Who Regulates Mutual Funds in India?

Who Regulates Mutual Funds in India

Are you a mutual funds investor? Then its mandate is to know who regulates mutual funds in India. AMFI (Association of Mutual funds in India) has reported the mutual fund industry has climbed nearly 36.98 Trillion INR as of June 30, 2022.

Such a big industry should have a regulatory system to frame guidelines and protect investors from scams.

This industry is emerging into tier 2 and tier 3 cities in India, and 70% of the total mutual fund investors earn on average of 5 lakhs per annum (as per economics times).

If you’re an aspiring investor in equities or have some equities in your portfolio, then this article is for you. We will break down this article into who is the regulatory body for mutual funds in India, their guidelines, and how they operate.

What is Mutual Funds?

Mutual funds is an investment material where multiple investors pool their funds into the bucket of AMC companies under various plans/categories. This funds are managed by professional fund managing team.

There are multiple types of mutual funds operated in India, that incorporates various investment instruments like equity, debt, fixed income, etc.

Mutual funds are managed by Asset management companies (AMC). This is the best investment option for individual who aspire to invest in equities or bond market, but, don’t have experience or time to research.

On average mutual funds yield a return of 12-16% per annum if invested for a period of 15+ years. We have also share the 35 years returns of SENSEX in one of our previous article.

Who regulates the Mutual Funds in India?

SEBI (Securities and Exchange Board of India) regulates the mutual funds in India. Investors should always look at the rules and regulations that are lawn by SEBI before investing in any instruments.

SEBI are governed by the Securities Exchange Board of India (Mutual Fund) Regulations 1996, except for Unit Trust of India (UTI). By passing the UTI Act, the Indian Parliament created UTI.

This regulation body scream the market and frame various guidelines that protect investors from scam and other fraudulent activities by any mutual fund.

Recently, SEBI sacked Axis AMC fund manager, and equity analyst for enrolling them under a scam.

SEBI is the only body that designs new mutual fund schemes, the portfolio proportion of equity, debt, and others in a mutual fund type.

Along with SEBI, other bodies like RBI, stock exchange , Indian Trust Act 1882, Indian Companies Act 1956, and India Finance ministry also regulates the mutual funds in India.

What is SEBI?

The Securities and Exchange Board of India (SEBI) was incorporated on 12th April 1992 by the Government of India to regulate the securities and finance market.

SEBI works on all frameworks that could guard the interests of investors in the securities market. Besides this, it works in promoting, investigating, and regulating the laws that could identify the loopholes in the security market.

Therefore, SEBI is responsible for approving Initial public offerings, New AMC approval, new mutual funds registrations, and many more.

SEBI has a set of rules to provide investors with information about mutual fund functioning. SEBI simplified the guidelines and processes for merging and consolidating mutual fund schemes.

Following these guidelines, it is possible to compare various fund schemes fund houses offer.

By giving approval and ensuring that the Mutual Fund adheres to advertising principles, SEBI ensures that the business’s sponsor, guarantor, trustee, and integrity are protected.

The Structure of Mutual Fund as per SEBI

The regulator of mutual funds, SEBI, has designed a six-level management process to ease control of funds of the AMC. They are,

  1. Guarantor
  2. Sponsor
  3. The trustee or the Trust
  4. Asset Management Company (AMC)
  5. Custodian
  6. Registrar and Transfer Agent (RTA)

Guarantor is responsible for the registration of any mutual fund. They help launch the mutual funds by NFO (New Fund Offer) to pool investors’ funds, then transfer them to the fund manager.

Sponsor is responsible for aligning the mutual fund schemes following the regulations of the Indian Trust Act, 1882. These sponsors are responsible for listing schemes in SEBI.

Trustee or the Trust is a board of members built by mutual fund sponsors, integral to investors. The trust should be registered under the Indian Companies Act, 1965.

Asset Management Company are appointed by trustee to manage the fund under the schemes by fund manager and team. They charge expense ratio for the service.

Custodian helps in protecting all the securities of any mutual funds. Furthermore, the custodian ensures that the securities are used deliberately.

Registrar and Transfer Agent (RTA) is generally a third party company which help in generating reports, KYC clearance, fund purchase and redemption process on behalf of the AMC.

The company, the board of directors, the trustees of the mutual funds comes under the control of the Indian Trust Act 1882. Asset Management companies (AMC) manage all the funds by a professional team. These AMC are regulated by Companies Act 1956.

