AMCs can’t launch new schemes till they achieve Rs. 50 crore net worth: SEBI

Fund houses won’t be allowed to launch any new schemes till they raise their net worth to Rs. 50 crore, said SEBI in its draft long term policy for mutual funds. 

AMCs will get three years’ to increase their net worth to Rs. 50 crore. However, SEBI has exempted IDFs from having Rs. 50 crore net worth, since they are close end funds and are targeted towards sophisticated investors.

The regulator has said that seed capital will form part of this net worth requirement. AMCs will have to put in this seed capital in new as well as existing schemes. SEBI will give one years’ time for AMCs to put seed capital in their existing schemes. This seed capital has to remain invested during the lifetime of the scheme.  

“We can achieve the required net worth in the timeframe given by SEBI. Having seed capital a part of net worth will result in net worth getting eroded due to mark to market losses.  This will leave us with little capital to do business” said Jimmy Patel, Chief Executive Officer, Quantum Mutual Fund.

According to SEBI, 19 AMCs have net worth of less than Rs. 50 crore. 8 AMCs have net worth between Rs. 50 crore to Rs. 100 crore while 18 AMCs have net worth of more than Rs. 100 crore. The total net worth of all AMCs is Rs. 8399 crore.

“Our current net worth is Rs. 14.50 crore. We will be able to reach Rs. 50 crore in three years. As far as seed capital is concerned our AMC has already invested more than 1% investment in our scheme. Net worth criteria will limit the ability of small AMCs to expand,” said Jayant Pai, Head – Marketing, PPFAS Mutual Fund. 

SEBI observed that 11 AMCs having net worth less than Rs. 25 crore have consistently remained below 1% of the total mutual fund industry AUM. “It is also observed that the share in AUM of the aforesaid 19 AMCs having net worth less than Rs. 50 crore has also remained at around 6% of the total mutual fund industry AUM. This indicates that 94% of the total mutual fund industry AUM is contributed from the 26 AMCs having net worth more than Rs. 50 crore,” stated SEBI.

Although SEBI accepted that mutual funds are a pass-through vehicle and asset linked capitalization is not required it decided to raise the net worth due to the stress faced by AMCs post 2008 crisis and in July 2013 when RBI steeply hiked interest rates.