Navigating SEBI Regulations in Mutual Fund Investing

Wednesday, Feb 21, 2024

You've been generally hearing about SEBI everywhere in any matter of investment securities.  Of course, by now you might have understood they are some sort of regulatory. 

But well it has been successful in resolving 164 cases out of 166 complaints raised in 2023 - 24, whereas in the previous year 2022 - 23, the number of cases raised were higher that is 504, although 503 cases were resolved.  The thing to notice is that there is a drastic reduction in the number of cases filed in the current year compared to previous year.  It also presents how SEBI is actively resolving cases.

Well that being said, let's learn more about SEBI and SEBI's mutual fund regulation. 

SEBI Guidelines

SEBI, a regulatory entity for India’s security market, has set forth the guidelines for the mutual fund security asset that is in favor of protecting the investor's investment interest. Let’s learn about it in detail to understand what responsibilities SEBI takes under its hands.

SEBI's role in regulating mutual funds

The Securities and Exchange Board of India what’s most popularly known as SEBI in the finance segment, has a major hand in regulating mutual fund investment assets in our country.  It was established in the year 1988 to oversee the asset via the mutual fund SEBI regulations. 1996. The regulation touches on aspects such as investment objectives, fund structure, investment restrictions, portfolio diversifications, disclosure requirements, and asset valuations.

It ensures the compliance of the mutual fund through the registration processes and ongoing obligations. What it essentially does is, set the criteria for eligibility for trustees and sponsors to have mandatory minimum net worth for attaining financial stability. It also regulates the fee that a mutual fund charges including establishing a guideline to avoid excessive charges and management fees.

That’s about the registration part of the SEBI regulations. SEBI looks into enforcing a guideline on the allocation of assets to make sure that a minimum percentage of the investment is done in government securities and other quality debt instruments, this part is well monitored by the SEBI.

Compliance and Investor Protection

To keep up with the transparency among the investors, SEBI requires the mutual funds to provide a Scheme Information Document (SID). It must detail the objectives of the investment, its fees, and other essential information that an investor must know. They also ensure the periodic disclosure of portfolio holdings to be made available so that it enables the investors to make correct decisions.

SEBI also extends its role in preventing any fraudulent activities to safeguard the investor's interest to keep the mutual fund industry fair and transparent. With its oversight, SEBI is contributing to the growth and development of India’s securities market and in turn the economy.

KYC and Documentation

The word KYC refers to “Know Your Customer”, a process for customer identification. All financial institutions must conduct this process for their customers. If you are wondering how this process works for mutual funds and why it is necessary, continue reading to know the details.

How to complete the KYC process in mutual funds? 

The documents required to complete KYC

Before you learn how to complete it, you need to keep the essential documents ready in hand. Here’s what is needed.

1. As a tax status proof or an identity, you may need a copy of your PAN card.
2. For the address proof you need to have an Aadhaar card, passport, voter ID, or rent agreement, etc.) with your name and current address in it.
3. A passport-size photograph that is self-attested.
4. And a duly filled KYC form that is as well-signed.

The ways to complete KYC

There are two ways to get the KYC process in mutual funds, either offline or online.

1. Offline Process

This can be done with KRA, an intermediary, or a platform

To do it with KRA, the KYC process is done through CDSL Ventures Limited which is authorized by the industry of mutual funds. With the norms of the KYC process, CVL takes care of the record-keeping and customer profiling.

To initiate this process, download the KYC form via the CDSL website. After which fill in the essential details in the form along with the PAN card, address proof, ID proof, and a self-attested copy of photographs.

You can then submit all the above-mentioned documents to the intermediary with whom you plan to invest by going to the office they are located in.

In case you are directly approaching the intermediary for the form, they will provide it too as they are KRA-registered. You can fill out the form and submit it to them directly by visiting their office along with the other documents that are the same as mentioned above.

With this submission, you’ll have the KYC created for the PAN number you hold which is done by KRA via the intermediary or the investment platform you prefer to invest with.

2. Online Process

This saves you from the hassle of going to the office rather than submitting all the documents online be it with the intermediary, any investment fund house, or a platform.

The necessary documents required for this remain the same as mentioned above along with the form. But to fill it;

1.      Login and create an account on any platform that is registered with KRA

2.      Fill out the online form and provide them with the necessary documents for address proof, identity proof, PAN, and the attested photograph copies.

Once it is submitted, you’ll receive the KYC identification number which you can provide to any investment platform that you have created an account with and start your investment process with them.

The status check

Now you know it’s all submitted but how to check whether it is approved or not?

Visit the website, www.cvlkra.com, give your PAN number and the other details requested, and it will let you know if your KYC was validated by them or not.

Importance of KYC in Mutual Fund Investments

That’s all about finishing your KYC to get started with the investment, but as an investor, the question about why you are often confronted with completing KYC for any investment that you want to do is a thing that they want to know.

It’s done to check the authenticity of your application to prevent any future money laundering or fraudulent issues and that you have no history of defaulting. This process is required as per the Act of Prevention of Money Laundering. These guidelines were put forward by the Reserve Bank of India in 2002.

So you understand why it is necessary, let’s move ahead and understand the investor’s rights and grievances in the coming section.

Investor Rights and Grievances

Let's learn about how SEBI protects investors rights in India and also how it resolves investor’s grievances. 

How SEBI protects investor rights?

SEBI has put 5 things straight in the framework: 

1.     The Framework of Regulation

It firstly establishes all the regulations for the security market in favor of fair, and transparent and to protect investors’ interests. 

2.     Educational Initiatives

This program aims to raise awareness among the investors so that they educate them about the risks in the market,  their rights and investing strategies. 

3.     Disclosure Requirement

It has made it mandatory for companies to provide information to the public so that they have enough time and accurate data to take corrective actions. 

4.     Code of conduct

It has set a code of conduct for all the investment platforms, intermediaries and brokers to carry out ethical and fair practices while they deal with the investors. 

5.     Investor Grievance Redressal

SEBI has a mechanism in place with SCORES which is a centralized platform for all the investors to lodge any sort of grievances. 

Further goes the details of the steps taken by the SEBI to address the grievances caused to the investors.

Steps to address grievances

These system are solidly placed and is as follows; 

1. The SCORES platform which stands for SEBI Complaints Redress System is where you can lodge complaints that caused you grievance with the supporting documents to that matter. 
2. It then approaches the brokers or the concerned entity to communicate this matter to look for a resolution.
3. To your complaint, SEBI ensures you receive a satisfactory resolution by monitoring the issue and following up with the entity. 
4. On not receiving any right resolution to the matter SEBI has the right to take action such as penalties against the entity who is involved in causing the grievance. 

With that being said SEBI has the way out to aid the investors with the right resolution to the grievance caused. 

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