In a recent amendment to the mutual fund regulations, SEBI said that they would ban fund houses from launching new schemes for one year if they do not adhere to skin-in-the-game regulations.
SEBI may also forfeit the invested amount by the fund house in any of the schemes for such a violation, said the MF regulations.
However, the market regulator will give a chance to fund houses for hearing before taking such an action. These regulations will come into effect from May 1, 2022.
Earlier, SEBI has fund house to invest based on risk level of the scheme. The market regulator has also done away with the existing norms on skin-in-the-game in which fund houses have to invest 1% of the amount raised during NFO or Rs.50 lakh, whichever is lower.
Prima facie, it looks like fund houses will have to invest more in riskier schemes like equity funds compared to less risky schemes like debt funds. However, SEBI is yet to clarify how the new skin in the game norms will be put in practice.
