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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Legal and Regulatory Framework

A mutual fund scheme invests in a security issued by a group company of its sponsor. Which general principle of the SEBI Mutual Fund Regulations applies to such investments?

Investments in securities of sponsor group companies are allowed only within limits prescribed by SEBI and with disclosure, to prevent conflicts of interest and protect unit holders. They are neither banned outright nor permitted freely, and AMFI approval is not the governing mechanism.

  1. AThey are prohibited in every circumstance
  2. BThey are permitted without any limits or disclosure
  3. CThey are subject to prescribed investment limits and disclosure requirements to protect unit holdersCorrect
  4. DThey are permitted only if approved by AMFI

Explanation

The regulations do not ban investments in group companies outright but impose limits and disclosure requirements to guard against conflict of interest. They are not unrestricted, and approval by AMFI is not the mechanism; the regulatory framework is set by SEBI and enforced through trustees.

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