SEBI: Securities and Exchange Board of India

What is SEBI?

The Securities and Exchange Board of India (SEBI) is a regulatory authority that plays a pivotal role in overseeing and regulating the securities and financial markets in India.

Established on 12th April 1988 as a non-statutory regulatory body, SEBI received statutory and autonomous powers on 30th January 1992.Today, SEBI operates as an autonomous body tasked with the responsibility of protecting the interests of investors by ensuring transparency, fairness, and accountability in the securities markets. It enforces rules and regulations that promote ethical conduct among market participants.

Additionally, SEBI ensures the growth and development of India's securities market by introducing reforms, innovative products, and market-friendly regulations. It seeks to maintain market integrity and create a conducive environment for both issuers and investors.

SEBI’s three main functions

Investor protection: SEBI monitors price rigging, prevents insider trading, promotes fair practices, creates awareness among investors, and prohibits unfair and fraudulent trade practices.

Market development: SEBI facilitates training and education for brokers and investors to promote sound knowledge and wide participation.

Regulatory role: SEBI lays down the guidelines for market players, conducts audits of stock exchanges, and regulates credit rating agencies.

Mutual funds guidelines of SEBI

Here are some key mutual funds guidelines of SEBI:

  • A mutual fund sponsor, a group affiliated with an Asset Management Company (AMC), or an AMC associate is restricted from holding 10% or more of the total shareholding and voting rights in either an AMC or any other mutual fund. Additionally, an AMC cannot have representation on the board of another mutual fund.
  • Investment by mutual fund schemes cannot be more than 10% of any company’s paid up capital.
  • For sectoral or thematic indices, individual stocks are subject to a maximum weightage of 35% within the index. In contrast, other indices are subject to a cap of 25%.
  • Concerning the top three constituents of an index, their combined weight should not exceed 65%.
  • In the case of an individual index constituent, it must exhibit a trading frequency of at least 80%.
  • Each liquid scheme is required to allocate a minimum of 20% of its assets to liquid instruments such as treasury bills, government securities, cash, repo agreements involving government securities, and similar assets.

    Important SEBI rules

    SEBI has mandated a two-factor authentication system for mutual fund redemptions, including an OTP, to curb fraud. Simultaneously, SEBI has outlined precise guidelines for mutual fund portfolio rebalancing, with corrective actions required within 30 days for deviations from specified asset allocations or such extended period as stated in SEBI Mutual Funds Regulations, 1996. Non-compliance may lead to restrictions on launching new schemes or charging exit loads. For SEBI transparency in disclosure of information and investor protection remain paramount.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.