What is SEBI?
The Securities and Exchange Board of India (SEBI) is a regulatory body. It was founded on April 12, 1992, under the SEBI Act, 1992. It is responsible for the regulation of Indian securities and capital markets. SEBI is the regulator of the securities and commodity market in India owned by the Government of India.
SEBI was established with the objective of safeguarding the investor’s interest, regulating the capital market, and establishing a transparent market. It safeguards the interests of investors, securities issuers, and market players. Moreover, it has achieved it by introducing rules and regulations, a mandatory revelation of information, etc.
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Role of SEBI
For all of India’s stock market players, the Securities Exchange Board of India serves as a watchdog. The objective is to maintain the smooth and effective operation of the stock market. Additionally, creating a secure environment for retail investors and other participants in the securities market.
For investors and other market intermediaries, SEBI’s involvement in the stock market is crucial. Investors and traders must conduct trades in accordance with the rules of the Indian stock market.
The role of SEBI in India is to regulate and promote the following entities:
- Issuers of securities- These are the companies and corporations that list their stocks on the stock market for open trade and raising capital for expansion. SEBI ensures that the process of IPO initial public offering is smooth. Moreover, post IPO open trade must also be efficient and smooth.
- Investor- The investors are the most important stock market participants. The protection of their interest is the most crucial role of SEBI in India. This is because investors are institutional and retail investors who have put their money at stake by investing in the market.
- Financial Intermediaries- The link or connection between the issue of securities and investors is the intermediaries. These intermediaries establish a connection between investors and issuers for a smooth exchange of transactions and trade. Such intermediaries include brokers, aggregators, merchant bankers, underwriters, custodians, and credit rating agencies.
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Functions of SEBI
- Prohibit securities markets related fraudulent and unfair trade practices
- Prohibit insider trading in securities
- Issue directions to protect the interests of investors, intermediaries, fair trade, and balance of trade.
- Regulate the business in stock exchanges and any other securities markets
- Register and regulate the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and other intermediaries
- Register and regulate the working of venture capital funds, mutual funds, and other schemes
- Regulating substantial acquisition of shares and take over of companies
- Raise requests for information, inspection, conducting inquiries and audits
- Promote investors‘ education and training of intermediaries of securities markets;
- Promoting and regulate self regulatory organisations
Objectives of SEBI
- Protection of investors- SEBI’s main goal is to protect the rights and interests of those who participate in the stock market. In order to achieve its goals, SEBI directs these market players or participants toward a healthy environment and safeguards the money they invest in the market.
- Prevention of malpractices- The major reason SEBI was established was to control stock exchange operations and stop trading-related fraud and misconduct.
- Promoting fair and proper functioning- The aim of SEBI is to ensure that the stock exchange and the capital market function effectively. SEBI aims to monitor the operations of financial intermediaries and effectively control the securities market.
- Establish Balance- SEBI is responsible for ensuring a balance between the statutory regulation and self-regulation of the securities industry.
- Establish a code of conduct- SEBI must aim to develop and regulate a code of conduct in order to prevent fraud and misconduct. The intermediaries such as brokers, underwriters, aggregators, and so on carry out these financial frauds and misconducts.
Powers of SEBI
SEBI holds the following three main powers w.r.t. to the Indian capital market:
- Quasi-Judicial. To deliver judgments on practices relating to fraud as well as unethical practices.
- Quasi-Executive. To implement the regulations and judgments. Additionally, take legal action against the violators. To inspect the Books of accounts and other documents in case of any violation of the regulations.
- Quasi-Legislative. To frame rules and regulations to protect the interests of the investors. Few instances are insider trading regulations, listing obligations, as well as disclosure requirements.
Structure of SEBI
The following is the organisational structure of SEBI in India
- Chairman- The Central Government of India appoints the chairman
- Two members from the Ministry of Central Government who are responsible for the Financial and Administrative Functions of the Companies Act, 2013
- One member who belongs to the Reserve Bank of India
- Five other members are elected by the Union Government of India. Moreover, out of these five members, 3 members must be whole time members of SEBI.
