SEBI Regulations Related to “Schemes of Mutual Fund”

As per Rule 35 of mutual fund regulations by SEBI contained in SEBI (Mutual Funds) Regulations, 1996, the offer document must state the following:

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.

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.

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).

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.

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. 

• 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.
   
• All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login
   
• Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 
   
• This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.