Capital Market and Securities Laws · Mutual Funds

Penalties for Mutual Fund Defaults under SEBI Act, 1992

Updated 11 October 2026 · Fact-checked

Section 15D of the SEBI Act, 1992 penalises collective investment schemes, including mutual funds, for six defaults: running without registration, breaching registration conditions, not applying for listing, not despatching unit certificates, not refunding application money, and not investing money as required. The penalty is at least ₹1 lakh, up to ₹1 lakh per day of default, subject to a maximum of ₹1 crore.

Understand Penalties for Mutual Fund Defaults under SEBI Act, 1992

A mutual fund collects money from many investors and invests it. Investors cannot watch every step, so the law sets duties for the fund and penalises breaches. Section 15D is the penalty section for these duties.

The section lists six defaults in clauses (a) to (f). Clause (a) covers a person who sponsors or carries on a collective investment scheme, including a mutual fund, without the required certificate of registration. Clause (b) covers a registered scheme that fails to comply with the terms and conditions of its certificate. Clause (c) covers failure to apply for listing of its schemes as the regulations provide.

Clause (d) covers failure to despatch unit certificates in the manner the regulations provide. Clause (e) covers failure to refund application money to investors within the period specified in the regulations. Clause (f) covers failure to invest the money collected in the manner or within the period specified in the regulations.

The penalty is the same in every clause: not less than ₹1 lakh, but it may extend to ₹1 lakh for each day the default continues, subject to a maximum of ₹1 crore. In clause (a) the daily count runs for each day the person sponsors or carries on the scheme without registration. In clauses (b) to (f) it runs for each day the failure continues.

Related provisions complete the picture. Section 12 requires registration from SEBI before anyone sponsors or carries on a collective investment scheme, including a mutual fund, and lets SEBI suspend or cancel registration after giving a reasonable opportunity of being heard. Section 15E penalises an asset management company that breaks the regulations restricting its activities, on the same scale. Section 15JA credits all penalties realised under the Act to the Consolidated Fund of India.

Key rules to remember

Penalty under section 15D (all clauses): Penalty ≥ ₹1,00,000; may extend to ₹1,00,000 per day of default; maximum ₹1,00,00,000; The same range applies to each of clauses (a) to (f). It is a range, not a fixed amount. The authority decides the amount within it.
Defaults under section 15D: (a) no registration; (b) breach of registration terms; (c) no listing application; (d) no despatch of unit certificates; (e) no refund of application money; (f) no investment as specified; Remember the six as: register, comply, list, despatch, refund, invest.
Section 15E: asset management company: Breach of regulations restricting AMC activities: ≥ ₹1,00,000; up to ₹1,00,000 per day; maximum ₹1,00,00,000; Applies to an asset management company of a registered mutual fund, not to the fund as such.
Section 12(3) and section 15JA: SEBI may suspend or cancel registration after a hearing; penalties go to the Consolidated Fund of India; A hearing is mandatory before suspension or cancellation.

How to solve Penalties for Mutual Fund Defaults under SEBI Act, 1992 questions

Use this method for any question on penalties for mutual fund defaults.

1Identify the entity: a collective investment scheme or mutual fund (section 15D), or an asset management company (section 15E).
2Identify the exact default from the facts. Match it to clause (a) to (f) of section 15D.
3Check the duty is one set by the Act, rules or regulations, such as the period for refund or the manner of despatch.
4State the penalty range: at least ₹1 lakh, up to ₹1 lakh per day, maximum ₹1 crore.
5Apply the facts. Count the days of default if the question gives them, and cap the figure at ₹1 crore.
6Add enforcement powers where relevant: suspension or cancellation of registration under section 12(3) after a hearing, and credit of penalties to the Consolidated Fund of India.
7Write a clear conclusion in one line.

Quickest way: Clause match and cap

When to use it: When time is short and the question gives a default with a number of days.

Name the clause from (a) to (f) in the first line.
Write the range once: ₹1 lakh minimum, ₹1 lakh per day, ₹1 crore cap.
Compute days × ₹1 lakh. If it exceeds ₹1 crore, the cap applies.
Finish with section 12(3) and section 15JA in one line each.

