Established in 1988, the Securities and Exchange Board of India (SEBI) is the regulatory authority responsible for overseeing the securities market in India. With fairness and transparency at its core, SEBI aims at protecting the interests of investors with the promotion of development and regulation of the securities market.
SEBI’s Regulatory Framework for Mutual Funds’ Sponsors
One of the key fundamentals of SEBI’s workings involves transparency. With the recent introduction of a regulatory framework whilst its circular dated 2024.07.08 titled “Regulatory Framework for Sponsors of a Mutual Fund”, the capital market watchdog aims to create a more reliable and accountable approach. The objective is to facilitate a fresh flow of capital into the industry, foster innovation, encourage competition and provide ease of consolidation and easing exit for existing sponsors.
The vision is for private equity funds to sponsor a mutual fund house as well as for self-sponsored Asset Management Companies (AMCs). Under the framework, the applicant would be required to have five years of experience as a fund manager with experience in investing in the financial sector. “It should have managed, committed and drawn-down capital of at least Rs 5000 Crore”, as stated by SEBI.
According to SEBI, an AMC shall be permitted to become a self-sponsored subject to certain conditions where the AMC is found to be carrying on business in financial services for at least five years, have a positive net worth in all the immediately preceding five years, and have a net profit of Rs 10 crore in each of the immediately preceding five years.
If there is a change in control of an existing AMC (Asset Management Company) due to the acquisition of shares, the sponsor must ensure that their net worth is equal to or exceeds the total par value or market value of the shares being acquired, whichever is greater.
Way Ahead
As quoted by the Deputy General Manager, Lakshaya Chawla, the aforementioned circular is issued in the exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. It is clear that the market regulator in India is one that is rising its stakes of transparency.
The new rules regarding mutual funds’ sponsors would come into force from August 1, 2024
