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 6^th 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:

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:

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 5^thyear 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.