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Other Regulatory Bodies – SRO, CLB, DCA, ROC

Introduction

Beyond SEBI, RBI, and AMFI, several other regulatory and administrative bodies play supporting roles in the mutual fund ecosystem. Since AMCs are companies

registered under the Companies Act, they fall under the jurisdiction of company law authorities as well.

1. Registrar of Companies (ROC)

Jurisdiction: Ministry of Corporate Affairs

Role in Mutual Funds:

  • Company Registration: All AMCs must be registered as companies with ROC
  • Annual Filings: AMCs file annual returns, balance sheets, director details
  • Changes in Directors: Any change in AMC board must be intimated to ROC
  • Compliance Monitoring: Ensures Companies Act 2013 compliance
Note

Every AMC is a company, so it has dual compliance: SEBI regulations (for mutual fund operations) and Companies Act (for corporate governance).

Example: When HDFC AMC Ltd. was incorporated, it was first registered with ROC Mumbai, then obtained SEBI registration to operate as an AMC.

2. Ministry of Corporate Affairs (MCA)

Previously: Department of Company Affairs (DCA)

Functions:

  • Administers Companies Act, 2013
  • Oversees all corporate entities including AMCs
  • Issues clarifications on company law provisions
  • Enforces corporate governance norms

Relevance to MFs:

  • AMC board composition must comply with Companies Act
  • Related party transactions require board approval
  • Audit committee requirements
  • CSR compliance (for large AMCs)

3. Income Tax Department

Role:

  • Administers tax provisions for MF investors
  • TDS Compliance: Ensures AMCs deduct TDS on dividends (post-2020)
  • PAN Verification: Investors must provide valid PAN for investments
  • Capital Gains Tax: LTCG/STCG tax collection on redemptions

Key Provisions:

  • Section 10(35): Earlier exemption for dividend (now abolished)
  • Section 112A: 10% LTCG tax on equity funds (gains > ₹1 lakh)
  • Section 80C: ELSS tax deduction (up to ₹1.5 lakh)

4. Enforcement Directorate (ED) & SEBI Coordination

ED's Role:

  • Investigates money laundering cases
  • Can investigate if MFs used for illicit fund parking
  • Works with SEBI on suspicious transactions

Example: If large unexplained cash is invested in MFs and redeemed immediately, ED can investigate under Prevention of Money Laundering Act (PMLA).

5. Stock Exchanges (NSE, BSE)

For ETFs and Closed-Ended Funds:

Stock exchanges play a crucial role in the mutual fund ecosystem, particularly for Exchange Traded Funds (ETFs) and closed-ended schemes. Their functions include:

  1. Listing Function: They are used for the formal listing of the fund units, making them available for public trading and providing liquidity to investors who wish to buy or sell these units in the secondary market.

  2. Trading Platform: They provide the essential trading platform (infrastructure and mechanism) where investors can buy and sell the fund units transparently during market hours, similar to how equity shares are traded.

  3. Settlement Services: They facilitate the settlement of transactions by ensuring that the transfer of units and payment of funds happens smoothly and within the stipulated timeframe (typically T+2 days).

  4. Price Discovery: They enable transparent price discovery through the continuous matching of buy and sell orders, ensuring that the market price of ETF units reflects the true demand and supply in real-time.

Role: ETF (Exchange Traded Fund) units trade on stock exchanges like shares, so NSE/BSE provide the complete infrastructure including trading terminals, clearing and settlement systems, and real-time price dissemination to all market participants.

Inter-Regulatory Coordination

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Compliance Requirements from Multiple Bodies

An AMC must comply with:

Regulatory BodyCompliance RequirementFrequency
SEBIPortfolio disclosure, NAV publicationMonthly/Daily
ROCAnnual return, financial statementsAnnually
Income TaxTDS on dividends, Form 15G/HAs applicable
RBIFPI reporting (if applicable)Quar

terly | | MCA | Board meetings, audit reports | Quarterly/Annually |

Exam Notes: Writing the Answer

Question: "Name the other regulatory bodies involved in mutual fund regulation apart from SEBI." (5 Marks)

Model Answer:

Apart from SEBI (primary regulator), several other bodies oversee different aspects of mutual funds:

1. Registrar of Companies (ROC): Since AMCs are companies registered under Companies Act 2013, they must register with ROC and file annual returns, balance sheets, and report director changes.

2. Ministry of Corporate Affairs (MCA): Administers Companies Act and ensures corporate governance compliance by AMCs including board composition, audit committees, and CSR norms.

3. Income Tax Department: Oversees tax compliance including TDS on dividends, PAN verification for investors, and capital gains tax collection under Section 112A (LTCG) and Section 80C (ELSS deduction).

4. Enforcement Directorate (ED): Investigates money laundering cases if MFs are used for illicit fund parking, working in coordination with SEBI.

5. Stock Exchanges (NSE/BSE): Provide listing and trading platforms for ETFs and closed-ended fund units.

These bodies ensure comprehensive regulation covering investment operations (SEBI), corporate governance (ROC/MCA), taxation (IT Dept), and market integrity (ED, Exchanges).

Summary

  • ROC (Registrar of Companies): Company registration, annual filings, director changes
  • MCA (Ministry of Corporate Affairs): Corporate governance under Companies Act 2013
  • Income Tax Department: Tax compliance, PAN verification, TDS/capital gains
  • Enforcement Directorate: Money laundering investigations
  • Stock Exchanges: ETF listing and trading platform
  • AMCs have dual compliance: SEBI (MF operations) + Companies Act (corporate governance)

Quiz Time! 🎯

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