Guidelines For Mutual

Funds.
a) general
 Money market mutual funds would be
regulated by the RBI while other mf
would be regulated by the SEBI
 MF shall be established in the form of
trusts under the Indian trust act and
be authorized for business by the SEBI.
 MF shall be operated only by separately
established AMCs.
 At least 50% of the board of AMC must
be independent directors who have no
connection with the sponsoring
organisation. The directors must have
professional of at least 10 years in the
Cont…
The AMC should have a minimum
net worth of Rs 5 crores at all
times.
The SEBI is given the power to
withdraw the authorization given
to any AMC if it is found to be
not serving the best interest of
investor as well as the capital
market. It is not applicable to
bank sponsored AMCs.
b) Business activity
(i)Both AMC’s and trustees should
be treated as two separate legal
entities.
(ii)AMC’s should not be permitted

to undertake any other business

activity except mutual funds.
(iii)One AMC cannot act as the AMC

for another mutual fund.


c) Schemes
(i)Each scheme of a mutula fund must
be compulsorily registered with SEBI
before it is floated in the market.
(ii)The minimum size of the fund should

be Rs.20crores in the case of each

closed-end scheme and it is
Rs.50crores for each open-end scheme.
(iii)Closed-end scheme should not be

kept opened for subscription for more

than 45days.For opened-end
schemes,the first 45days should be
considered for determiningthe target
(iv)If the minimum amount or 60% of the
targeted amount,whichever is higher is
not raised,then,the entire subscription
has to be refunded to the investors.
(v)To provide continuous liquidity , closed-

end scheme should be listed on the

stock exchanges. In case of the open-
end scheme, mutual funds shall sell and
re-purchase units at pre-determined
prices based on the Net Asset Value and
such prices should be published once in
a week.
(vi)For each scheme there should be
d) Investment Norms
(i)Mutual Funds should only in
transferable securities either in capital
market or money market or securities
debt. It cannot exceed 10% in case of
growth funds and 40% in case of income
funds.
(ii)The mutual fund should not invest

more than 5% of it corpus of any scheme

in any one company’s share.
(iii)This list of 5% can be extended to 10%

if all the scheme of a mutual fund are

taken together,
(iv)No scheme should invest in any other
e) Expenses
(i)The AMC may charge the mutual fund
with Investment management and the
Advisory fees.Such fees should have
been disclosed in the prospectous.
(ii)The initial issue expenses should not

exceed 6% of the funds raised under

each scheme.
(iii)Excepting the initial issue expenses all

other expenses to be charged to the

fund should not exceed 3% of the weekly
average net assets outstanding during
the current year.It must be disclosed
through advertisement,accounts etc.
f) Income Distribution
All mutual fund must distribute a
minimum of 90% of their profits
in any given year.

g) Disclosure and
Reporting
(i)The SEBI is given wide powers to call for
any information regarding the mutual
funds and any of its schemes from the
mutual fund or any person associated
with it like the AMC,Trustees,Sponser.
(ii)Ever mutual fund is required to send its

copies of duly audited annual

statements of accounts,six monthly
unaudited accounts ,quaterly statements
of the movements in net assets for each
of its schemes to the SEBI.
(iii)The SEBI can lay down the accounting

policies,the format and the contents of

h) Accounting Norms
(i)All mutual funds should
segregate their earnings as
current income short term capital
gains and long term capital gains.
(ii)Accounting for all the schemes

must be done for the same year-

ending.

i) Winding Up
(i)Each closed-end scheme should
be wound up or exrended with the
permission of the SEBI as soon as
the pre-determined period is over.
(ii)An open-end scheme shall be

wound up, if the total number of

units outstanding after re-
purchase at a point of the time
falls belowb 50% of the originally
issued number of units.

j) Violation and Guidelines
The SEBI can, after due
investigation, impose penalties
on mutual funds for violating the
guidelines as may be necessary.