Role of SEBI — The Regulator
SEBI is the statutory regulator of India's securities market, including mutual funds. This lesson explains where its authority comes from, what it can do, the main rules an investor meets, how to complain, and what regulation does not promise.
Who SEBI is
The Securities and Exchange Board of India (SEBI) is the statutory regulator of the securities market under the SEBI Act, 1992. Statutory means its authority comes from an Act of Parliament, and it makes its regulations under powers given by that Act.
Mutual funds are regulated through the SEBI (Mutual Funds) Regulations, 2026, which replaced the 1996 Regulations from 1 April 2026, together with a Master Circular for Mutual Funds dated 20 March 2026. Between them they cover registration, structure, scheme categories, expenses, disclosure and investor protection.
What SEBI can do
SEBI's powers include registering mutual funds, inspecting and investigating them, and imposing penalties. A fund cannot operate without registration, and the trustees cannot appoint an AMC, or end its appointment, without SEBI's approval.
SEBI regulates; it does not set up funds, manage money or choose investments.
Rules an investor meets
Categories. SEBI's scheme categorisation of 26 February 2026 has 40 categories: 13 equity, 17 debt, 7 hybrid, 1 life-cycle and 2 other. It replaced the 2017 list of 36, and a scheme's name must match its category.
Expenses. Since 1 April 2026 the Total Expense Ratio is a capped base expense ratio plus brokerage, transaction costs and statutory levies.
Risk labels. The riskometer shows a scheme's risk at one of six levels, updated monthly on the basis of the actual portfolio. Debt funds are also placed in a Potential Risk Class matrix.
Side-pocketing. If its scheme document provides for it and the trustees approve, a scheme may separate a distressed debt holding, such as a bond hit by a credit event, from the rest of its portfolio. The main portfolio then continues normally while recovery on the troubled holding is pursued separately. Unit holders on that day receive an equal number of units in the separated portfolio. It does not remove the loss or hide it.
Complaints
An investor with a grievance goes first to the AMC. If that fails, SEBI's online platform SCORES accepts complaints against market intermediaries, including AMCs. Complaints are to be resolved within 21 calendar days; the earlier limit was 30 days. An investor who is not satisfied with the outcome can ask for a review, and online dispute resolution is available after that.
What regulation does not do
Regulation sets rules and requires disclosure. It does not guarantee returns, and registration with SEBI is not a statement that a scheme's value cannot fall.
Rules at a glance
A complaint that moves up the ladder (illustrative)
Harish, 52, a shopkeeper in Ranchi, redeems units of a scheme and does not receive the money within 3 working days. He complains to the AMC and is not satisfied with its reply.
He then files the complaint on SCORES. It is to be resolved within 21 calendar days. If the outcome still does not satisfy him, he can ask for a review, and after that take the matter to online dispute resolution. At no stage does this process deal with a fall in the market value of his units; it deals with whether the rules were followed.
Key points
- SEBI is the statutory regulator of the securities market, including mutual funds, under the SEBI Act, 1992.
- Mutual funds are regulated under the SEBI (Mutual Funds) Regulations, 2026, in force from 1 April 2026; they replaced the 1996 Regulations.
- SEBI's powers include registration, inspection, investigation and imposing penalties.
- The categorisation of 26 February 2026 has 40 scheme categories; it replaced the 2017 list of 36.
- The riskometer has six levels; side-pocketing separates a distressed debt holding from the rest of a portfolio.
- SCORES is SEBI's online complaints platform; complaints are to be resolved within 21 calendar days.
Common misunderstandings
- Registration with SEBI is not a guarantee: regulation sets rules and disclosure, and returns stay market-linked.
- AMFI is not the regulator: SEBI is the statutory regulator, and AMFI is an industry association.
- Side-pocketing does not erase a loss: it separates the distressed holding so that the rest of the portfolio can continue normally.
- 36 categories is the 2017 list: the categorisation of 26 February 2026 has 40.
- There is no mutual fund ombudsman: the route is the AMC, then SCORES, then online dispute resolution.
Questions people ask
Under which law does SEBI make its mutual fund regulations?
The SEBI Act, 1992. The regulations now in force for mutual funds are the SEBI (Mutual Funds) Regulations, 2026.
What does the riskometer show?
The risk of a scheme at one of six levels, from Low to Very High. It is updated monthly on the basis of the scheme's actual portfolio.
What can SEBI do if a fund breaks the rules?
SEBI can inspect and investigate mutual funds and impose penalties.
What this lesson relies on
- SEBI Act, 1992
- SEBI (Mutual Funds) Regulations, 2026 (in force from 1 April 2026)
- SEBI Master Circular for Mutual Funds (20 March 2026) — scheme categorisation (Chapter 3), riskometer, Potential Risk Class matrix, segregated portfolios
- SEBI's SCORES 2.0 framework, effective 1 April 2024 (21-calendar-day timeline)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.