What is SEBI & How It Works?

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What is SEBI & How It Works?

Securities and Exchange Board of India (SEBI) is a permitted body started to fulfil the responsibility of regulating the Indian capital markets. It observes and manage the securities market and to protect the interest of the investors by applying rules and regulations and provide the guidelines to follow it.

Securities and Exchange Board of India was founded on April 12, 1992. It’s headquartered is in Bandra Kurla Complex in Mumbai. The main aim of the government was to ensure that the money which has been invested by the public should be in a safe condition. The basic reason for setting up SEBI was to make the development of the capital markets.

Structure of SEBI

The hierarchical structure of SEBI includes the following members:

  • The chairman of SEBI is selected by the Union Government of India.
  • 2 officers from the Union Finance Ministry will be included in this structure.
  • 1 member from the Reserve Bank of India will be appointed.
  • 5 other members from the Union Government of India will also be included.

Functions of Securities and Exchange Board of India

• SEBI is set up for safeguard the interests of investors in the securities market.
• Promotes the development of the security market and regulates the business.
• It is to be ensured that the investors should be fully knowledgeable on the intermediaries of the security market.
• Securities and Exchange Board of India ensures the responsibility for safeguarding the interest of the investors and also to save the investors from becoming victims of any stock market fraud or manipulation.
• It acts as a mediator in the stock market to check whether all the market transactions take place securely and smoothly.
• It observes every activity of all the financial intermediaries.
• Securities and Exchange Board of India checks the activity for different innovation to protect the securities market is efficient.
• It prevents inner trades in marketable securities.

Authority of SEBI

1. Quasi-Judicial: In this authority, SEBI can conduct hearings and can pass ruling judgements in cases of unethical and fraudulent trade practices. This helps to keep transparency, fairness, accountability and reliability in the market.

2. Quasi-Legislative: SEBI takes the right to frame the rules and regulations to protect the interests of the investors. Insider trading regulations, listing obligation, and disclosure requirement falls under its regulations.

3. Quasi-Executive: SEBI is basically to execute the regulations and judgements made by them and to take legal action against the one who violates For any violation that is breached for that the regulators examine the financial balance sheet and other documents.

Mutual Funds and Securities and Exchange Board of India

Mutual Funds are managed by the Asset Management Companies(AMC), which is required to be approved by Securities and Exchange Board of India. Custodian means the entity who is registered with Securities and Exchange Board of India holds various schemes of the securities. The trustees of the AMC monitor the overall performance of the mutual fund and ensures that the funds work by SEBI Regulations.

The firm must be initiated as a different AMC to offer mutual funds. A self-regulation agency for the mutual funds has been set-up called Association of Mutual Funds of India (AMFI). The AMFI aims at developing the Indian mutual fund industry with professionalism and ethical qualities. It aims to enhance the operational standards in all areas to protect and to promote mutual funds and its stakeholders.

A sponsor of a mutual fund scheme, a group of the company, which involves AMC of the fund, cannot hold the following in any form:

• 10% or above 10% of the voting rights and shareholding in the AMC or other mutual fund scheme.
• An AMC cannot have representation on the board of other mutual fund.

• Shareholders can’t hold more than 10% of the shares, which includes both directly and indirectly in AMC of the mutual fund.

Securities and Exchange Board of India Guidelines on Mutual Funds

  1. Securities and Exchange Board of India has reclassified large-cap, mid-cap, and small-cap based on market cap relative rankings rather than absolute market cap cut-offs.
  2. Funds must be named on the fundamental intention of the fund and asset mix.
  3. The debt fund classification is based on the duration of the fund and the asset quality mix.

Know More : Securities and Exchange Board of India

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