Capital Market and Securities Laws · Mutual Funds

SEBI Mutual Fund Regulations: Registration and Eligibility

Updated 11 October 2026 · Fact-checked

Under the SEBI Act, no person can sponsor or carry on a mutual fund without a SEBI certificate of registration (section 12(1B)). The sponsor applies under the SEBI (Mutual Funds) Regulations, then sets up a trust, trustees and an asset management company. SEBI may suspend or cancel registration only after a hearing.

Understand SEBI (Mutual Funds) Regulations: Registration and Eligibility

A mutual fund pools money from many investors and invests it in securities. Investors do not manage the money day to day. Because of this, the law treats the activity as one needing strict control.

The starting rule is in the SEBI Act, 1992. Section 12(1B) says no person shall sponsor, cause to be sponsored, carry on or cause to be carried on any venture capital fund or collective investment scheme, including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations. So registration with SEBI is a legal pre-condition, not a formality.

The mutual fund has a three-tier structure under the SEBI (Mutual Funds) Regulations: the sponsor, who sets up the fund; the trustees, who hold the trust property for unit holders and supervise; and the asset management company (AMC), which manages the schemes. Study these roles together, since exam questions often ask who does what.

Section 12(2) says every application for registration must be made in the manner and with the fees set by regulations. Section 12(3) says SEBI may suspend or cancel a certificate by order, but only after the person has been given a reasonable opportunity of being heard.

A mutual fund is not a collective investment scheme (CIS) in the legal sense. Section 11AA(3)(viii) excludes schemes where contributions are in the nature of subscription to a mutual fund. Mutual funds have their own regulations, so do not mix the two regimes in your answer.

The Act also attaches penalties. Section 15D covers defaults such as carrying on a mutual fund without registration, and section 15E covers an AMC that breaks the regulations restricting its activities. Both are linked to the registration framework.

Key rules to remember

Registration requirement: Sponsor or carry on a mutual fund → certificate of registration from SEBI is compulsory (SEBI Act, s. 12(1B)); Applies to sponsoring and to carrying on, including causing it to be done.
Application: Application in the manner and with the fees set by regulations (s. 12(2)); Manner and fees are not fixed in the Act; they come from regulations.
Suspension or cancellation: SEBI order + reasonable opportunity of being heard (s. 12(3)); No order without a hearing. This is a favourite point in answers.
Penalty for carrying on without registration: Not less than ₹1,00,000, may extend to ₹1,00,000 for each day of the default, maximum ₹1,00,00,000 (s. 15D(a)); Use the text of the section as it stands; the same ceiling applies to the other defaults in s. 15D(b) to (f).
Penalty for AMC: Not less than ₹1,00,000, may extend to ₹1,00,000 for each day of failure, maximum ₹1,00,00,000 (s. 15E); Applies where an AMC fails to comply with regulations restricting its activities.
Mutual fund and CIS: Contributions in the nature of subscription to a mutual fund → not a CIS (s. 11AA(3)(viii)); Keeps the two regimes separate.
ULIP exclusion: A unit linked insurance policy is not a collective investment scheme or mutual fund (Explanation to s. 12); Applies to instruments with an investment component alongside insurance.

How to solve SEBI (Mutual Funds) Regulations: Registration and Eligibility questions

Use this order for any question on registration, eligibility or the roles of sponsor, trustees and AMC. It gives you the provision, the analysis and a conclusion, as ICSI answers require.

1Read the question and mark what is asked: registration, eligibility, a role, or a penalty.
2State the governing provision first: section 12(1B) of the SEBI Act and the SEBI (Mutual Funds) Regulations.
3Name the three tiers (sponsor, trustees, AMC) and say which one the question concerns.
4Apply the rule to the facts given. Note whether the person holds a certificate of registration.
5If registration is lacking or breached, state the consequence: s. 12(3) for suspension or cancellation, s. 15D or s. 15E for penalty.
6Check procedure: a hearing is needed before SEBI suspends or cancels.
7End with a one-line conclusion that answers the exact question.
8Do not quote detailed eligibility numbers unless you are sure of them from your study material.

Quickest way: Provision, tier, consequence

When to use it: Short-note or 5-mark questions where you have about 8 minutes.

Write the rule: no sponsoring or carrying on a mutual fund without SEBI registration (s. 12(1B)).
Write who applies and how: application in the manner and with fees set by regulations (s. 12(2)).
Add the three tiers in one line each.
Add the consequence: hearing before suspension or cancellation (s. 12(3)); penalty under s. 15D or s. 15E.
Close with a one-line conclusion.

