Sebi Mutual Fund Regulations 2020

Securities and Exchange Board of India (SEBI) has made further amendments to Securities and Exchange Board of India (Mutual Funds) Regulations 1996, on 6th March 2020 to be called Securities and Exchange Board of India (Mutual Funds-Amendment) Regulations 2020 also known as Sebi Mutual Fund Regulations 2020. The gazette notification can be accessed below:

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Securities and Exchange Board of India (Mutual Funds) Regulations 1996

The SEBI (Mutual Funds) Regulations 1996 is a set of rules that regulate selling of units of mutual funds on the Stock Exchange of India. Mutual Funds can be broadly defined as a trust in which the public can invest under more than one scheme to invest in securities. This includes gold, financial instruments related to gold, money market instruments or real estate assets.

Basic Registration of Mutual Fund

Application

First of all, a

mutual fund needs the sponsor (a single person or with another corporate entity who has established the mutual fund) to apply to SEBI in Form-A. Application Form must be accompanied by the application fee and the fee is non-refundable. The application forms and its applicable fees can be accessed below:

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Eligibility Criteria

The Sponsor should have carried out business in financial services for at least five years
The net worth of the sponsor’s business should have been positive for the last five years
The net worth of the sponsor’s business in the last year should be greater than the present capital contribution by the sponsor in the asset management company and
Even after adjustment for interest, tax and depreciation, the sponsor’s business has been profitable in the 5th year and two other years in the last 5 years
If the mutual fund is already existing, the fund is in the form of a trust and the deed of the trust has been approved by SEBI
At least 40% of the net worth of the asset management company has been contributed by the sponsor
The Sponsor or any director or Principal Officer of mutual fund should have no fraud cases proved against them, should not be convicted of any moral crime or proved guilty in any economic wrongdoing

Amendments to SEBI Regulations 2020

The changes are in two Regulations of the old Securities and Exchange Board of India (Mutual Funds) Regulations 1996.

Appointment of Custodian (Regulation 26)

Regulation 26 deals with the appointment of a Custodian for a mutual fund. Sub Regulation (1) A Custodian needs to be appointed by the fund and SEBI informed about it within 15 days.

First Proviso

For the gold exchange-traded fund scheme, the custody of assets of the scheme either gold or gold-related instruments needs to be kept with a bank that has been registered as Custodian with SEBI. The First Proviso in the appointment of Custodian, has a small change to make it more generic, that custody of assets of gold exchange-traded fund scheme either gold or gold-related instruments need to be kept with a Custodian who has been registered with SEBI.

Procedure for Launching Schemes (Regulation 28)

Regulation 28 deals with the procedure for launching schemes. Sub Regulation (4) Deals with investment limit for a sponsor or asset management company in the growth option of the scheme, which is lesser of Rs.50 Lakhs or 1% of the amount raised in the new fund offer. Also, the investment can be only redeemed when the scheme is closed. This sub-regulation is not applicable to close-ended schemes. In Sub Regulation (4), the investment made by the sponsor or asset management company can only be made in the SEBI specified option of the scheme. The investment option is no longer specific only to growth option as was mentioned in the old Sub Regulation.

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Frequently Asked Questions

Common questions about SEBI Mutual Fund Regulations 2020: Compliance and Amendments.

The SEBI Mutual Fund Regulations 2020 is an amendment to the Securities and Exchange Board of India (Mutual Funds) Regulations 1996. These regulations govern the operations and registration of mutual funds in India, including the eligibility criteria for sponsors, the appointment of custodians, and the procedure for launching new schemes.

According to the regulations, a sponsor applying to set up a mutual fund must have been in the financial services business for at least five years, have a positive net worth for the last five years, and a net worth greater than their capital contribution to the asset management company. Additionally, the sponsor's business should have been profitable in the 5th year and two other years in the last five years.

A custodian is appointed by the mutual fund to hold and safeguard the assets of the fund. The regulations mandate that the appointment of a custodian must be informed to SEBI within 15 days. For gold exchange-traded funds, the custody of gold or gold-related instruments must be kept with a SEBI-registered custodian.

According to Regulation 28(4), the sponsor or asset management company can invest up to the lesser of Rs. 50 lakhs or 1% of the amount raised in the new fund offer. This investment can only be made in the SEBI-specified option of the scheme and can be redeemed when the scheme is closed.

The sponsor must apply to SEBI in Form-A, along with the application fee, which is non-refundable. The application forms and applicable fees are provided in the SEBI Mutual Fund Forms and Schedule II documents.

The regulations stipulate that the net worth of the sponsor's business should have been positive for the last five years, and the net worth in the last year should be greater than the sponsor's capital contribution to the asset management company. Additionally, even after adjusting for interest, tax, and depreciation, the sponsor's business should have been profitable in the 5th year and two other years in the last five years.

The sponsor or any director or Principal Officer of the mutual fund should not have any fraud cases proved against them, nor should they have been convicted of any moral crime or proven guilty of any economic wrongdoing.

If the mutual fund is already existing, it must be in the form of a trust, and the deed of the trust must have been approved by SEBI.

The regulations mandate that at least 40% of the net worth of the asset management company must have been contributed by the sponsor.

The SEBI Mutual Fund Regulations 2020 amendment aims to provide more clarity and flexibility regarding the appointment of custodians for gold exchange-traded funds and the investment options available for sponsors or asset management companies in new fund offers. It streamlines and updates the existing regulations to align with the evolving mutual fund industry in India.