What is SEBI - Meaning, Functions, Powers, Regulations

What is SEBI?

Securities and Exchange Board of India (SEBI) was instituted on April 12, 1992 in conformity with the provisions of Securities and Exchange Boards of India, Act, 1992. The objective of the Securities and Exchange Board of India (SEBI) as described in the Preamble is to protect the interests of investors in securities and to promote the development & regulation of securities market and for matters connected therewith or incidental thereto. SEBI can be seen as a legislative supervisory body. The headquarters of SEBI is located in Bandra Kurla Complex, Mumbai, Maharashtra. SEBI as a body is structured with various departments such as policy analysis, debt, hybrid securities, enforcement, human resources, investment management, legal affairs, and more which are managed by their appointed heads. This classified structure of SEBI involves the following members:

1. The Chairman who is nominated by the Union Government of India.

2. Two members from Union Finance Ministry of India

3. One Member appointed from Reserve Bank of India

4. Five members who will get nominated by the Union Government of India

Functions or Powers of SEBI

Functions of SEBI

The functions and rules of SEBI have been registered in the SEBI Act, 1992. The basic function of SEBI is to supervise the Indian capital and securities market and take steps in order to protect the interests of the investors establishing the rules and regulations to be followed and also take care of efficiency of the securities market. There are three major powers that SEBI has as a regulatory body which are as follows:

1. Quasi-Judicial

SEBI has the power to give judgments in relation to unethical and fraudulent practices in terms of securities market which helps in ensuring transparency, fairness, accountability, and reliability. One example of this power would be the SEBI PACL case in which PACL, which had raised money from general society for the sake of farming and land businesses, was found by Sebi to have gathered more than Rs 60,000 crore through unlawful collective investment schemes (CIS) over a time of 18 years.

2. Quasi-Executive

SEBI has the power to implement the regulations and judgements established and to take legal action against anyone who violates the regulations and rules. It also holds the power to inspect the books of accounts and other documents if it suspects the violation of regulations.

3. Quasi-Legislative

SEBI has the power to frame the rules and regulations to ensure the protection of the interests of the investors. Some of its regulations involve listing obligation, trading regulations and disclosure requirements and these have been framed to avoid the malpractices.

It is important to note that despite these powers, the conclusion of these functions of SEBI have to go through Securities Appellate Tribunal and Supreme Court of India. 

Also Read: How to Become Mutual Fund Advisor?

SEBI Regulations of Mutual Funds

Management of mutual funds is done by the Asset Management Companies (AMC) which further requires the approval of SEBI. The deputies of AMC have a role to scrutinize the performance of the mutual funds and make sure that mutual funds work in compliance with rules and regulations framed by SEBI. All the mutual funds are mandated to register with SEBI before starting investment related operations. And in the case of mutual funds that deal exclusively with money market instruments i.e the Money market mutual funds, they also need to mandatorily seek clearance from the Reserve Bank of India before registering with SEBI. Some of the regulations in mutual funds laid down by SEBI include:

Mutual Funds Regulations

  1. The Scheme cannot invest more than 10% of its assets in debt securities including money market instruments and non-money market instruments issued by a single issuer. Such investment limits may be extended to 12% by the prior approval of the Board of Trustees and the Board of directors of the asset management company.
  2. The mutual fund scheme cannot invest more than 25% of its assets in unrated debt instruments.
  3. The Scheme can make investments in the other schemes of the same AMC or the schemes of other AMCs, but such investments should be limited up to 5% of the total assets of the fund without charging any management fees.
  4. The mutual fund Scheme cannot make investments in any unlisted securities of an associate or group company of the sponsor.
  5. The scheme cannot invest in any Fund of funds schemes.
  6. As per sectoral classification prescribed by AMFI, the mutual fund scheme cannot take exposure in fixed income securities of more than 25% to a single sector.
  7. The Fund can only borrow its assets for meeting temporary liquidity needs and is allowed to borrow not more than 20% of its assets for a maximum period of 6 months.
  8. The Scheme cannot pass loans against the units to the investors.

SEBI has laid guidelines on the reclassification of mutual funds which are as follows:

1. The funds are mandated to be named on the basis of the fundamental purpose of the funds and assets. The risk associated must be specified clearly.

2. As per SEBI Categorization, the debt mutual funds have been categorized into 16 types, equity mutual funds have been classified into 10 types and hybrid mutual funds have been categorized into 6 types.

3. The classification of debt funds is prescribed on the basis of the duration of funds and a mix of asset quality. Except for index funds, the AMCs are allowed to have only one fund per classification, i.e., an AMC can have a maximum of 34 funds including funds in all the categories.

FAQs on SEBI

1. How can I raise a complaint with SEBI?
On the website of SEBI, there is an online form available for investors to register complaints. If the complaint is regarding AMC, it is advised to initially consider registering the complaint on AMC’s website. Investors can also send complaints to the address of the headquarters of SEBI. 

2. What is the aim of SEBI?
The aim of SEBI is to supervise the Indian capital and securities market and take steps in order to protect the interests of the investors establishing the rules and regulations to be followed and also take care of efficiency of securities market.

3. What are the powers of SEBI?
SEBI has three powers, i.e., quasi-judicial, quasi-legislative, quasi-executive.

4. What does SCORES stand for?
SCORES stands for SEBI Complaints Redress System.

5. What is the term of validity of SEBI observations on SID?
The scheme is to be launched in six months from the date of issuance of final observations from SEBI.

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