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:
- Formulate and enforce mutual funds’ regulations to protect the interests of the investors.
- Safeguard the integrity of the market.
- 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.
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