SEBI Regulations Explained: How Mutual Funds Are Governed in India

The Securities and Exchange Board of India, commonly known as SEBI, is the regulatory authority overseeing securities markets in India. Its mandate includes protecting investor interests, ensuring fair market practices, and maintaining orderly market functioning.

For mutual funds, SEBI sets rules covering how schemes are launched, how portfolios are managed, how disclosures are made, and how investor grievances are addressed. Asset Management Companies must operate within these guidelines to offer and manage mutual fund schemes.

SEBI does not manage funds or influence investment decisions. Its role is to create a regulatory structure within which mutual funds operate in a transparent and accountable manner.

Mutual funds are structured with clearly defined roles to ensure responsibilities are separated across different entities. Each fund house operates through a defined ecosystem that includes the sponsor, the Asset Management Company, the trustee, the custodian, and the registrar.

The sponsor establishes the fund, while the Asset Management Company manages investments according to the scheme mandate. Trustees act as independent overseers responsible for safeguarding investor interests. Custodians hold the underlying securities, and registrars manage investor records.

This separation reduces conflicts of interest and ensures that no single entity controls all aspects of fund operations.

Transparency is a core pillar of mutual fund regulation. SEBI mandates regular disclosures to ensure investors have access to timely and accurate information.

Mutual funds must publish scheme information documents, monthly portfolio disclosures, daily net asset values, and periodic performance updates. These disclosures allow investors to track portfolio composition, changes in holdings, and overall scheme behaviour over time.

By standardising disclosure formats, SEBI enables investors to compare schemes within the same category on a similar basis.

Net asset value calculation follows prescribed valuation norms issued by SEBI. These rules ensure that securities are valued using transparent and consistent methodologies.

When market prices are unavailable or illiquid securities are involved, valuation committees follow defined guidelines to arrive at fair values. This process aims to ensure that purchases and redemptions occur at prices that reflect the underlying portfolio accurately.

Such valuation discipline helps prevent arbitrary pricing and protects investors entering or exiting schemes.

SEBI regulations define investment limits to manage concentration and exposure risk. Mutual funds must adhere to limits on single stock exposure, sector allocation, and group company investments.

These limits reduce the risk of excessive concentration within a portfolio. They do not eliminate market risk but help ensure diversification aligned with the scheme objective.

Risk management frameworks also require funds to maintain internal controls and monitoring systems to track compliance with regulatory norms.

SEBI has established multiple mechanisms to address investor concerns. Mutual funds are required to maintain dedicated grievance redressal systems. Investors can escalate unresolved complaints through SEBI’s online grievance platform.

Additionally, trustees are obligated to monitor fund operations and ensure investor interests are protected. Regular audits and compliance reporting further strengthen accountability.

These mechanisms provide structured recourse without interfering in investment outcomes.

It is important to understand the limits of regulation. SEBI regulations do not guarantee returns, prevent market volatility, or eliminate the possibility of losses.

Regulation ensures fair processes, transparent disclosures, and disciplined operations. Investment performance continues to depend on market conditions, portfolio composition, and the nature of the underlying assets.

Understanding this distinction helps investors form realistic expectations.

Regulatory systems help ensure that mutual funds operate within defined rules. Investors benefit from consistent disclosures, fair pricing, and a structured framework that supports transparency.

At the same time, regulation encourages informed participation rather than passive reliance. Investors who understand both the protections and the limitations of regulation are better positioned to align investments with their objectives and risk tolerance.