How do AMCs comply with SEBI's mutual fund guidelines?

Asset Management Companies (AMCs) must strictly follow the guidelines set by the Securities and Exchange Board of India (SEBI) to ensure transparency, investor protection, and ethical fund management. SEBI’s regulations cover everything from fund structure and disclosures to investor redressal and fair pricing. AMCs that comply with these rules gain investor trust and maintain long-term credibility in the Indian financial market.

1. What Are SEBI Guidelines for Mutual Funds?

SEBI is the regulatory body for India's securities market, including mutual funds. It frames policies and rules to protect investor interests and promote transparency. Mutual funds are governed under the SEBI (Mutual Funds) Regulations, 1996, and these rules are periodically updated to meet market dynamics and investor needs.

Key Goals of SEBI Guidelines:

• Ensure investor safety
• Standardize mutual fund operations
• Prevent mismanagement and fraud
• Encourage transparency and fair disclosure
• Ensure proper grievance redressal

2. How AMCs Comply with SEBI Guidelines

Every AMC registered under SEBI must comply with a wide range of operational, structural, disclosure, and compliance rules. Below are the main ways AMCs follow SEBI’s mutual fund regulations:

a) Fund Registration and Launch Process

Before launching any new scheme, the AMC must file a draft Scheme Information Document (SID) with SEBI. This includes details like objective, strategy, risk factors, and cost structure. SEBI reviews the proposal and approves only if it aligns with regulations.

b) Investment Norms and Asset Allocation

SEBI sets clear limits on how much money can be allocated to certain assets. For example, equity mutual funds must invest at least 65% in equity. There are also restrictions on investing in unrated securities, group companies, and related-party transactions.

c) Disclosure and Transparency Requirements

AMCs are required to publish regular updates such as:

• Monthly portfolio disclosure
• Daily Net Asset Value (NAV)
• Performance vs benchmark reports
• Risk-o-meter
• Expense ratio details

These disclosures must be updated on the AMC’s website and submitted to SEBI regularly.

d) Role of Trustees

Each AMC is overseen by a board of trustees, who act as watchdogs. Trustees ensure the AMC is acting in the best interests of investors and that the AMC complies with SEBI norms.

e) KYC and AML Compliance

SEBI mandates strict Know Your Customer (KYC) norms. Investors must verify their identity before investing. AMCs also have to follow Anti-Money Laundering (AML) norms and report suspicious transactions.

f) Fund Accounting and NAV Calculation

SEBI has laid out specific accounting standards for mutual funds. The AMC must publish the NAV of each fund daily using fair valuation principles defined by SEBI.

3. SEBI’s Categorization and Rationalization Norms

SEBI issued new rules in 2017 to rationalize mutual fund schemes. AMCs can now offer only one fund per category to prevent investor confusion. This brought consistency across mutual fund products and made it easier for investors to compare funds.

Popular SEBI Categories Include:

• Large Cap Funds
• Mid Cap Funds
• Small Cap Funds
• ELSS (Tax Saving Funds)
• Liquid Funds
• Balanced Advantage Funds

AMCs had to restructure or merge funds to comply with this regulation.

4. Limits on Expense Ratio and Exit Loads

SEBI regulates how much AMCs can charge as expenses:

• Expense Ratio: Capped at 2.25% (for equity) and lower for debt funds
• Exit Load: Must be clearly disclosed and reasonable

This helps investors retain more returns and ensures fair pricing by the AMC.

5. Investor Grievance Redressal and SEBI SCORES

AMCs must have a dedicated investor complaint system. If a complaint isn’t resolved at the AMC level, investors can raise the issue with SEBI using its online SCORES platform.

Steps for Redressal:

1. Submit a written/email complaint to the AMC
2. If unresolved, escalate to the fund’s Compliance Officer
3. If still unresolved, use SEBI SCORES at scores.gov.in

6. Periodic Audits and Reporting

SEBI mandates third-party audits and compliance checks. AMCs must:

• Submit annual reports to SEBI
• Get internal and external audits done
• Review fund manager performance and adherence

This ensures accountability and prevents fund mismanagement or unethical practices.

7. Role of AMFI and SEBI Collaboration

The Association of Mutual Funds in India (AMFI) works with SEBI to implement best practices. All AMCs must be AMFI members and follow its Code of Conduct for ethical fund marketing, agent training, and investor awareness.

SEBI has created a strong regulatory framework to ensure that mutual fund investors in India are protected and treated fairly. Asset Management Companies must follow these guidelines in every aspect of their operations — from scheme launch and NAV calculation to expense ratio limits and investor disclosures. SEBI’s framework ensures that the Indian mutual fund industry remains transparent, reliable, and investor-friendly. As an investor, always choose SEBI-registered AMCs and stay informed through platforms like Angel One for safer investing.