InvestorQ : what is the mutual funds in india and what role does Securities and Exchange Board of India (SEBI) play in regulating mutual funds?
Aditi Sawant made post

what is the mutual funds in india and what role does Securities and Exchange Board of India (SEBI) play in regulating mutual funds?

Dhwani Mehta answered.
2 years ago
Mutual funds are a collection of stocks or bonds, handled by an experienced fund manager. The mutual fund’s fund manager/s buy/sell shares on the investor’s behalf.
Based on which category of funds he/she is creating, the fund manager creates a portfolio of securities as per the category in which the fund belongs. Mutual funds are the best proxies for those who want to participate in the equity market but don’t have the time or the knowledge to track individual stocks.
Features of mutual funds:
Eligibility– Anyone who has a bank account and PAN card can invest in mutual funds.
Investment– There’s no limit of minimum investments. One can either invest a lump sum amount or do it via Systematic Investment Plan (SIP) wherein an amount gets invested directly from your account on a recurring, per month, basis.
Returns– Mutual fund returns are linked to the equity market performance. If the market is doing well, chances are your mutual fund investments are also doing well. This is because your mutual funds also consist of the individual stocks that are a part of the equity market.
Lock-in- Overall, mutual funds do not have a lock-in period. However, the tax-saving mutual fund options- ELSS (Equity Linked Savings Scheme) – which is similar to PPF has a lock-in period of three years.
Liquidity– Most open-ended mutual funds are 100% liquid.
Tax implications-If mutual fund units are sold before one year of holding, then short-term capital gains tax apply at 15%. However, if the units are sold after one year then long-term capital gains tax of 10% will be levied on gains exceeding Rs. 1 lakh. Suppose you earn Rs. 2 lakh in combined long-term capital gains from stocks or mutual fund investments in a financial year. The taxable long-term capital gains will be Rs. 1 lakh (Rs. 2 lakh - Rs. 1 lakh) and the ensuing tax liability will be Rs. 10,000 (10% of Rs. 1 lakh)
Securities and Exchange Board of India (SEBI) and Association of Mutual Funds in India are the two agencies that regulate the mutual fund industry. All mutual fund houses function in accordance with the provisions and regulations, as laid down by these agencies, that protect the interests of investors and prohibit fraudulent and unfair practices.
Mutual funds need to be uniform because they are very unique in their investment strategies and asset allocation. SEBI regulates the mutual fund industry by standardizing and bringing in uniformity in the vast industry.
Thus, mutual funds have been categorized as:
a. Equity Schemes
b. Debt Schemes
c. Hybrid Schemes
d. Solution Oriented Schemes
e. Other Schemes
Furthermore, SEBI said that every mutual fund house should have only one scheme per category, with the exception of index funds, fund of funds and sector or thematic schemes.
Additionally, only a few months earlier, the SEBI asked mutual fund houses reduce their TER or Total Expense Ratio in an attempt to make mutual fund investors gain more from their investments.