What is the SEBI?
SEBI, which is an abbreviation for Securities and Exchange Board of India, which has functions similar to those of the SEC or Securities Exchange Commission in the US In other words, the SEBI regulates the operation of financial markets in India, in related to investor protection and the establishment of ethical standards for the functioning of financial markets in India. That is why SEBI is also called as the watchdog of Indian markets. There have been many instances where SEBI has acted in the investor’s interest by avoiding insider trading on various companies in the securities markets. Similarly, there have also been cases where SEBI has acted in the interest of the small investor in the mutual fund industry.
What is the mutual fund industry?
The origin of this industry in India is found with the introduction of the mutual fund concept by UTI in the year 1963. Although growth was slow at that time, it accelerated after 1987, when non-UTI players entered the industry. . Not everyone can time the stock markets as well as some investors. For the benefit of those unfortunate investors who cannot, there is the mutual fund industry. This is an instrument that invests in stocks on behalf of the individual investor to maximize their earnings. A mutual fund is based on equity investments that are made based on extensive research and development. This research and development is carried out by the asset management companies of the investment funds. They are also called AMC. The product portfolio of these funds contains investments in stocks that would produce good results over a period of time. Mutual funds are rated by various rating agencies. This rating is carried out by agencies such as CRISIL, etc. These funds tend to hedge the risks of the individual investor in order to minimize their losses. Sometimes they can also focus on a particular sector.
Role of SEBI
The SEBI was first established in 1988. At that time it acted as a non-statutory body for the regulation of the securities market. In 1992 it became an autonomous body with independent powers. By passing an ordinance, more powers were given to SEBI. It now independently regulates the securities markets with its independent powers.
The main objectives of SEBI are the following:
- Develop the stock markets
- Encourages the interest of investors.
- Makes rules and regulations for the securities markets.
Regarding the functions of SEBI, it performs the following functions:
- Regulates the stock markets.
- Control securities trading
- Check the bad practices that occur in the stock markets.
- It improves the knowledge of investors, regarding the markets, providing education from time to time.
- Regulates stockbrokers and understudies
- It promotes research and investigation.
The 1993 introduction of SEBI from the SEBI (Mutual Fund Regulations) was established to have direct control over mutual funds for both the public and private sectors.
2 BOXES
CASE STUDY 1:
On August 1, 2009, almost a year ago, SEBI, the securities market regulator, acted to prohibit mutual funds from imposing entry charges. Typically, these funds are used to charge entry charges at a rate of 2.25% of the NAV of the mutual fund in question. This money was then used to pay agent commissions. In the new regime, SEBI wanted the investor and agent to negotiate and come up with a commission rate, which would then be paid by the investor to the agent via a separate check.
Although this made it cheaper for retail investors to buy mutual funds, the drop in commission for their agents effectively left few people to sell them to them. Now even a year after this rule was passed, net rebates are taking place in this industry. Assets managed for equity funds, which are said to have the largest retail share among the various segments, have seen net repayments in 8 of the 11 months since the SEBI introduced the ban on inflows.
There have been net outflows since August 2009 for equity mutual funds. An industry person also said that the need for mutual funds cannot be compared to the need for toothpaste and toilet soaps. The latter turned out to be necessities, while the former were luxuries for people who had excess income after meeting their basic needs. As ULIPs began offering more commissions to their agents on their sales, agents abandoned mutual funds and flocked to ULIPs. It is said that between July 2009 and March 2010, the ULIPs managed to raise Rs108.83 crore in total. This incident clearly illustrates the power of commissions in a country that has just emerged from the throes of financial illiteracy.
There was an attempt to bring parity between the ULIPs and mutual funds, when the SEBI said that all the ULIPs had to register with the SEBI, but an ordinance that put the controls definitely in the hands of the IRDA Insurance Regulator, and out of the hands of the SEBI. the market regulator ended a ray of hope for the mutual fund industry. Fund houses dealing with the changes are said to have a hard time weaning the retail client The director of a foreign mutual fund house said the change happened too quickly and the new business model will take time to seep into the market . Therefore, the commitment to the end consumer has decreased as everyone is internally focused.
CASE STUDY 2:
The prohibition of 197 FII and 342 subaccounts of fresh purchases in the markets. SEBI said that if these organizations are willing to make these disclosures for other regulators, when why not for SEBI? FIIs were given a deadline to comply with these disclosure standards and those who violated the rules were not allowed to take new positions. (There is no impact of this on their current positions). More controversial is the code of conduct proposed by SEBI. This proposes to identify key people in commercial banks, mutual fund companies and brokerages, who can be held responsible for fraud and violation of regulations. This is in addition to the creation of a common database of defaulters that will carry information on past and ongoing fraud, investigations and breaches by market agents, etc. Market analyst and CEO Value Research is not sure how this will work, but according to him it comes down to the legal framework and establishing the evidence of fault.
SEBI is doing this primarily to discipline the market so that the individual or retail investor does not hesitate to give their hard-earned money to mutual funds and equity markets. India is said to have been saved from the aftermath of the global meltdown only because of the actions of this regulator acting as a watchdog protecting investors’ interest in a volatile market filled with aspiring AMCs and mutual funds.