make investments in foreign debt

securities including government securities in the countries with fully convertible

currencies, short term as well as long term debt instruments with highest rating

(foreign currency credit rating) by accredited/registered credit rating agencies.

The mutual funds may also invest in units/securities issued by overseas mutual

funds or unit trusts, which invests in aforesaid securities or are rated and

registered with overseas regulators.

List of chairmen:

Name From To

Ajay Tyagi 10 February 2017 Present

U K Sinha 18 February 2011 10 February 2017

C. B. Bhave 18 February 2008 18 February 2011

M. Damodaran 18 February 2005 18 February 2008

G. N. Bajpai 20 February 2002 18 February 2005

D. R. Mehta 21 February 1995 20 February 2002

S. S. Nadkarni 17 January 1994 31 January 1995

G. V. Ramakrishna 24 August 1990 17 January 1994

Dr. S. A. Dave 12 April 1988 23 August 1990

Functions and responsibilities[edit]

The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India as "...to protect the interests of investors in securities
and to promote the development of, and to regulate the securities market and for matters
connected there with or incidental there to".

SEBI has to be responsive to the needs of three groups, which constitute the market:

the issuers of securities

the investors

the market intermediaries.

SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-
executive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeal process to create accountability.
There is a Securities Appellate Tribunal which is a three-member tribunal and is headed by Mr.
Justice J P Devadhar, a former judge of the Bombay High Court.[6] A second appeal lies directly to
the Supreme Court. SEBI has taken a very proactive role in streamlining disclosure requirements
to international standards.[7]

Powers[edit]
For the discharge of its functions efficiently, SEBI has been vested with the following powers:

1. to approve bylaws of stock exchanges.

2. to require the stock exchange to amend their bylaws.

3. inspect the books of accounts and call for periodical returns from recognized stock
exchanges.

4. inspect the books of accounts of financial intermediaries.

5. compel certain companies to list their shares in one or more stock exchanges.

6. registration brokers.

There are two types of brokers:

1. circuit broker

2. merchant broker

SEBI committees

1. Technical Advisory Committee

2. Committee for review of structure of market infrastructure institutions

3. Advisory Committee for the SEBI Investor Protection and Education Fund

4. Takeover Regulations Advisory Committee

5. Primary Market Advisory Committee (PMAC)

6. Secondary Market Advisory Committee (SMAC)

7. Mutual Fund Advisory Committee

8. Corporate Bonds & Securitization Advisory Committee