Departments of SEBI
- Commodity Derivative Market Regulation Department (CDMRD)
- Corporation Finance Department (CFD)
- Department of Economic and Policy Analysis (DEPA)
- Department of Debt and Hybrid Securities (DDHS)
- Enforcement Department 1 (EFD1)
- Enforcement Department 2 (EFD2)
- Enquiries and Adjudication Department (EAD)
- General Services Department (GSD)
- Human Resource Department (HRD)
- Information Technology Department (ITD)
- Integrated Surveillance Department (ISD)
- Investigations Department (IVD)
- Investment Management Department (IMD)
- Legal Affair Department (LAD)
- Market Intermediaries Regulation and Supervision Department (MIRSD)
- Market Regulation Department (MRD)
- Office of International Affairs (OIA)
- Office of Investor Assistance and Education (OIAE)
- Office of the Chairman (OCH)
- Regional Offices (RO)
Mutual Funds and SEBI
Any money market-focused mutual fund must register with the RBI. Mutual fund managers must have SEBI approval for their asset management companies (AMC). The trustees of the AMC must make sure that mutual funds are operating in accordance with the rules. Additionally, SEBI is responsible for the overall effectiveness of mutual funds.
In addition, SEBI India has introduced mutual fund regulations that the sponsors, asset management firms, and shareholders must follow. The following are some common and popular SEBI regulations for mutual fund companies:
- Every asset management company must register with SEBI before issuing any mutual fund scheme
- A director of an AMC cannot hold a director position in another AMC at the same time. It is not applicable to an independent director.
- An AMC cannot act as a trustee for another AMC or mutual fund
- An AMC cannot invest in their own MF schemes unless they specify the intent in the offer document
- Every offer document must disclose all the information that will enable an investor to make a well informed investment decision
- Any information in the offer document or advertisement must not be a misleading or incorrect depiction of facts
SEBI has laid a few guidelines for investors who seek to invest in mutual funds. The following are the guidelines:
- Every investor must assess their personal finances before investing in mutual funds. The prospective investors should be aware of the risk associated with each scheme. Investors must thoroughly assess their investment objective and risk-bearing capacity in the event that such schemes underperform.
- Every mutual fund scheme outlines the scheme related details on its website. The details include asset allocation, risk levels, past performance, expense ratio, tax, and so on. It is crucial to understand each detail before investing.
- In order to reduce the risk associated with the financial market, an investor can diversify their portfolio and invest in different schemes. This way they can ensure a high potential long term capital appreciation.
- Every investor must match the investment objective with the investment duration for sustainable long term growth.
Fee and Expenses– SEBI will examine the fees and expenses charged by the mutual fund. After the study, SEBI will pass regulatory guidelines regarding fee and expenses. Date- 23rd December 2022
Transaction Authentication– SEBI has introduced a two factor authentication for all redemption transactions with effect from 1st April 2023. Date- 30th September 2022
Working Group– SEBI forms a working group to inspect the role and eligibility of a sponsor in growing the mutual fund industry. Date- 8th April 2022
Pool Accounts– SEBI discontinues the use of pool accounts for mutual fund transactions. Date- 15th March 2022
Disclosure– Every AMC must publish an investor charter and disclose investor complaints on their websites as well as the AMFI website. Date- 10th December 2021
Latest SEBI News
Bajaj Finserv has received approval to start a mutual fund company in India, and its shares have gone up 7.91%.
Bajaj Finserv has received approval from SEBI to start an AMC and will be the latest entrant to the Indian mutual fund industry. Since the news, shares of the company rose 7.91% and reached a 55-week intraday high. Though most assets are covered by top 10 fund houses, still there is a huge opportunity for new players. However, market participants predict tough competition.Published: 25th Aug 2021
SEBI Requires AMCs to Invest in Their NFOs Based on Risk Level
SEBI amends its regulation mandating investment in NFO based on risk level for AMCs. This will ensure ‘skin in the game’. The existing rule requires an AMC to invest 1% or Rs 50 lakhs whichever is lower. SEBI has yet not quantified the minimum amount of investment. However, experts speculate that AMCs will have to invest more in equity funds as compared to debt funds.Published: 19th Aug 2021
Frequently Asked Questions
The SEBI stands for the Securities and Exchange Board of India. It is the regulator of India’s securities and commodity market owned by the Government of India.
SEBI was established with the objective of safeguarding the investor’s interest, regulating the capital market, and establishing a transparent market. Moreover, it has achieved it by introducing rules and regulations, a mandatory revelation of information, etc
The main objective of SEBI is to safeguard the interests of investors and a healthy trade in the financial market. Without such regulations and development in the financial system, the interest of participants in the financial market would be at high risk. With the revolution of digitization, it is crucial that the financial market is monitored, tracked, controlled, and regulated. SEBI provides a leveraging mechanism which enables investors to get exposure to the financial market, intermediaries can effectively transact with issuers and investors, and issuers can raise capital effectively and smoothly.