SEBI Amends Mutual Fund Regulations to Curb Fraudulent Practices

Current Context: The Securities and Exchange Board of India (SEBI) has recently approved amendments to the SEBI (Mutual Funds) Regulations, 1996.

• These changes aim to curb fraudulent practices in mutual funds by introducing several new measures:
• Institutional Mechanism: Asset Management Companies (AMCs) are required to establish an “institutional mechanism” for the identification and deterrence of potential market abuse, including front-running and fraudulent transactions in securities. This mechanism should consist of enhanced surveillance systems, internal control procedures, and escalation processes.
• Misconduct Monitoring: The new framework should be able to identify, monitor, and address specific types of misconduct, including front-running, insider trading, and misuse of sensitive information.
• Whistle-Blower Process: AMCs will also be required to have a whistle-blower process to foster transparency.
• Higher Exposure on Group Companies: The markets regulator has also allowed passive schemes of AMCs to take higher exposure on group companies of the sponsor to allow the schemes to better reflect the underlying index. This will be subject to an overall cap of 35 per cent investment in the group companies of the sponsor.
• These amendments were announced on April 30, 2024, and are expected to enhance investor protection and transparency in the mutual funds industry.

Question:

Q.1 What is the purpose of the recent amendments to the SEBI (Mutual Funds) Regulations, 1996?
a. To increase the profits of Asset Management Companies (AMCs)
b. To curb fraudulent practices in mutual funds
c. To promote the sale of mutual funds
d. To reduce the number of mutual funds in the market