SEBI (Mutual Funds) Regulations, 1996

SEBI (Mutual Funds) Regulations, 1996 are the principal statutory instrument governing the establishment, registration, operation, and winding-up of mutual funds in India. Notified by the Securities and Exchange Board of India (SEBI) on 9 December 1996 and published in the Gazette of India (Extraordinary) Part III, Section 4, the Regulations superseded the earlier SEBI (Mutual Funds) Regulations, 1993. Framed under sections 30 and 11(2)(g) of the SEBI Act, 1992, they establish a three-tier principal structure, sponsor, trustee, and asset management company (AMC), and prescribe the minimum conditions for every aspect of the mutual fund life-cycle: registration, scheme launch, investment restrictions, valuation, disclosure, and investor protection. As of May 2026, the Regulations have been amended more than 70 times, with landmark amendments introduced in 1998, 2011, 2014, 2017, 2018, 2020, 2021, 2022, 2023, and 2024.

The mutual fund industry in India manages assets exceeding ₹60 lakh crore (USD 720 billion) as of April 2026 and the 1996 Regulations remain the bedrock on which every SEBI circular, scheme categorisation guideline, total expense ratio (TER) slab, and investor grievance mechanism is anchored.

Legislative background

Prior to 1993, Unit Trust of India (UTI) was the sole mutual fund entity, operating under its own special statute. Following economic liberalisation, private sector entry was permitted and SEBI issued the 1993 Regulations. By the mid-1990s, market experience had exposed gaps in governance, valuation transparency, and investor protection, prompting a comprehensive redraft. The Expert Committee on Mutual Funds, chaired by P. K. Kaul, submitted its report in 1995. The resulting 1996 Regulations came into force on 9 December 1996 and have since been the governing text.

The Regulations derive authority from:

• Section 11(2)(g) of the SEBI Act, 1992, empowering SEBI to register and regulate mutual funds.
• Section 30 of the SEBI Act, conferring rule-making and regulation-making power on SEBI.
• Section 12 of the SEBI Act, requiring registration of intermediaries with SEBI.

Structure of the Regulations

The Regulations are divided into nine chapters and ten schedules. The principal chapters are:

Key schedules include the Second Schedule (investment restrictions), the Fourth Schedule (advertisement code), and the Fifth Schedule (audit obligations).

Chapter I, Definitions

Regulation 2 provides the definitional scaffolding. Key terms include:

• Asset Management Company (AMC): a company incorporated under the Companies Act, approved by SEBI, that manages the assets of the mutual fund’s schemes.
• Sponsor: an entity that establishes the mutual fund, holds a minimum five per cent of the net assets of each scheme, and satisfies a net worth and track record test.
• Trustee: a company or board of trustees appointed by the sponsor to hold the trust property for the benefit of unitholders; the trust instrument must be registered under the Indian Registration Act, 1908.
• Custodian: a person registered with SEBI under the SEBI (Custodian of Securities) Regulations, 1996, who holds the securities of the mutual fund’s schemes.
• Depository: as defined in the Depositories Act, 1996.
• Unit: the interest of a unitholder in a scheme, representing the beneficial interest in the assets of the fund.
• Net Asset Value (NAV): the market value of a scheme’s assets minus liabilities, divided by the number of outstanding units.
• Scheme Information Document (SID): the primary offer document for a scheme, equivalent to a prospectus; covered under the related article on mutual fund SID.
• Statement of Additional Information (SAI): a supplementary document incorporating statutory disclosures common across all schemes of a fund house; covered in the article on SAI.

Chapter II, Registration

Eligibility conditions (Regulation 7)

An application for registration must be accompanied by a non-refundable fee of ₹1 lakh. The sponsor must satisfy:

1. A track record of at least five years in the financial services business.
2. Net worth of not less than ₹150 crore.
3. Profitability in at least three out of the immediately preceding five years, including the most recent year.
4. A 40 per cent contribution to the net worth of the AMC.
5. Good financial standing and reputation.

SEBI may refuse registration and must communicate reasons in writing.

Registration certificate

Regulation 7A requires that the registration certificate is renewed every three years. The renewal fee and conditions for refusal follow the same framework as initial registration.

Chapter III, Constitution and management

Trustee obligations (Regulation 18)

The trustee company or board of trustees is the statutory watchdog. Regulation 18 mandates that:

• At least two-thirds of the trustees (or directors of the trustee company) must be independent, that is, not associated with the sponsor in any capacity.
• Trustees must ensure that the AMC has systems in place for managing conflicts of interest.
• Trustees must review and confirm scheme performance relative to benchmark at half-yearly intervals.
• Trustees must ensure that the AMC does not perform any activity that conflicts with the management of the mutual fund.
• An Audit Committee and a Compliance Officer are mandatory.

