Even if one AMC folds up it will affect the entire industry, said SEBI chairman U K Sinha.
SEBI
chief U K Sinha justified the regulator’s decision to hike the net worth of
AMCs from Rs. 10 crore to Rs. 50 crore, saying it didn’t want any AMC to set a
bad example for the industry in the event of a crisis.
“We had two or three very major episodes where there was a huge possibility of the AMC coming to provide compensation to the investor. Theoretically, it is not necessary. You can fold up and go. As a regulator, it is SEBI’s worry that even if one AMC does it, it affects the entire industry. It will take decades for the industry to come out of it. We want to avoid that,” said Sinha while addressing the media at the 10th CII Mutual Fund Summit held in Mumbai.
“The net worth requirement was Rs. 10 crore in 1994. You can make a calculation by cost of living index. This is a very small increase,” Sinha added.
Mutual funds are structured as pass through vehicles which are not required to compensate investors if the scheme incurs losses.
While large fund houses with net worth above SEBI’s stipulated Rs. 50 crore didn’t have any issue, small fund houses vehemently opposed the rule. There are about 12 fund houses which are yet to raise their net worth to Rs. 50 crore. Recently, Religare Invesco and Motilal Oswal Mutual Fund increased their net worth to comply with SEBI’s new diktat.
To add to AMCs’ woes, SEBI has said that it will not permit AMCs to launch new schemes until they comply with the rule.
Fund officials said that the new rule will deter entry of new players. They pointed out that the net worth requirement for setting up mutual fund business in India is far higher than some developed markets.
