SEBI

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an
executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year
1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place
of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both
development & regulation of the market, and independent powers have been set up. Paradoxically this is a positive
outcome of the Securities Scam of 1990-91.

The basic objectives of the Board were identified as:

• to protect the interests of investors in securities;

• to promote the development of Securities Market;
• to regulate the securities market and
• for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targetting the securities and is attending to the fulfillment of its objectives
with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements,
margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the
code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant
bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It
has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges,
surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market
Index is a convenient and effective product because of the following reasons:

• It acts as a barometer for market behavior;

• It is used to benchmark portfolio performance;
• It is used in derivative instruments like index futures and index options;
• It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the
trading products, so that there is an increase in number of traders including banks, financial institutions, insurance
companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of
derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.

SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for derivatives trading
and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of
SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phased
introduction of derivatives trading in India beginning with Stock Index Futures. The Board also approved the
"Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and
Settlement of Derivatives Contracts.

SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM) in the Indian
Stock Index Futures Market. The report was submitted in november 1998.

However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the
definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried
out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the
new framework was approved.

Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in 1969 under a
notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary
regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at
NSE in 2000 and BSE started trading in the year 2001.

SEBI IN SHORT

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of
SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with
statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the
securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the
issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities
market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it
has powers for:

• Regulating the business in stock exchanges and any other securities markets
• Registering and regulating the working of stock brokers, sub-brokers etc.
• Promoting and regulating self-regulatory organizations
• Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection,
conducting inquiries and audits of the stock exchanges, intermediaries, self - regulatory organizations,
mutual funds and other persons associated with the securities market.

Sri C.B.Bhave is the Chairmain of SEBI

MUTUAL FUND
Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its
shares on a continuous basis and use the capital thus raised to invest in securities of different companies. This article
helps you to know in depth on:
• Is it possible to diversify investment if invested in mutual funds?

• Find more on the working of mutual fund

• Know more about the legal aspects in relation to the mutual funds

At the beginning of this millennium, mutual funds out numbered all the listed securities in New York Stock Exchange.
Mutual funds have an upper hand in terms of diversity and liquidity at lower cost in comparison to bonds and stocks.
The popularity of mutual funds may be relatively new but not their origin which dates back to 18th century. Holland
saw the origination of mutual funds in 1774 as investment trusts before spreading to Anglo-Saxon countries in its
current form by 1868.

We will discuss now as to what are mutual funds before going on to seeing the advantages of mutual funds. Mutual
funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on
a continuous basis and use the capital thus raised to invest in securities of different companies. The stocks these
mutual funds have are very fluid and are used for buying or redeeming and/or selling shares at a net asset value.
Mutual funds posses shares of several companies and receive dividends in lieu of them and the earnings are
distributed among the share holders.

A Brief of How Mutual Funds Work

Mutual funds can be either or both of open ended and closed ended investment companies depending on their fund
management pattern. An open-end fund offers to sell its shares (units) continuously to investors either in retail or in
bulk without a limit on the number as opposed to a closed-end fund. Closed end funds have limited number of shares.

Mutual funds have diversified investments spread in calculated proportions amongst securities of various economic
sectors. Mutual funds get their earnings in two ways. First is the most organic way, which is the dividend they get on
the securities they hold. Second is by the redemption of their shares by investors will be at a discount to the current
NAVs (net asset values).

Are Mutual Funds Risk Free and What are the Advantages?
One must not forget the fundamentals of investment that no investment is insulated from risk. Then it becomes
interesting to answer why mutual funds are so popular. To begin with, we can say mutual funds are relatively risk free
in the way they invest and manage the funds. The investment from the pool is well diversified across securities and
shares from various sectors. The fundamental understanding behind this is not all corporations and sectors fail to
perform at a time. And in the event of a security of a corporation or a whole sector doing badly then the possible
losses from that would be balanced by the returns from other shares.

This logic has seen the mutual funds to be perceived as risk free investments in the market. Yes, this is not entirely
untrue if one takes a look at performances of various mutual funds. This relative freedom from risk is in addition to a
couple of advantages mutual funds carry with them. So, if you are a retail investor and planning an investment in
securities, you will certainly want to consider the advantages of investing in mutual funds.
• Lowest per unit investment in almost all the cases

• Your investment will be diversified

• Your investment will be managed by professional money managers

Type of mutual fund

There is no one method of classifying mutual funds risk free or advantageous. However we can do the same by way
of classifying mutual funds as per their functioning and the type of funds they offer to investors. If we took the middle
path and classify broadly we get the following list.

Open End Mutual Funds

All mutual funds by default and by definition are open end funds. Here an investor can buy the shares at any point of
time and exit from it at any time of his choice. Both buying and selling will be at the current NAV subject to load
factors where ever applicable. Though this is a very broad category, one can easily say this is the most popular of the
lot looking at the ease with which one can liquidate his holding (exit from position by selling or redemption to the
trust/fund). Affordability is another key factor that decides the popularity of open end funds. Those who can not afford
high initial prices can buy with low dollar values and even on a monthly basis.

Closed End Mutual Funds

Selling off of a specified and limited number of shares by the mutual funds at an initial public offering is known as
closed end mutual fund. However one important difference between open end fund and closed end mutual fund is
that the price of the latter is decided by demand and supply of the stock in the market and not by NAVs unlike in the
former case. The pooled funds are utilized as per the mandate of the fund and Securities and Exchange
Commission's regulations. They are traded more like the general stocks. Some of the reasons to invest in this
category
• Prices are determined by market demands and thus closed end funds trade at lower than the offer price
more often than not which is a perfect time for buying (at discounted prices)

• Like in the open end funds there are wide options for you to choose from. Like stock funds, balanced funds
that give full asset allocation benefit and thirdly the bond funds.

Exchange Traded Funds

The Exchange Traded Funds are a basket of stocks and trade like a normal security on exchanges tracking index
much like index funds. The prices of the ETFs are determined by market forces and thus no NAVs can be fixed. The
advantages of ETFs include buying and selling like you can do with any stock traded on the exchange not excluding
short selling while you enjoy the diversification of an index fund. There no fees/loads on these funds other than the
commission you pay to the broker. There are many popular funds in this class and one of them is SPDR that tracks
S&P 500 index.

Some More
Types of Mutual Funds
Type of mutual funds
No Load Mutual funds
Commodity Mutual Fund
Donor advised mutual funds
Micro cap mutual funds
Closed End Mutual Funds
Bear Market Mutual Funds
Major Exchange Traded Funds
Tax Exempt Bond Funds
Dynamic Mutual Funds
Retirement Income & Mutual funds