10 Jun 2023
We have all heard the phrase it’s better to be safe than sorry. Keeping with the spirit of this quote, the country’s capital market regulator, the Securities and Exchange Board of India (SEBI), has framed regulations to ensure that the interests of mutual fund investors are protected at all times.
What is SEBI?
It is a statutory body whose chief function is to protect investor interests in capital markets, including mutual funds, and promote market development. It has the authority and power to frame regulations to govern the country’s securities market.
So, as investors, you should be aware of some important guidelines laid out for your protection. Let’s take a look at some of these:
- Prevention of false advertising: Since all mutual funds schemes are in some or the other way usually impacted by market and economic fluctuations, there is always a risk that they may not be able to deliver the desired results. Therefore, SEBI has framed guidelines restricting mutual funds from making false advertisements, misleading or without the necessary information about its risk profile, etc., amongst others through various media platforms under the SEBI (Mutual Funds) Regulations 1996. This helps ensure the credibility of the mutual fund schemes offered.
- Promoting transparency: SEBI has formulated laws that mandate all entities dealing in securities, including stock exchanges, mutual funds, and listed companies, to provide all relevant details regarding their operations and business so that investors can make informed decisions. Accordingly, mutual funds must periodically update and disclose on their websites, with SEBI, and with AMFI (Association of Mutual Funds in India) all scheme-related documents like Key Information Memorandum and Scheme Information Documents. Violation of the disclosure norms can invite serious action against defaulters.
- Prevention of fraudulent activities: SEBI has established various norms to deal with fraudulent activities like Ponzi schemes, insider trading and stock market manipulation. It takes stringent measures in the form of hefty penalties and a market ban to punish anyone found guilty of violating the regulatory laws. It has also established a series of norms to ensure that only fit and proper persons with a clean background can operate in the capital markets, including market intermediaries like mutual fund distributors.
- Complaint redressal mechanism: SEBI has established a comprehensive system for investor grievances against capital market entities and intermediaries. It ensures that a proper resolution is taken to address the investor complaint, including arbitration and enforcement action against whom the complaint is filed if found guilty. In the case of mutual funds, investors can directly register these complaints with the respective Asset Management Company or on SEBI’s online redressal system called SCORES (SEBI Complaints Redress System).
- Investor education and awareness initiatives: SEBI promotes extensive nationwide campaigns to sensitize people on financial literacy and regulations. These awareness programs can help investors stay guarded against investment activities and entities and take informed investment decisions.
These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited, and accordingly, persons who come into possession of this document are required to inform themselves about and observe any such restrictions. Investors may make any decision/ investment decision after necessary due diligence, understanding the risk appetite and as per the financial objectives.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.