The Securities and Exchange Board of India (SEBI) is an organ under the government of India that regulates the securities market. It was launched in the year 1988 and received statutory powers under the SEBI Act, 1992. The body has created guidelines for investors to gain awareness regarding the manner in which mutual funds function by offering the required information. The regulator focuses to simplify the wide variety of schemes that tend to confuse investors due to their complexity. The guidelines relating to the consolidation and merger of MF schemes are created in an effort to make it easier for investors to compare different schemes made available by mutual fund companies.
The Preamble of the Securities and Exchange Board of India explains the basic functions of SEBI is the protection of investors interests in securities and to be a platform to promote, establish and regulate the securities market in India as well as the relating matters that are connected with it.
The securities exchange board is allowed to approve rules and laws pertaining to the stock exchanges. It also says that SEBI should enforce the laws for stock exchanges to follow. SEBI studies books of accounts of financial mediators and recognized stock exchanges. Another function of SEBI is to urge respective companies to list their shares in stock exchanges and manage the registration of distributors/brokers.
The SEBI board has three main powers:
SEBI, under its legislative capacity, has the right to draft resolutions, organize investigations and enforce action. Its executive role allows it to pass rules and orders under its judicial capacity. Despite the powers, the outcome of SEBI’s functions still has to go through the Securities Appellate Tribunal and the Supreme Court of India.
The following are the major highlights of the regulator’s guidelines related to mutual funds:
- Mutual funds have been divided into 5 groups – equity, debt, balanced, solution-oriented, and others.
- Definitions of small, mid, and large limits have been made clearer to facilitate uniformity.
- Solution-oriented funds come with a lock-in period.
- Only one project scheme is permitted in each category, apart from ETFs or index funds, thematic or sectoral funds, and fund of funds.
- Apart from laying down the law, the SEBI has also created guidelines for investors.
The Securities and Exchange Board of India’s listed objective is “to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.” According to its charter, it is anticipated to be responsible for three main groups: the issuers of securities, investors, and market intermediaries. The organization has somewhat nebulous powers, as it drafts regulations and statutes in its legislative capacity, passes rulings and orders in its judicial capacity, and conducts an investigation and enforcement actions in its executive capacity.
Many criticize the regulatory body reason being it is insulated from direct accountability to the public. The only mechanisms to control its power are a Securities Appellate Tribunal, which consists of a panel of three judges, and a direct appeal to the Supreme Court of India. Fortunately for the people of India, the SEBI has been mostly benevolent in its use of its authority, issuing strong systematic reforms frequently and aggressively with its unchecked power. For instance, after the Great Recession of 2008 and the Satyam Fiasco, the SEBI was able to quickly take regulatory steps to mitigate the effects of these problems, stabilize the economy and take drastic steps to make sure such situations never occurred again.