REGULATION FOR MUTUAL FUNDS ININDIA

SEBI (SECURITY EXCHANGE BOARD OF INDIA)

SEBI was established to promote the orderly and healthy development of securities market and to provide adequate investor protection. SEBI has an independent constituted board with regulatory powers over stock exchange, merchant banking, brokers, registrar and transfer agents, custodians, mutual funds and capital issues. SEBI issues guidelines for various market players to conform with. All players need to register with SEBI and consent to comply with the regulations of SEBI. In the case of mutual funds, the SEBI guidelines were first issued in the SEBI Mutual Fund Regulations of 1993. In December 1996, SEBI published the revised Mutual Fund Regulations, 1996, regulating several aspects including management fees, expenses, and NAV calculation and standardized reporting practices. The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board. Every mutual fund has to pay filling fees along with the offer document. The offer document should contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum

investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor. No one can issue any application form for units of mutual fund until the memorandum containing such information is issued. With each application form fund house has to provide such a memorandum providing guidelines to investors. Each close-ended scheme should be listed on a recognized stock exchange within six months from the closure of the subscription. A closed-ended scheme should be fully redeemed at the end of the maturity period. Unless a majority of the unit holders otherwise decide for its rollover by passing a resolution. The mutual fund and asset Management Company should be liable to refund the application money to the applicants. The asset management company should issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible within six weeks from the date of closure of the initial subscription list and/or from the date of receipt of the request from the unit holders in any open-ended schemes. Total investment in such instruments should not exceed 25% of the NAV of the scheme. All such investments should be made with prior approval of the Board of Trustee and the Board of Asset Management Company. No mutual fund should own more than 10% of any companys paid up capital carrying voting rights under all its schemes.

Transfers of investments from one scheme to another (switchover) in the same mutual fund should be allowed ifa) Such transfer is done at the prevailing market price for quoted instruments on spot basis. b) The securities so transferred should be in conformity with his investment objective of the scheme to which such transfer is being done. I.Transfer of investment may be done in another scheme of the same asset management company or any other without charging any fees. II.The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under the scheme. III.Each mutual fund should get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. IV.Each mutual fund can diversify its portfolio of each scheme as per market condition and this should be published by that fund in the monthly fact sheets issued to investors. V.No mutual fund scheme should make any investment in; 1) Any unlisted security of an associate or group company of the sponsor, or 2) Any security issued by way of private placement by associate or group company of the sponsor, or 3) The listed securities of group companies of the sponsor, which are in excess of 30% of the net asset of all the schemes of a mutual fund.

 No mutual fund scheme should invest more than 10% of its NAV in the equity shares or equity related instruments of any company. This limit of 10% is not applicable to index fund and sector specific scheme A mutual fund scheme cannot invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% in case of close-ended scheme.

AMFI (ASSOCIATION OF MUTUAL FUND)

Establish standards of Mutual fund industry on different aspects To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services. To interact with the Securities and Exchange Board of India(SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry. To develop a cadre of well trained Agent distributors and to implement a program of training and certification for all intermediaries and other engaged in the industry.

COMPANY FIXED DEPOSITS V/S MUTUAL FUND

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.

BANK FIXED DEPOSITS V/S MUTUAL FUND

Bank Fixed deposits are similar to company fixed deposits excepting that the Bank FDs are safer and chances of default are very less. Banks operate under stringent requirements regarding Statutory Liquidity Ration (SLR) and Cash Reserve Ratio (CRR). Further, Deposit Insurance and Credit Guarantee Corporation (DICGC) protect bank deposits.

BONDS AND DEBENTURES V/S MUTUAL FUND

Credit rating of a bond is an indication of the inherent default risk in the investment. However unlike fixed deposits, bonds and debentures are transferable securities. If security does not get traded in the market, then the liquidity remains on paper. In this respect an open-end mutual fund scheme offering continuous sale / repurchase option is superior. There could be capital gain /

capital loss to investor in case of a nearly exit, because the investment is subject to market risk. This is normally less in Mutual fund as the investment is made in basket of funds and hence your investment gets diversified.

EQUITY V/S MUTUAL FUND

It is not possible for a common man to lay his hands on all that information needed to make an equity investment. Mutual fund handled by professionals, make prudent investment decisions. Mutual fund investment offers diversification irrespective of the size of investment. Individual investor investing in equity scheme may not have this advantage especially if he does not have that sort of investible funds.

LIFE INSURANCE V/S MUTUAL FUND

Life insurance is hedge against risk and not really an investment option. But occasionally, on account of miss-pricing of products in India, life insurance products have offered a return that is higher than a comparable safe fixed return security thus, you are effectively paid for getting insured.

MEASURES
To undertake nationwide investor awareness program so as to promote proper understanding of the concept and working of mutual funds. To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.