Issuing further clarification on skin in the game norms, SEBI has asked fund houses to invest at least 0.13% of the total assets in very high-risk schemes like small cap funds and sectoral funds. Currently, most equity funds fall under moderately high, high and very high category.
Similarly, scheme with high risk will have to invest at least 0.11% of the total AUM. Such an investment comes down to 0.03% for low risk schemes. Here is the table that shows percentage of AUM to be invested in the scheme based on risk level:
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.
The market regulator has also clarified that it 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.
Here are the key highlights of the latest regulations on the skin in the game:
- Investment of fund houses will be based on risk value of the scheme depicted on risk-o-meter
- Schemes with high risk will have to put more money in the scheme compared to schemes with comparatively lower risk level
- The investment has to be maintained throughout the lifetime of the scheme
- Fund houses will have to do quarterly review and meet the requirement within 7 days of such reviews
- Fund houses have an option to withdraw excess funds if any
- Fund houses will not be required to meet skin in the game norms in ETFs, index funds, overnight funds and funds of funds
- Details of such investments has to be disclosed on website of AMC and AMFI
