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SEBI has issued a consultation paper in which it has proposed that the sponsors of mutual fund should have networth of Rs.150 crore i.e. Rs.100 crore as a liquid networth and Rs.50 crore as five year running expenses.
Sharing the rationale, SEBI said, “It was also observed that average expenses of the recently incorporated AMCs were approximately around Rs. 10 crore. per year. Hence, a top up of Rs. 50 crore. (Rs. 10 crore * 5 years) be added to the requirement of Rs. 100 cr. to cover for operational expenses of the AMC for the first 5 years without requiring financial support from the sponsor. Therefore, Rs.150 crore appears to be a reasonable requirement as it will create sufficient entry barriers and at the same time is not too steep for any serious applicant. Rs. 150 crore is also a logical extension of existing requirements of Rs.50 crore networth for existing route and Rs.100 crore requirement for non-profitable companies.”
Currently, a sponsor has to have a networth of Rs.50 crore to start MF business. Sponsors who are not profitable in the past will have to fetch Rs.100 crore as a networth.
Further, in order to check license trading practices (a sponsor obtaining MF license only to trade it to other players), SEBI has proposed that it will introduce a 5-year lock-in. During this period, the sponsor cannot exit the MF business.
Here are other key proposals:
- The senior management team which includes CEO, COO, Chief Regulatory Officer and all the fund managers should have collective experience of 30 years
- The new sponsor will have to maintain networth Rs.100 crore plus Rs.50 crore in case of acquisition of existing MF business
- PE firms can become sponsors if they have 5 years of experience with draw down capital of Rs.5000 crore
- PE firms will not be allowed to do off market transactions
- The regulator will allow voluntary reduction in ownership of sponsors in AMCs. Currently, sponsors should have at least 40% ownership
- SEBI will allow AMCs to become self-sponsored AMC if they meet certain conditions like minimum 5-year experience in carrying out business in the financial services industry, maintaining positive net worth in all the immediately preceding five years and so on
The market regulator has invited feedback from all stakeholders latest by Jan 29.
