Fund houses have started complying with the SEBI’s seed capital norm which requires them to invest in their own funds.
Earlier in February, SEBI board had approved a long term policy for mutual funds in which it had asked AMCs to invest 1% of the amount raised (subject to a maximum of Rs.50 lakh) in all open ended schemes during its life time as seed capital. The market regulator had asked fund houses to comply with this diktat by May 05, 2015. Fund houses are supposed to invest in both equity and debt schemes.
While some fund houses like DSP BlackRock, Mirae and Birla Sun Life have started putting seed capital in their open equity funds, majority of AMCs are yet to catch up.
Some sponsors have put money in liquid funds as a part of this seed capital. A rough analysis of monthly AAUM disclosure of top ten fund houses shows that sponsors have invested close to Rs. 17,000 crore in liquid funds.
AMFI data shows that there are 796 open ended schemes. Assuming that AMCs will put at least Rs.50 lakh in each scheme, the industry will receive close to Rs. 400 crore. Also, a rough calculation shows that AMCs will have to put in Rs.170 crore in 333 equity funds.
DP Singh, Executive Director and Chief Marketing Officer, Domestic Business, SBI Mutual Fund told Cafemutual that his fund house was planning to comply with the norm in 2015.
G Pradeepkumar, CEO, Union KBC Mutual Fund too said that his fund house would infuse seed capital in the timeframe given by SEBI.
The concept of seed capital is prevalent in overseas markets. According to Investment Company Institute, an association of U.S. investment companies, US investment companies are required to have at least $100,000 of seed capital in each new fund before distributing its shares to the public; this capital is usually contributed by the sponsor or adviser in the form of an initial investment.
It remains to be seen if this regulation proves effective for investors in the days to come.
