SEBI Puts in Place a Regulatory Framework for Mutual Fund Sponsors

Circular No. SEBI/HO/IMD/IMD-PoD-2/P/CIR/2023/118, Dated: 07.07.2023

The SEBI has put in place a regulatory framework for private equity funds sponsoring a mutual fund house as well as for self-sponsored AMCs. As per the said framework, the applicant PE or its manager is required to have a minimum of 5 years experience in the capacity of a fund/investment manager and experience of investing in the financial sector. Further, it should have managed, committed and drawn-down capital of at least Rs 5000 crore as on the date of its application made to the SEBI.

The experience, track record and eligibility regarding the fit and proper criteria of any applicant PE to become a sponsor of a Mutual Fund shall be ascertained through its conduct in the respective home jurisdiction.

In order to enhance the penetration of the Mutual Fund industry, and to facilitate new types of players to act as sponsors of Mutual Funds, an alternative set of eligibility criteria is introduced. This is to facilitate the fresh flow of capital into the industry, foster innovation, encourage competition, and provide ease of consolidation and easing exit for existing sponsors.

An AMC can become a self-sponsored AMC subject to certain conditions –

(a) The AMC should have been carrying on business in financial services for a period of not less than 5 years.

(b) The AMC should have a positive net worth in all immediately preceding five years

(c) Net profit of the AMC after providing for depreciation, interest and tax in each of the immediately preceding five years and the average net annual profit after providing for depreciation, interest and tax should be at least Rs. 10 crores.

Further, any sponsor proposing to disassociate can reduce shareholding below 10% within 5 years in the case of listed AMCs, while the same will be 3 years in the case of unlisted AMCs.

Also, after the disassociation of any sponsor from an AMC, all the shareholders of such AMC will be classified as financial investors and the upper limit of shareholding for such financial investors shall be below 10%.

The provisions of this circular shall come into force from 01.08.2023, while those related to the deployment of liquid net worth by AMC shall be applicable from 01.01.2024.

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