5.2 Role of SEBI and the Mutual Fund Regulations

NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

5.2 Role of SEBI and the Mutual Fund Regulations

Key Takeaways Explain This Topic AI

SEBI registers mutual funds, approves trustees and prescribes the entire operating framework for schemes.

A scheme may not invest more than 10% of NAV in the equity of a single company, with defined exceptions.

Single-issuer debt limits are credit-rating linked: 10% for AAA, 8% for AA and 6% for A and below, each extendable by 2% with board approvals.

Debt schemes may hold no more than 20% of net assets in a single sector, with a further 10% for housing finance companies and 5% for housing-loan securitised debt.

SEBI enforces through inspection, investigation, adjudication, penalties and directions under the SEBI Act, 1992.

Last updated: August 2026

What SEBI Actually Regulates

SEBI's mutual fund framework touches every stage of a scheme's life:

Registration — of the mutual fund, the AMC and the trustees, with prior approval for trustee appointments

Scheme structure — categorisation, permitted categories, and the rule that an AMC may generally offer only one scheme per category

Documents — the Scheme Information Document, Statement of Additional Information and Key Information Memorandum, filed with SEBI before launch

• Investment restrictions — prudential limits on concentration by company, issuer and sector
• Valuation — fair valuation principles and daily NAV computation
• Expenses — the ceiling on what may be charged to a scheme
• Disclosure — daily NAV, monthly portfolios, half-yearly and annual results, risk-o-meter, scheme performance
• Advertising — a prescribed code governing how performance and risk may be presented
• Enforcement — inspection, investigation, adjudication, monetary penalty and directions

Since 1 April 2026 this framework operates under the SEBI (Mutual Funds) Regulations, 2026 , which replaced the 1996 Regulations. SEBI described the exercise as consolidation and simplification that retains the core principles and safeguards, with provisions on prudential investment limits and valuation reorganised for ready reference.

Investment Restrictions: The Prudential Limits

These exist so that no scheme's fate rests on one company, one borrower or one industry. They are the most examinable numbers in the unit.

Equity concentration

A scheme may not invest more than 10% of its NAV in the equity shares or equity-related instruments of any one company .

Defined exceptions apply where concentration is inherent to the mandate — index funds and exchange traded funds , which must replicate an index whatever its composition, and sectoral or thematic schemes within their stated theme, subject to the conditions applicable to those categories.

Single-issuer debt exposure — linked to credit rating

Debt exposure to a single issuer is capped by the credit rating of the paper, so that weaker credits attract tighter limits:

• Rating of the instrument Single-issuer limit (% of NAV) Extension with approvals
• AAA 10% up to 12%
• AA 8% up to 10%
• A and below 6% up to 8%

The extension of 2 percentage points requires the prior approval of both the Board of Trustees and the Board of Directors of the AMC . Note the requirement is both boards — a favourite distractor.

These limits do not apply to government securities and treasury bills , which carry sovereign credit and would otherwise be artificially constrained.

Sector exposure

A debt scheme may not hold more than 20% of its net assets in any single sector. Two additions are permitted on top of that limit, both within the financial services sector:

Additional exposure Limit Condition

Housing finance companies 10% of net assets The securities must be rated AA and above and the HFCs registered with the National Housing Bank

Securitised debt based on a retail housing loan and/or affordable housing loan portfolio 5% of net assets Disclosure in the SID and KIM

Overall investment in housing finance companies must still not exceed the 20% sector exposure limit. The 20% sector cap itself excludes bank certificates of deposit, tri-party repo on government securities or treasury bills, government securities and treasury bills, short-term deposits of scheduled commercial banks, and AAA-rated securities issued by public financial institutions and public sector banks.

Other restrictions

No investment in unlisted or privately placed securities of associates or group companies of the sponsor beyond prescribed limits.

Inter-scheme transfers are permitted only at prevailing market price for quoted instruments, on a spot basis, and only where the security is consistent with the receiving scheme's objective.

Borrowing is permitted only to meet temporary liquidity needs for redemptions or income distribution, generally capped at 20% of net assets for up to six months. The 2026 Regulations streamlined this framework, including for equity-oriented index funds and ETFs with execution-related needs.

No purchase of its own units by a scheme other than through the normal repurchase mechanism.

Disclosure Obligations

SEBI's disclosure regime is what makes the industry auditable by outsiders:

• Daily NAV published on the AMC website and AMFI's site
• Monthly portfolio disclosure of complete scheme holdings
• Half-yearly financial results and an annual report for each scheme
• Risk-o-meter disclosed monthly, with changes communicated to unitholders
• Scheme performance against benchmark, in prescribed formats
• Voting disclosure on investee company resolutions with rationale
• Commission disclosure to investors in account statements
• Enforcement

Under the SEBI Act, 1992 , SEBI may inspect books and records, investigate, summon persons and documents, pass directions including restraint from accessing the securities market, impose monetary penalties through adjudication, and cancel or suspend registration. Appeals lie to the Securities Appellate Tribunal (SAT) and from there to the Supreme Court on questions of law.

For a distributor the practical point is narrower but important: SEBI's writ runs to the AMC and the fund; distributor conduct is enforced primarily through the AMFI Code of Conduct and the ARN , but serious market misconduct remains within SEBI's reach under the general securities law.