SEBI and AMFI Guidelines for Mutual Funds

1. SEBI Guidelines for Mutual Funds

The Securities and Exchange Board of India (SEBI) is the regulatory authority overseeing mutual funds in India. SEBI's guidelines ensure transparency, investor protection, and the smooth functioning of mutual funds.

1.1 Registration and Compliance

• All mutual funds must be registered with SEBI under the SEBI (Mutual Funds) Regulations, 1996.
• Fund houses (Asset Management Companies - AMCs) must adhere to SEBI’s norms and operate under the Trust Structure.
• The Sponsor, Trustee, AMC, and Custodian must comply with SEBI’s prescribed standards.

1.2 Fund Classification and Categorization

• SEBI mandates mutual funds to follow a standardized classification to avoid confusion among investors.
• Funds are categorized into Equity, Debt, and Hybrid funds, with further subcategories.
• Each scheme must adhere to its specified investment objective and cannot change it without investor consent.

1.3 Disclosure and Transparency

• Mutual fund houses must provide Key Information Memorandum (KIM) and Scheme Information Document (SID).
• Net Asset Value (NAV) must be disclosed daily for all open-ended funds.
• AMCs must publish a half-yearly portfolio disclosure of holdings.

1.4 Expense Ratios and Charges

• SEBI regulates Total Expense Ratios (TER), capping it at certain limits depending on the fund size.
• Entry loads are prohibited, while exit loads must be clearly disclosed.
• AMCs cannot charge beyond the limits prescribed by SEBI.

1.5 Investment and Risk Norms

• Mutual funds cannot invest more than 10% of their net assets in a single company’s equity.
• At least 80% of funds in a scheme must be invested in its stated asset class.
• SEBI enforces strict risk mitigation measures, including stress testing for liquid and debt funds.

1.6 Investor Protection and Redressal

• Mutual funds must have an Investor Grievance Redressal Mechanism.
• AMCs must provide an exit option to investors in case of significant scheme modifications.
• Mutual funds must appoint an independent Risk Management Committee.

2. AMFI Guidelines for Mutual Funds

The Association of Mutual Funds in India (AMFI) is a self-regulatory organization that oversees ethical and professional standards in the mutual fund industry.

2.1 Registration and Code of Conduct

• All mutual fund distributors and intermediaries must be registered with AMFI and obtain an AMFI Registration Number (ARN).
• Members must adhere to the AMFI Code of Ethics (ACE).

2.2 Distribution and Sales Practices

• Distributors must disclose all commissions, fees, and incentives earned from mutual fund sales.
• Mis-selling, misleading advertisements, and unfair trade practices are strictly prohibited.
• AMFI mandates that distributors complete a Know Your Distributor (KYD) process before operating.

2.3 Investor Education and Awareness

• AMFI runs the Mutual Funds Sahi Hai campaign to educate investors.
• Fund houses must conduct investor awareness programs and provide adequate educational materials.

2.4 Transparency and Fair Dealing

• Distributors and fund houses must ensure fair dealing with investors.
• AMFI requires that NAVs, fund performance, and portfolio details be publicly accessible.
• Any change in fund management must be communicated clearly to investors.

2.5 Disciplinary Measures

• AMFI has the power to penalize distributors and fund houses for misconduct.
• Repeat violations can lead to suspension or revocation of ARN.
• Investors can approach AMFI for grievances, which are then forwarded to SEBI if necessary.

Conclusion

Both SEBI and AMFI play crucial roles in maintaining trust and transparency in the mutual fund industry. SEBI enforces strict regulations, while AMFI ensures ethical conduct among fund houses and distributors. Investors are encouraged to understand these guidelines to make informed investment decisions.