Common mistakes in SEBI (Mutual Funds) Regulations: Registration and Eligibility

Saying a mutual fund is a collective investment scheme.
Both pool investors' money, so they look the same.
Fix: Quote s. 11AA(3)(viii): a subscription to a mutual fund is excluded from CIS. Mutual funds are governed by their own regulations.
Saying SEBI can cancel registration straight away.
Students remember the power but forget the safeguard.
Fix: Always add the proviso to s. 12(3): no order without a reasonable opportunity of being heard.
Mixing up the roles of sponsor, trustees and AMC.
All three appear in the same structure and the names sound alike.
Fix: Remember: sponsor sets up, trustees hold and supervise for unit holders, AMC manages the schemes.
Quoting wrong penalty figures.
Old versions of s. 15D and s. 15E had different amounts (for example ₹10,000 a day) and are still found in old notes.
Fix: Use the current text: not less than ₹1,00,000, up to ₹1,00,000 per day of default, maximum ₹1,00,00,000.
Writing 'sections' from memory without certainty, or leaving them out entirely.
Fear of citing the wrong number.
Fix: Learn the few sections in this topic: 11AA, 12, 15D, 15E. Cite them in every answer.

Worked examples

Example 1

Ganga Wealth Pvt Ltd starts a pooled investment fund in the name of a mutual fund and accepts money from the public. It has not applied to SEBI. Advise on the legal position.

Show the solution

Provision: section 12(1B) of the SEBI Act says no person shall sponsor or carry on a mutual fund unless he obtains a certificate of registration from SEBI in accordance with the regulations.
Facts: Ganga Wealth is carrying on a mutual fund and has no certificate of registration.
Consequence: the act breaches s. 12(1B). Section 15D(a) makes a person who sponsors or carries on such a scheme without registration liable to a penalty of not less than ₹1,00,000, which may extend to ₹1,00,000 for each day of the default, subject to a maximum of ₹1,00,00,000.

Answer: Ganga Wealth is acting in breach of section 12(1B) and is liable to a penalty under section 15D(a) of the SEBI Act, 1992.

Example 2

SEBI proposes to cancel the certificate of registration of a mutual fund without notice to it. Is this valid?

Show the solution

Provision: section 12(3) allows SEBI to suspend or cancel a certificate of registration by order, in the manner set by regulations.
Proviso: no such order shall be made unless the person concerned has been given a reasonable opportunity of being heard.
Facts: SEBI proposes to cancel without notice, so no hearing is given.
Analysis: this goes against the proviso, so the order would not be valid in law.

Answer: The proposed cancellation is not valid. SEBI must first give the mutual fund a reasonable opportunity of being heard under the proviso to section 12(3).

Exam tips

Begin every answer with section 12(1B) of the SEBI Act; it earns the provision marks.
Draw the three-tier structure in one line: sponsor, trustees, AMC.
Use the current penalty figures of s. 15D and s. 15E, not older ones.
Add the hearing safeguard in any question on suspension or cancellation.
Do not quote detailed regulation numbers or net worth limits unless you have learned them from your study material.

Practice questions from Mutual Funds

SEBI (Mutual Funds) Regulations: Registration and Eligibility in other exams

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

NISM CertificationsSEBI Mutual Fund Regulations and Regulatory Structure

SEBI (Mutual Funds) Regulations: Registration and Eligibility: frequently asked questions

Is registration with SEBI compulsory for a mutual fund?

Yes. Section 12(1B) of the SEBI Act bars any person from sponsoring or carrying on a mutual fund without a certificate of registration from SEBI. The registration must be obtained in accordance with the regulations.

Who applies for registration of a mutual fund?

The sponsor applies to SEBI under the SEBI (Mutual Funds) Regulations. The Act says the application must be in the manner and with the fees set by regulations (s. 12(2)).

Can SEBI cancel a mutual fund's registration?

Yes, under section 12(3), by order and in the manner set by regulations. It must first give the person a reasonable opportunity of being heard.

What is the penalty for running a mutual fund without registration?

Section 15D(a) provides a penalty of not less than ₹1,00,000, which may extend to ₹1,00,000 for each day of the default, with a maximum of ₹1,00,00,000.

Is a mutual fund a collective investment scheme?

No, for the purposes of the Act. Section 11AA(3)(viii) excludes schemes where contributions are in the nature of subscription to a mutual fund, so they follow the mutual fund regulations.