On 6th March 2020, The Securities and Exchange Board of India through its notification has notified new amendments in Mutual Funds. Mutual Funds under the Securities and Exchange Board of India (Mutual Funds) Regulations,1996 are regulated by SEBI.
Highlights of the Amendments
SEBI has introduced the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2020[1]. The highlights of the Amendments in Mutual Funds are;
- Regulation 26 concerning the appointment of a custodian has been amended.
Earlier gold or gold-related instruments were kept in the custody of a bank.
Post amendment, the new notification specifies that the assets can be kept in the custody of a custodian registered with the board.
- Another amendment was made in Regulation 28 (4) which notifies that the sponsor or asset management company shall invest not-
- less than 1% of the amount which would be raised in the new fund offer or
- Fifty lakh rupees,
Whichever is less.
Provided that as per the new amendment, the investment made by the sponsor or asset management company shall be made as specified by the board.
What is Mutual Fund as per SEBI (Mutual Fund) Regulations,1996?
As per SEBI (Mutual Fund) Regulations, 1996, a mutual fund is a fund established in the form of a trust to raise money-
- By offering the units to the public or;
- A section of the public under 1 or more schemes for investing in securities.
Investing in securities includes money market instruments or gold or gold-related instruments or real estate assets.
It is a process for pooling the resources by issuing units to the investors and investing funds in securities.
Comparison of Pre and Post Amendment SEBI (Mutual Funds) Regulations,1996 with implications-
Prior Amendment
As per Regulation 26(1)- As per the regulation, to carry out the custodial service for the scheme of the mutual fund shall appoint a Custodian and shall intimate the same to the board within 15 days from the date of appointment of the custodian.
Provided, in case of the Gold Exchange Standard scheme, the gold or gold-related instrument shall be kept in the custody of the bank which shall be registered with the board as a custodian.
Post Amendment
As per the SEBI (Mutual Fund) Amendment Regulations, 2020, In case of a gold exchange-traded fund scheme, the assets of the scheme being gold or gold-related instruments shall be kept in the custody of a custodian, who shall be registered with the board.
Prior Amendment
As per Regulation 28(4)- As per the regulation,the sponsor or asset management company in case of new mutual funds were supposed to invest a minimum specified percentage. It was applicable only in the growth option scheme.
Post Amendment
- There was no such restrictions post amendment. The sponsor or asset management shall invest not-
- less than 1% of the amount which would be raised in the new fund offer or
- Fifty lakh rupees,
Whichever is less
Provided that as per the new amendment, the investment made by the sponsor or asset management company shall be made as specified by the board.
Also, the investment shall not be redeemed unless the scheme is wound up.
Conclusion
Mutual Fund investment is one of the avenues available to the investor for investment. The Mutual Fund investment is a process of pooling the resources by offering units to the public/investors. The working of the mutual fund is directed and regulated by the Securities Exchange Board of India. After taking consideration of the loopholes of the mutual fund regulations, SEBI has notified the above-mentioned amendment, which will mainly result in investor satisfaction.
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