Common mistakes in Penalties for Mutual Fund Defaults under SEBI Act, 1992

Treating the penalty as a fixed ₹1 lakh per day.
The words 'one lakh rupees for each day' stand out and the minimum is missed.
Fix: Write it as a range: at least ₹1 lakh, up to ₹1 lakh per day, capped at ₹1 crore.
Ignoring the ₹1 crore maximum when many days are given.
Students multiply days by ₹1 lakh and stop.
Fix: Always compare the product with ₹1 crore and state the lower figure as the upper limit.
Applying section 15D to a stock broker's default.
Sections 15D, 15E and 15F look alike.
Fix: Section 15D is for collective investment schemes and mutual funds. Stock brokers fall under section 15F. Asset management companies fall under section 15E.
Listing fewer than six defaults or mixing them up.
The clauses are read once and not memorised.
Fix: Use the cue: register, comply, list, despatch, refund, invest.
Saying SEBI can cancel registration without a hearing.
Penalty and cancellation are mixed up.
Fix: Section 12(3) requires a reasonable opportunity of being heard before suspension or cancellation.
Forgetting where the penalty money goes.
It is a small provision in section 15JA.
Fix: Add one line: sums realised as penalties under the Act are credited to the Consolidated Fund of India.

Worked examples

Example 1

A registered mutual fund scheme fails to refund application money to investors within the period specified in the regulations. The default continues for 30 days. State the provision and the maximum penalty.

Show the solution

Provision: section 15D(e) of the SEBI Act, 1992 penalises a registered collective investment scheme, including a mutual fund, that fails to refund application monies within the period in the regulations.
Penalty range: not less than ₹1 lakh, extendable to ₹1 lakh for each day of the failure, subject to a maximum of ₹1 crore.
Compute: 30 days × ₹1,00,000 = ₹30,00,000.
Compare with the cap: ₹30,00,000 is below ₹1,00,00,000, so the cap does not bite.

Answer: The fund is liable under section 15D(e). The penalty is at least ₹1 lakh and may extend up to ₹30,00,000 for 30 days of default.

Example 2

A person sponsors and runs a collective investment scheme without a certificate of registration from SEBI for 150 days. What is the penalty exposure, and what else does the Act provide?

Show the solution

Provision: section 12(1B) bars sponsoring or carrying on a collective investment scheme, including a mutual fund, without registration from SEBI. Section 15D(a) provides the penalty.
Range: not less than ₹1 lakh, up to ₹1 lakh per day of carrying on the scheme, subject to a maximum of ₹1 crore.
Compute: 150 × ₹1,00,000 = ₹1,50,00,000.
This exceeds ₹1 crore, so the cap applies and the upper limit is ₹1,00,00,000.
Penalties realised are credited to the Consolidated Fund of India under section 15JA.

Answer: The person is liable under section 15D(a). The penalty is at least ₹1 lakh and cannot exceed ₹1 crore, even though 150 days at ₹1 lakh would come to ₹1.5 crore.

Exam tips

Quote section 15D with the clause letter. Examiners reward the exact clause.
Write the penalty range in full: minimum, per-day figure and the ₹1 crore cap.
In numerical facts, always show the multiplication and the cap comparison.
Distinguish sections 15D, 15E and 15F by the entity: scheme or fund, asset management company, stock broker.
Close with the conclusion first-line style: 'Hence, the fund is liable to penalty under section 15D(...)'.

Practice questions from Mutual Funds

Penalties for Mutual Fund Defaults under SEBI Act, 1992 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

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Penalties for Mutual Fund Defaults under SEBI Act, 1992: frequently asked questions

What is the penalty under section 15D of the SEBI Act?

It is not less than ₹1 lakh but may extend to ₹1 lakh for each day the default continues, subject to a maximum of ₹1 crore. The same range applies to all six clauses.

Which defaults does section 15D cover?

Carrying on a scheme without registration, breaching registration terms, not applying for listing, not despatching unit certificates, not refunding application money, and not investing the money as the regulations require.

How is section 15D different from section 15E?

Section 15D applies to collective investment schemes including mutual funds. Section 15E applies to an asset management company that breaks regulations restricting its activities. The penalty scale is the same.

Where does the penalty money go?

Under section 15JA, all sums realised by way of penalties under the SEBI Act are credited to the Consolidated Fund of India.