SEBI has done a huge role in categorizing various types of mutual funds. Currently in India, there are 5 Categories of mutual funds all sub-categories of funds fall under them.

Investors can make more informed and successful investments with the help of these new changes, which are intended to enhance uniformity and clarity.

Role of SEBI in Mutual Funds:

To enhance ease of access for investors, SEBI has separated mutual funds to ensure nationwide uniformity. Asset Management Company (AMC) will also be allowed to have only one mutual fund scheme under each subcategory, with some asset allocation exceptions.

As a result, investors will be able to select funds more easily. It is easier for investors to make informed decisions if they follow these guidelines for consolidated schemes.

SEBI has regulated all the mutual funds into 5 Major Categories.

Equity Funds are the pool of investments made on equity share of various companies. SEBI has classified Equity schemes into 11 more funds according to the proposition of the large or small or mid cap funds, or any Thematic.

  1. Large Cap Mutual Funds
  2. Mid Cap Mutual Funds
  3. Small Cap Mutual Funds
  4. Multi Cap Funds
  5. Large and Mid Cap Funds
  6. Flexi Cap Funds
  7. ELSS (Equity Linked Saving Schemes)
  8. Value Fund
  9. Contra Fund
  10. Focused Fund
  11. Sector or Thematic Funds

Debt Funds comprises of debt instruments like Government bonds, Corporate bonds, commercial debentures, etc. Depending on the maturity levels, and investment materials, SEBI has divided them into 16 types.

  1. Liquid Funds
  2. Ultra-Short Term Funds
  3. Overnight Mutual Funds
  4. Short Term Funds
  5. Money Market Funds
  6. Low Duration Funds
  7. Medium term Debt Funds
  8. Medium to Long Duration Funds
  9. Long Duration Mutual funds
  10. Dynamic Bond Funds
  11. Gilt Funds
  12. Gilt Fund with 10 Years Maturity Gild Bonds
  13. Credit Risk Funds
  14. Corporate Bond Debt Finds
  15. Banking and PSU Funds
  16. Floater Funds.

Hybrid Funds are assemble of both equities, and bonds. It is classified further into 7 funds depending on the proposition of equity and debt. They are,

  1. Conservative Hybrid Mutual funds
  2. Balanced Funds
  3. Arbitrage Funds
  4. Agressive Hybrid Funds
  5. Multi Asset Allocation Funds
  6. Balanced Advantage Mutual Funds
  7. Equity Savings

Solution-Oriented funds are introduced by SEBI for the investors who look for long-term goals through Mutual funds. It’s simply like Goal-Based investment. They consists of two category

  1. Retirement Planning Funds
  2. Children’s planning Funds

Other Mutual funds are,

  1. Index Fund
  2. Funds of Funds

SEBI Guidelines for Mutual Funds Investors:

SEBI takes an additional interest in protecting investors by their guidelines. It is always requested to know the regulation of SEBI to protect yourself from being prey to any scam.

Here are a few guidelines by SEBI for investors.

1. Do a proper assessment of your Risk Appetite:

Investors should know the level of risk appetite they have. No investment should be made for the sake of recommendation by experts or friends. Understand the mutual fund scheme and the level of risk that can involve.

2. Diversify your Asset Allocation:

Diversification should be the basic to follow when it comes to any modem of investments. Never put all your investments into a single mutual fund or type of mutual fund. Hire financial advisors to plan your diversified mutual fund’s asset allocation. We would recommend choosing goal-based investment.

3. Long-Term Investment:

Equity investments are always subjected to market fluctuations, and the graph will always float between green and red. To ensure a good return from mutual funds, you should be a long-term investor (at least 15 years)

4. Keep your portfolio simple:

Clustering your investment might be tedious in reviewing the performance and gathering particular resources. We recommend that investors choose the mutual funds according to their expected returns, risk measurement, budget, sip or lump sum, etc. Investors should always play on their strengths and invest in the securities they know well.

5. Do Proper research on the Funds:

You should always do proper and deep research on every fund, its asset allocation, portfolio, fund manager history, expense ratio, risk measurement, etc. You can think 1000 times before investing in a fund; you give yourself a lock-in period of 15+ years. So, do proper research.


  • SEBI is an authority body incorporated by the Indian government to regulate securities and other related investments.
  • It was established in 1992 and framed rules for mutual fund companies and investors.
  • SEBI has held Mutual funds management at six levels. They are the guarantor, sponsor, trustee, AMC, custodian, and RTA.
  • Every Mutual fund and AMC should be registered in SEBI. They should provide approval for any NFO to hit the market.