India’s securities markets are regulated by the Securities and Exchange Board of India (SEBI), which protects investors’ interests through detailed guidelines. For this purpose, SEBI has issued the “SEBI (Mutual Funds) Regulations, 1996” (last amended on March 04, 2025).
This document sets rules that asset management companies must follow when launching and managing mutual fund schemes. These regulations cover several critical areas, such as:
How units are allotted
When refunds must be made
By understanding these provisions, you, as an investor, can know how mutual funds operate and the various rules that offer you protection. Interested? In this article, let’s check out some important SEBI rules and regulations you must know.
Table of Content
SEBI Regulations - Allotment of Units and Refund of Money
As per Rule 35 of mutual fund regulations by SEBI contained in SEBI (Mutual Funds) Regulations, 1996, the offer document must state the following:
A) Minimum subscription
B) Oversubscription
The minimum amount the scheme aims to collect.
If the scheme gets oversubscribed, how much extra amount will it retain.
Now, if oversubscription is kept, all applicants applying for up to 5,000 units must get full allotment (subject to the stated oversubscription limit).
When Refunds are Required
Money must be refunded if:
The scheme fails to collect the minimum stated subscription amount
or
The money collected is more than the allowed subscription amount
In these cases, refunds must be made within 5 working days from the closing date of the subscription period (following SEBI’s prescribed method).
Penalty for Delay
If the refund is not made within 5 working days, the AMC must pay 15% annual interest to investors, starting from the expiry of five working days from the date of closure of the subscription list.
SEBI Regulations – Capital Protection Oriented Schemes
As per Rule 38A of SEBI (Mutual Funds) Regulations, 1996, a capital protection-oriented scheme can be launched only if:
The scheme is close-ended (it has a fixed maturity period and does not allow ongoing subscription or redemption).
The scheme’s units are rated by a SEBI-registered credit rating agency. For those unaware, these agencies assess whether the portfolio is structured to protect the capital invested.
All other SEBI-specified conditions for such schemes are met.
SEBI Regulations – Winding Up of a Mutual Fund Scheme
As per Rule 39 of SEBI rules and regulations, a “close-ended scheme” must end (be wound up) when its fixed duration expires and all units are redeemed. The only exception is if it is rolled over (extended) as allowed under Regulation 33(4).
In another case, “any scheme” can be wound up if:
The trustees believe an event has occurred that makes winding up necessary.
At least 75% of unit holders pass a resolution to wind up the scheme.
SEBI directs winding up in the interest of investors.
If a scheme is to be wound up under these conditions, trustees must give notice within one day, explaining the reasons. This notice must also be sent to SEBI and be published in two widely circulated national newspapers (one in English, one in a local language where the fund is registered).
SEBI Regulations Related to “Schemes of Mutual Fund”
Under Chapter V of the SEBI (Mutual Funds) Regulations, 1996, SEBI has set out detailed rules governing the schemes of mutual funds. The provisions cover:
How a scheme must be approved and filed before launch.
The disclosures required in the offer document.
Rules for nomination, advertisements, and investor protection.
Conditions for listing scheme units on stock exchanges.
Maximum subscription periods for new schemes.
These regulations were last amended on February 7, 2023. For your reference, below are the latest rules you can consider:
1. Procedure to Launch a Mutual Fund Scheme
A scheme can be launched only if
It is approved by the mutual fund’s trustees.
A copy of the offer document is filed with SEBI.
The mutual fund must pay a minimum filing fee (as per the Second Schedule) when submitting the offer document.
The remaining filing fee must be paid to SEBI within the time specified by SEBI.
2. Disclosures in the Offer Document
As per SEBI regulations, the offer document must have complete and adequate information.
It must also state the maximum investment the scheme will make in listed securities of the sponsor’s group companies.
SEBI may require changes in the document if needed to protect investors.
If SEBI does not suggest changes within 21 working days from filing, the asset management company (AMC) can issue the document.
3. Nomination Rules
As per this SEBI rule, AMCs must allow investors to nominate a person who will receive the units if the investor dies.
For joint holders, they may jointly nominate one person who will receive the units if all joint holders die.
4. Advertisement Rules
All advertisements must follow SEBI’s Advertisement Code (Sixth Schedule).
Ads must be submitted to SEBI within 7 days of being issued.
Offer documents and advertisements must not be misleading or contain false statements.
5. Listing of Mutual Fund Units
If the mutual fund wants to list its scheme units on a recognised stock exchange:
It must obtain in-principle approval from the exchange.
It must also sign a listing agreement with the exchange.
All close-ended schemes (except equity-linked savings schemes) must be listed on a recognised stock exchange within the time and conditions set by SEBI.
6. Offering Period Limit
No mutual fund scheme (except the initial offering of equity-linked savings schemes) can be kept open for subscription for more than 15 days.
Conclusion
SEBI is India’s financial markets watchdog and regulates mutual funds to protect investor interests. The SEBI (Mutual Funds) Regulations, 1996 (last amended as of March 04, 2025), is one such key document that contains various rules, such as:
Minimum subscription limits
Rules for handling oversubscription
Timelines for refunds
Penalties for delays
Scheme winding up conditions, and more.
As an investor, knowing these rules allows you to understand how AMCs operate and how SEBI safeguards your mutual fund investments.
Disclaimers:
An Investor Education and Awareness Initiative by Tata Mutual Fund. To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh
Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.
