MUTUAL FUND REGULATIONS AND GUIDELINES BY SEBI

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.Unit Trust of India was the first mutual fund set up in India in the year 1963.

Before the establishment of Securities and Exchange Board of India(Mutual Fund) Regulations Act,1993 the Mutual Fund was governed by RBI then IDBI.

SEBI(Mutual Fund)Regulations,1996(fully revised ) gives guidelines and regulates the MF in India.

Period of RegistrationEligibility criteria for Registration as

Mutual FundTerms & Condition for RegistrationConstitution of Mutual FundContent of Trust Deed Timeframes for the Issue and Post- Issue

formalities Entry Loads & Exit Loads

SEBI replies all the applications within 21 days of submission.

An applicant proposing to sponsor a mutual fund in India must submit an application in Form A along with a fee of Rs.25,000.

The application is examined and once the sponsor satisfies the prescribed eligibility criteria the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs.

For the purpose of grant of a certificate of registration, the applicanthas to fulfill the following, namely:-

a) the sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions;

Explanation: For the purposes of this clause "sound track record" shall mean the

sponsor should,-

(i) be carrying on business in financial services for a period of not less  than five years; and

(ii) the net worth is positive in all the immediately preceding five years; and

(iii) the net worth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company; and

  (iv) the sponsor has profits after providing for depreciation, interest

and tax in three out of the immediately preceding five years, including the fifth year.

b)      in the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has been approved by the Board;

  c)      the sponsor has contributed or contributes at least 40% to the net

worth of the   asset management company;  

Provided that any person who holds 40% or more of the net worth of an asset management company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in these regulations;

  d)     the sponsor or any of its directors or the principle officer to be employed

by the mutual fund should not have been guilty of fraud or has not been convicted of an offence involving moral turpitude or has not been found guilty of any economic offence.

  e)      appointment of trustees to act as trustees for  the mutual fund in

accordance  with the provisions of the regulations;   f)       appointment of asset management company to manage the mutual

fund and  operate the scheme of such funds in accordance with the provisions of these regulations;

  g)      appointment of a custodian in order to keep custody of the securities

and carry  out the custodian activities as may be authorized by the trustees.

The registration granted to a mutual fund under regulation 9, shall be subject to the following terms and conditions:-

the trustees, the sponsor, the asset management company and the custodian shall comply with the provisions of these regulations;

the mutual fund shall forthwith inform the Board, if any information or particulars previously submitted to the Board was misleading or false in any material respect;

the mutual fund shall forthwith inform the Board, of any material change in the information or particulars previously furnished, which have a bearing on the registration granted by it;

payment of fees as specified in the regulations and the Second Schedule.(Rs.25 Lacs)

A mutual fund shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, duly registered under the provisions of the Indian Registration Act, 1908 (16 of 1908) executed by the sponsor in favour of the trustees named in such an instrument.

The trust deed shall contain such clauses as arementioned in the Third Schedule and such other

clauseswhich are necessary for safeguarding the interests

of theunit holders. No trust deed shall contain a clause which has the

effect of- limiting or extinguishing the obligations and

liabilities of the trust in relation to any mutual fund or the unit holders or

indemnifying the trustees or the asset management company for loss or damage caused to the unit holders by their acts of negligence or acts of commissions or omissions

Accordingly, a scheme should be open for subscription for "15 days" instead of the 45 days as prescribed under Regulation 34 earlier,

Refund of money would be made within "five working days" against the "six weeks" prescribed in Regulation 35, earlier.

The asset management company or mutual fund house should issue the applicant whose application has been accepted with a statement of the number of units allocated within "five working days" instead of the "thirty days" as prescribed earlier under Regulation 36.

In case no Mutual Fund scheme is launched within 12 months from the date of registration, the registration granted would be treated as cancelled.

The AMC has a net worth of not less than Rupees Ten Crore , as required under regulation 21 (1) (f) of SEBI (Mutual Funds) Regulations, 1996

The net worth should be furnished in the following format:Particulars Amount (Rs)

Paid-up capitalAdd: Free reserves of the companyLess: miscellaneous expenditure to the extent

not written-offLess: accumulated losses, if anyLess: intangible assets, if any

Total Net worth

SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent.

All mutual funds are required to be registered with SEBI before they launch any scheme

Deletion of provisions for extra management fee in case of no load

scheme. 7.1. Clause (a) of the Tenth Schedule of the Regulations

prescribes that AMCs,trustee company or sponsor may launch schemes on a “load”, “no-loadbasis” or on a mixed basis with two classes of units in the same scheme -one with load and the other without load. In the case of a no-load scheme,the initial issue expenditure shall be borne by the AMC, Trustee Company orsponsor. 7.2. Regulation 52 (3) also prescribes that for schemes launched

on a ‘no load’basis, the asset management company shall be entitled to collect anadditional management fee not exceeding 1% of the weekly average netassets outstanding in each financial year. Exit load or CDSC charged to the investor, a maximum of 1% of the

redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately .

First time mutual fund investors will now have to pay an additional 150 as transaction charges according to new rules approved by securities market regulator SEBI which are aimed at widening the reach of mutual funds.

Existing investors in mutual funds will have to pay an additional 100 as transaction charge.

The extra 50, which will be charged for new investors, will help meet Know Your Customer, or KYC, and other incidental expenses.

Thank You