Regulation 20 requires the trustee to obtain SEBI consent before launching any new scheme.

AMC obligations (Regulation 24–25)

The AMC must:

• Be a company incorporated under the Companies Act with a minimum net worth of ₹50 crore (raised to ₹150 crore under an August 2023 amendment for existing AMCs; new registrants must have ₹150 crore at registration).
• Have a full-time Chief Executive Officer, Chief Investment Officer, and Compliance Officer.
• Not act as a trustee of any mutual fund.
• Not undertake any other activity that is in conflict with the interests of unitholders.
• Maintain and preserve records for a minimum of eight years.

Regulation 25 introduced the skin-in-the-game requirement, significantly strengthened by a September 2021 amendment; see the dedicated article on the SEBI MF skin-in-game rule.

Custodian (Regulation 26)

The custodian must be an entity independent of the sponsor and registered under the SEBI (Custodian of Securities) Regulations, 1996. Securities purchased by the mutual fund must be held in the custody of the registered custodian or through a depository.

Chapter IV, Schemes

Types of schemes (Regulation 33)

The Regulations recognise:

• Open-ended schemes: unitholders can subscribe and redeem on every business day at NAV-based prices.
• Close-ended schemes: fixed maturity; units tradeable on a stock exchange post-initial offer period.
• Interval schemes: redemption permitted only at specified intervals.

Post the SEBI scheme rationalisation circular of October 2017, open-ended schemes are further categorised into equity, debt, hybrid, solution-oriented, and other schemes, with a single permissible scheme per category per AMC (with limited exceptions for index funds and fund of funds).

New fund offer (NFO) process (Regulation 37–40)

A new scheme requires:

1. SEBI’s prior approval or a filing under the facilitated route.
2. Publication of the SID and key information memorandum (KIM) on the AMC website and AMFI website.
3. A minimum subscription amount.
4. Allotment and refund within a prescribed period (originally 30 days; reduced to 5 business days for open-ended schemes by a 2009 amendment).

Winding-up of schemes (Regulation 39)

A scheme may be wound up if 75 per cent of the unitholders by value pass a resolution to that effect, or on SEBI direction, or if in the opinion of the trustee the scheme cannot be operated in the interest of unitholders.

Chapter V, Investment restrictions (Second Schedule)

The Second Schedule imposes limits on concentration, liquidity, and related-party exposure. Key restrictions as currently in force:

Valuation (Regulation 47–48)

NAV must be computed and published daily for open-ended schemes. Valuation norms are prescribed by SEBI and updated periodically through circulars. The fund accounting and NAV calculation framework elaborates the methodology. Securities must be valued at fair value (market price where available; matrix pricing or amortisation where market is illiquid).

Advertisements (Fourth Schedule and Regulation 30)

Advertisements are subject to the Fourth Schedule of the Regulations (the advertisement code), now supplemented by SEBI’s consolidated advertisement code circular. No advertisement may guarantee returns. Past performance must be disclosed with standardised disclaimers and benchmark comparison.

Chapter VI, General obligations

Total Expense Ratio (Regulation 52)

Regulation 52 caps the expenses that can be charged to a scheme. The TER slab structure was revised comprehensively by SEBI circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated 22 October 2018; the current slab framework and permitted additional charges are covered in the dedicated article on TER regulation.

Disclosure obligations

The AMC and trustee must:

• Publish unaudited half-yearly financial results in at least two national newspapers within one month of the close of each half-year.
• Publish audited annual accounts within two months of the close of the financial year.
• Display NAV on the AMC website and AMFI website.
• Send account statements within five business days of a transaction.

Exit loads (Regulation 52(4))

An exit load, where charged, must be credited to the scheme. Regulation 52(4) as amended in 2012 prohibits exit loads that exceed one per cent for redemption beyond one year; the detailed framework is covered in the article on the exit load cap rule.

NAV cut-off times

Regulations 56–57 (and implementing circulars) prescribe cut-off times for NAV applicability, the time by which fund receipt must be credited for the day’s NAV to apply. The 2021 reform is covered in SEBI NAV applicability rule 2021.

Major amendments, chronological

1998, Corporate governance strengthening

The 1998 amendment raised the mandatory trustee independence threshold and required quarterly portfolio disclosures, replacing semi-annual-only regime.

1999, Introduction of Specified Undertaking of UTI

UTI was bifurcated; the specified undertaking continued under a separate statute, while US-64 and certain assured-return schemes were ringfenced. New AMC formation by UTI’s second arm was brought within the 1996 Regulations.

2001, Custodian independence

The 2001 amendment required AMCs to appoint an independent custodian (not a group company of the sponsor) for all new schemes launched after April 2001.

2008, Infrastructure debt fund provisions

Enabling provisions for infrastructure debt funds (IDFs) were inserted, permitting higher per-issuer limits (30%) for IDF schemes.

