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CS Executive · Capital Market and Securities Laws · Mutual Funds

Vikram Trust Fund, a registered mutual fund, fails to invest the money it collected within the period specified in the regulations. In contrast, an AIF breaches SEBI directions after earning Rs 5 crore gains from the breach. Which statement is correct under the SEBI Act, 1992?

The mutual fund's failure to invest on time carries a maximum of one crore rupees under Section 15D(f). The AIF penalty under Section 15EA is capped at one crore rupees or three times the gains, whichever is higher, which here is Rs 15 crore.

  1. ABoth defaults attract only a capped penalty of one crore rupees, with no gains-based formula
  2. BThe mutual fund default is capped at one crore rupees under Section 15D(f); the AIF penalty is capped at one crore rupees or three times the gains, whichever is higher, under Section 15EACorrect
  3. CBoth defaults attract a penalty of three times the gains, whichever is higher
  4. DThe mutual fund default attracts three times the gains, while the AIF default is capped at one crore rupees

Explanation

Section 15D(f) caps the mutual fund penalty at one crore rupees. Section 15EA caps the AIF penalty at the higher of one crore rupees or three times the gains. Here three times Rs 5 crore is Rs 15 crore, which is higher than Rs 1 crore, so the AIF maximum is Rs 15 crore.

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