The Securities and Exchange Board of India (SEBI) regulates mutual funds in India to protect investors and ensure transparency in the market. These regulations, established under the SEBI (Mutual Funds) Regulations, 1996, cover various aspects including the registration of mutual funds, operational procedures, investment norms, and disclosure requirements. They aim to create a fair and transparent environment for both fund managers and investors, categorising funds into equity, debt, hybrid, solution-oriented, and other schemes for clarity​.

In this article, we will look into the key components of SEBI's regulations for mutual funds. We will explore how these guidelines ensure the protection of investors, new SEBI guidelines for mutual funds, maintain the integrity of the market, and foster the growth of the mutual fund industry.

SEBI regulations categorise mutual funds into Public Trusts under the Indian Trust Act of 1882. This structure involves three key players: the sponsor, the trustee, and the Asset Management Company (AMC). The sponsor establishes the fund, the trustee ensures the fund's adherence to regulations, and the AMC manages the investments.

• Mutual funds are categorised into Equity, Debt, Hybrid, Solution-Oriented, and Others.
• Large-cap, mid-cap, and small-cap mutual funds are clearly defined.
• Solution-oriented schemes have specified lock-in periods.
• Only one scheme is permitted per category, with exceptions for Index Funds/ETFs, Sectoral/Thematic Funds, and Funds of Funds.

SEBI regulations categorise mutual funds into Public Trusts under the Indian Trust Act of 1882. This structure involves three key players: the sponsor, the trustee, and the Asset Management Company (AMC). The sponsor establishes the fund, the trustee ensures the fund's adherence to regulations, and the AMC manages the investments.

Guarantor

The guarantor, either an individual or an entity, initiates a mutual fund. Their role is to generate revenue by launching and managing the fund, which is then handed over to a fund manager.

Sponsor

Sponsors are responsible for setting up the mutual fund, listing it with SEBI, and ensuring resource management and regulatory compliance. They operate under the Indian Trust Act, 1882.

Trustee or the trust

The trustee, accountable to investors, is established via a trust deed by the sponsors. It ensures that the mutual fund complies with regulations and is managed by an AMC.

SEBI formulates policies and regulates mutual funds to protect investors' interests. By standardising investment strategies and asset allocation, SEBI ensures uniformity across similar schemes, aiding investors in making informed decisions.

Equity schemes

Equity mutual fund schemes invest in stocks and are categorised by SEBI into large-cap, mid-cap, and small-cap funds. These schemes aim for high returns but come with higher risks. SEBI mandates clear definitions and allows only one scheme per sub-category to avoid duplication.

Debt schemes

Debt mutual fund schemes invest in fixed-income securities like bonds and treasury bills. They are designed for conservative investors seeking stable returns with lower risk. SEBI categorises these into various types based on the duration and credit quality of the investments.

Hybrid schemes

Hybrid mutual fund schemes combine equity and debt investments to balance risk and return. SEBI categorises these schemes based on the proportion of equity and debt, ensuring clear definitions and preventing overlapping schemes.

Solution-oriented schemes

Solution-oriented schemes are tailored for specific goals like retirement or children's education. SEBI mandates a lock-in period for these schemes to ensure long-term investment and goal achievement.

Other schemes

This category includes funds that do not fit into the above classifications, such as index funds, ETFs, sectoral funds, and thematic funds. SEBI provides clear guidelines for these schemes to ensure transparency and investor protection.

Assessing personal finances

Investors must evaluate their financial position and risk tolerance before investing in mutual funds. SEBI encourages understanding the potential risks and aligning investments with personal financial goals.

Research information regarding schemes

SEBI emphasises the importance of thorough research before investing. Investors should seek detailed information about mutual fund schemes to make informed decisions.

Diversification of portfolios

Diversifying investments across various schemes helps mitigate risk and maximise returns. SEBI recommends spreading investments to achieve long-term financial stability.

Refrain from cluttering portfolios

SEBI advises against holding too many schemes, as it can lead to portfolio clutter. Investors should focus on a manageable number of schemes for better oversight and performance.

Assigning investment duration

SEBI suggests assigning a time frame to each investment to manage market volatility and achieve financial growth. Long-term stability is key to benefiting from mutual fund investments.

By adhering to these mutual fund SEBI guidelines, investors can navigate mutual funds more effectively and make decisions that align with their financial goals.

SEBI's new categorisation of mutual funds significantly impacts investors by simplifying investment choices and enhancing transparency on latest SEBI guidelines for mutual funds. Here are the key effects:

• Simplified decision-making: By reducing the number of schemes and standardising categories, investors can compare and choose funds more easily.
• Clear scheme definitions: Distinct categories like equity, debt, hybrid, solution-oriented, and other schemes provide clarity, helping investors understand the risk and return profile of each.
• Reduced overlap: Limiting one scheme per sub-category prevents duplication, ensuring a streamlined portfolio.
• Enhanced transparency: Standardised scheme characteristics and disclosures foster greater trust and informed decision-making among investors.

SEBI's new categorisation is a boon for investors, making the mutual fund landscape clearer and more navigable. For those exploring investment opportunities, the Bajaj Finserv Platform is an excellent option, offering access to over 1000+ mutual fund schemes. This platform's structured and transparent approach aligns well with SEBI's guidelines, ensuring that investors can make well-informed choices along with options to compare and calculate.