2011, Distributor code-of-conduct and AGNI

The 2011 amendment introduced registration requirements for distributors through AMFI, the AMFI Registration Number (ARN), and a mandatory code of conduct. Upfront commissions were capped.

2012, Exit load credit to scheme

Regulation 52(4) was amended to require that exit loads collected after 1 October 2012 must be credited back to the scheme rather than to the AMC. This effectively ended the practice of retaining exit loads as AMC income.

2017, Scheme categorisation (landmark amendment)

SEBI’s circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated 6 October 2017 (the scheme rationalisation circular) was incorporated into the Regulation through a 2017 amendment. It mandated 36 defined categories of open-ended schemes (since revised to 37, excluding close-ended and interval schemes) with:

• A single scheme per category per AMC (with exceptions for index/ETF and FoF).
• Mandatory definitions with investment mandate tied to verifiable parameters (e.g., market capitalisation).
• Nomenclature standardisation (no descriptive names that mislead investors about the fund’s risk profile).

2018, Side-pocketing

Following the IL&FS default, SEBI circular SEBI/HO/IMD/DF2/CIR/P/2018/160 dated 28 December 2018 permitted debt mutual funds to create segregated portfolios (side-pockets) for distressed securities. The amendment inserted enabling provisions; see side-pocketing for debt funds and segregated portfolio.

2019, Riskometer revision and additional disclosures

A 2019 amendment required disclosure of portfolio risk using the riskometer (then five-level scale), upgraded by the 2020 SEBI circular to a six-level riskometer and linked to product labelling; see riskometer framework.

2020, Multi-cap reclassification

SEBI circular SEBI/HO/IMD/DF3/CIR/P/2020/236 dated 6 November 2020 revised the definition of multi-cap funds to mandate a minimum 25 per cent each in large-cap, mid-cap, and small-cap securities. The amendment to the Regulations aligned the categorisation provision; see SEBI multi-cap reclassification 2020.

2021, NAV cut-off and skin-in-the-game

Two significant 2021 amendments:

1. NAV applicability: SEBI circular dated 17 February 2021 changed cut-off rules for equity, debt, and liquid/overnight schemes so that NAV is applicable on the date the funds are realised by the AMC (not the transaction date). See SEBI NAV applicability rule 2021.

2. Skin-in-the-game: Regulation 25 was amended requiring designated employees and AMCs to invest a minimum 20 per cent of their compensation in the schemes they manage (deferred for three years). See SEBI MF skin-in-game rule.

2022, Swing pricing and stress testing frameworks

The 2022 amendment inserted enabling provisions for swing pricing in debt mutual funds (anti-dilution mechanism), effective 1 March 2023 with a phased rollout; see SEBI swing pricing. Provisions for mandatory stress testing for mid-cap and small-cap funds were also added.

2023, Debt MF taxation and FoF changes

The Finance Act 2023 removed the indexation benefit and the 20 per cent long-term capital gains rate for debt mutual funds (for investments on or after 1 April 2023), effectively taxing gains as income. Regulation 52A and related provisions were amended to reflect the changed environment; see SEBI debt MF tax 2023.

2023, EOP regulations

SEBI introduced Entry-on-Exit (EOP) provisions for close-ended equity schemes through SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/11, enabling AMCs to offer a structured exit option. See SEBI EOP regulations 2023.

2024, SIF framework and MF Lite

Two major 2024 amendments:

1. Specialised Investment Funds (SIF): SEBI circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/26 introduced SIF as a new vehicle for sophisticated investors (minimum ticket ₹10 lakh). See SEBI SIF framework.

2. Mutual Fund Lite: SEBI introduced an easier-entry framework for passive-only AMCs with lower capital requirements. See SEBI MF Lite framework.

2024, Stress testing disclosure

SEBI circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/14 (February 2024) required AMCs managing small-cap and mid-cap funds to disclose the number of days required to liquidate 25 per cent and 50 per cent of their mid/small-cap portfolios, and to conduct and publish monthly stress tests. See SEBI MF stress testing 2024.

Scheme Information Document and disclosure framework

The Regulations require every new scheme to be launched with a comprehensive SID. Key disclosure requirements:

• Investment objective stated unambiguously.
• Asset allocation table with minimum-maximum ranges for each asset class.
• Benchmark index or indices.
• Fund manager name, qualification, and experience.
• Risk factors including a standard set prescribed by SEBI.
• Expense structure showing maximum TER permissible.
• Tax implications for investors.
• Riskometer displayed on the cover page.

The Scheme Information Document and Key Information Memorandum are covered in dedicated articles; the SAI consolidates statutory disclosures common to the fund house.

SEBI Investment Management Department

The regulatory interface is primarily handled by SEBI’s Investment Management Department (IMD), which processes registration applications, approves new schemes, reviews offer documents, and issues thematic circulars. IMD is divided into divisions handling AMC oversight, scheme filings, and policy.

