Page 24 - Banking Finance September 2024

ARTICLE

Key Regulatory

Frameworks and

Guidelines for Mutual

Funds in India

The mutual fund industry in India has grown significantly over the years, making it a popular
investment vehicle for retail and institutional investors. The regulatory environment has played a
crucial role in fostering trust and transparency in the industry.

T he mutual fund industry in India has grown up as a trust under the Indian Trusts Act, 1882. The

trustees are responsible for protecting investors'
significantly over the years, making it a popular
investment vehicle for retail and institutional
investors. The regulatory environment has played a interests, while the Asset Management Company
(AMC) handles day-to-day operations.
crucial role in fostering trust and transparency in the Y Investment Restrictions: To ensure a diversified
industry. In India, mutual funds are governed by the and secure portfolio, mutual funds must adhere to
Securities and Exchange Board of India (SEBI), which has specific investment restrictions. For example, no
established several frameworks and guidelines to ensure scheme can invest more than 10% of its net asset
investor protection, market integrity, and sustainable value (NAV) in equity shares or equity-related
growth. This article explores three key regulatory instruments of a single company. Moreover, funds
frameworks and guidelines governing mutual funds in cannot invest in unlisted securities or engage in
India: the Mutual Funds Regulations of 1996, Enhanced speculative transactions.
Disclosure Norms, and Risk Management Frameworks.
Y Investor Protection: The regulations provide strong
1. Mutual Funds Regulations, 1996 investor protection mechanisms by requiring AMCs
The Securities and Exchange Board of India (Mutual to maintain transparency, appoint independent
Funds) Regulations, 1996 is the cornerstone regulatory trustees, and adhere to strict valuation norms for
framework for mutual funds in India. These regulations assets. Additionally, SEBI mandates that all mutual
laid the foundation for mutual fund operations and funds must have a grievance redressal mechanism
continue to evolve to keep pace with market dynamics and for investors.
investor needs. Key features of the regulations include: The 1996 regulations have been pivotal in building
Y Registration and Structure: Mutual funds are investor confidence by laying down the legal and
required to register with SEBI and can only be set operational framework that ensures mutual fund schemes

22 | 2024 | SEPTEMBER | BANKING FINANCE