SEBI REGULATION FOR MUTUAL FUNDS (20-1-1993) The regulations bar mutual funds form options trading, short

selling and carrying forward transactions in securities. The mutual funds have been permitted to invest only in transferable securities in the money and capital markets or any privately placed debentures or securities debt. Restrictions have also been placed on them to ensure that investments under an individual scheme, do not exceed 5% and investment in all the schemes put together does not exceed 10% of the corpus. Investments under all the schemes can not exceed 15% of the funds in the shares and debentures of a single company. SEBI grants registration to only those mutual funds that can prove an efficient and orderly conduct of business. The track record of sponsors, a minimum experience of 5 years in the relevant field of financial services, integrity in business transactions and financial soundness of business is taken in to account. The regulations also prescribe the advertisement code for the marketing schemes of mutual funds, the contents of the trust deed, the investment management agreement and the scheme-wise balance sheet. Mutual funds are required to be formed as trusts and managed by separately formed Asset Management Companies. The minimum networth of such AMC is stipulated at Rs.5 crores of which, the minimum contribution of the sponsor should be 40 per cent. Furthermore, the mutual fund should have a custodian who is not associated with any asset management company and registered with the SEBI. The minimum amount raised in closed-ended scheme should be Rs. 20 crores and for the openended scheme Rs.50 crores. In case the collected amount falls short of the minimum prescribed, the entire amount should be refunded not later than 6 weeks from the date of closure of the scheme. If this is not done, the fund is required to pay an interest of 15% per annum from the date of expiry of 6 weeks. In addition to these, the mutual funds are obliged to maintain books of accounts and provision for depreciation and bad debts. Further the mutual funds are now under the obligation to publish scheme-wise annual reports, furnish 6 months unaudited accounts, quarterly statements of the movements of the net asset value and quarterly portfolio statements to SEBI. There is also a stipulation that the mutual funds should ensure adequate disclosures to investors. SEBI is also empowered to appoint an auditor to investigate in to the books of accounts or the affairs of the mutual funds. SEBI can suspend the registration of the mutual funds in the case of deliberate manipulation, price rigging or deterioration of the financial position of mutual funds.

PRIVATE MUTUAL FUNDS: Another key development in the Financial sector was the opening of mutual funds to private sectors in early 1992. Though quite a few industrial groups and financial majors evinced a keen interest in the setting up of mutual funds, it took nearly two years for the first private mutual fund to be launched. The first private sector mutual fund was launched by the Madras based H.C.Kothari group which, in collaboration with the Pioneer group of the US offered two schemes in 1994. This was followed by several mutual funds having foreign tie-ups with renowned asset management

companies-20th century has a collaboration with Kemper Financial Services the Tata with Kleinwort Bonson and ICICI with J.P.Morgan. The competition becomes intense when investors switch over form one fund to another, based on their decisions on the performance of the funds. And that should begin sooner than latter, with as many as 32 mutual funds in the field. The trend world over especially in the USA,U.K, and Japan is for investors to switch over form secondary markets to mutual funds. For the companies also, the retail route is quite an expensive method of raising funds. The trends in private funding of equity and bought out deals in our country, clearly indicate that individual households, in their own interest (since they lack stock picking skills and manage their own portfolios) should leave the job to professionals such as mutual funds. Asset Management Company: (AMC) A mutual fund is managed by an Asset Management Company that is appointed by the sponsor company or by the trustee. The asset management company has to be registered under the Companies Act,1956, and has to be approved by the SEBI. The AMC manages the affairs of the mutual funds and its schemes. AMC are registered by the Registrar of Companies only after a draft memorandum and articles of association are cleared by the SEBI.