Investor protection mechanisms

Investor charter

SEBI introduced a mandatory investor charter (circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2021/622 dated 13 August 2021) that each AMC must display on its website and in the SID/SAI. See SEBI investor charter for MFs.

SCORES portal

Investor complaints must be first addressed through the AMC’s own grievance mechanism (within 30 days), then through the SCORES portal operated by SEBI. Unresolved grievances may be escalated to the Investor Protection and Education Fund (IPEF) and ultimately to the Securities Appellate Tribunal (SAT).

Investor Protection Fund

SEBI operates an Investor Protection Fund (IPF) for mutual funds, funded by a portion of penalties collected from AMCs and unclaimed redemption proceeds.

Insider trading restrictions

Designated employees (fund managers, analysts, compliance officers) are subject to restrictions on personal trading in securities covered by schemes they manage. The framework under the SEBI (Prohibition of Insider Trading) Regulations, 2015 applies to mutual fund intermediaries. See the dedicated article on SEBI insider trading rules for fund managers.

Enforcement and penal framework

Chapter VII empowers SEBI to:

• Suspend or cancel registration of a mutual fund.
• Impose monetary penalties under Section 15 of the SEBI Act.
• Issue directions to wind up schemes.
• Suspend trading in units on stock exchanges.
• Appoint an administrator to manage the assets.

Penalties under Section 15C (failure to redress investor grievances) can reach ₹1 lakh per day and ₹1 crore maximum. Under Section 15HB (other violations), penalties can reach ₹25 crore or three times the amount of profits made, whichever is higher.

Notable enforcement actions include SEBI’s 2020 adjudication against Franklin Templeton AMC following the forced winding up of six debt schemes in April 2020, resulting in significant penalties and directions for compensation.

Market impact

The 1996 Regulations and their successive amendments have been directly responsible for:

1. Professionalisation of fund management, mandatory qualification norms, code of conduct, and Chinese wall requirements.
2. Transparency, daily NAV publication, half-yearly portfolio disclosure, full SID/KIM regime.
3. Cost compression, progressive TER slab reductions (2012, 2018) brought equity fund expenses from a 2.5 per cent cap to an average of under 1 per cent for large-cap funds.
4. Rationalisation of scheme proliferation, the 2017 categorisation circular reduced total open-ended scheme count from over 2,000 to around 550 across 44 AMCs.
5. Systemic risk mitigation, side-pocketing, swing pricing, and stress testing provisions address liquidity mismatch and contagion risks.
6. Retail expansion, the B30/T30 framework (higher distribution commission for inflows from cities beyond the top 30) broadened geographic reach; see B30/T30 incentive framework.

Current regulatory architecture

As of May 2026, the Regulations work in tandem with a dense overlay of SEBI circulars (the IMD circular compendium runs to several hundred documents), AMFI guidelines, and self-regulatory standards. The principal framework documents are:

• SEBI (Mutual Funds) Regulations, 1996 (as amended).
• SEBI Master Circular for Mutual Funds (most recently SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/137 dated 27 May 2024, consolidating prior circulars).
• AMFI Code of Ethics and Distributors Empanelment norms.

The SEBI Investment Management Department is the nodal regulatory authority; the Association of Mutual Funds in India (AMFI) serves as the self-regulatory organisation (SRO) for distributors and intermediaries.

See also

• Mutual fund
• Mutual fund industry in India
• SEBI
• SEBI Investment Management Department
• Scheme Information Document
• Key Information Memorandum
• Statement of Additional Information
• TER regulation and slabs
• Riskometer framework (India)
• Side-pocketing rules for debt funds
• SEBI scheme rationalisation circular 2017
• SEBI NAV applicability rule 2021
• SEBI MF skin-in-game rule
• SEBI SIF framework
• SEBI MF Lite framework
• Capital gains tax India

References

1. SEBI (Mutual Funds) Regulations, 1996, Gazette of India Extraordinary, Part III, Section 4, 9 December 1996.
2. SEBI Act, 1992, Sections 11(2)(g) and 30.
3. SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2017/114, 6 October 2017, Categorisation and Rationalisation of Mutual Fund Schemes.
4. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137, 22 October 2018, Total Expense Ratio (TER) revision.
5. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/160, 28 December 2018, Side-pocketing.
6. SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2020/236, 6 November 2020, Multi-cap reclassification.
7. SEBI Circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2021/555, 17 February 2021, NAV applicability.
8. SEBI Circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2021/622, 13 August 2021, Investor Charter.
9. SEBI Circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/14, February 2024, Stress testing for small/mid-cap funds.
10. SEBI Master Circular for Mutual Funds, SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/137, 27 May 2024.