The Securities and Exchange Board of India’s (Sebi) proposal to remove restrictions on mutual fund business expansion under Regulation 24, implemented in 2011, is being seen as a positive development by the industry. Industry participants believe the move will, over time, help attract greater foreign capital.
Swarup Anand Mohanty, vice-chairman & CEO, Mirae Asset Investment Managers (India), said: “Sebi’s proposal to relax Regulation 24(b) is a positive development that can enhance India’s competitiveness as an investment destination. By allowing AMCs to offer advisory and portfolio management services to non-broad-based pooled vehicles without a separate PMS license, it enables greater operational efficiency and expands the scope for engaging with global investors such as family offices, offshore funds, and institutional mandates. This could meaningfully support the flow of foreign capital into India over time.
Before 2011, AMCs were permitted to undertake activities in the nature of asset management and advisory services provided the key personnel of the AMC, the systems, back office, bank and securities account were segregated activity-wise and systems existed to prohibit access to inside information of various activities. However, the committee was of the view that actual conflict of interest may arise due to differential fee structure for Mutual Fund as a product vis-a-vis other products and therefore any consequent inequitable treatment to different sets of investors cannot be addressed through the creation of Chinese walls, the consultation paper said.
Which is why the committee said that such conflicts can be addressed by requiring AMCs to restrict themselves to management of funds of only ‘broad-based’ entities with at least 20 investors, and no single investor accounting for more than 25% of the corpus of the fund.
In an interview with FE, DP Singh, CEO of SBI Mutual Fund, had noted that there are many peripheral activities that AMCs are capable of handling but are restricted from undertaking without seeking specific approvals, rules that were introduced when the industry was still in its infancy. “Given the current stage of the industry, with mutual funds now a mainstream investment option rather than a niche offering, I believe this is a very positive and timely step,” he had said.
The rule also restricts AMCs through itself or through its subsidiary to undertake certain other activities such as providing services to non-broad-based funds, distributing financial products and sharing of resources across various functions.
In April, Sebi ED Manoj Kumar had said: “We have noticed that the mutual fund regulation is the lengthiest of all the Sebi regulations. This calls for a very comprehensive review. The chairman has already said that. We are working in that direction so that we can truly bring a conducive approach on the ground.”
While Franklin Templeton is among the fund houses that has a PMS license that it utilises for global offshore advisory work, its president Avinash Satwalekar said, “A lot of the elements that we had discussed as an industry, a good chunk of that has been addressed but the devil is always in the details.”
According to Mohanty, Sebi has proposed reasonable guardrails to ensure that mutual fund investors remain protected. Some of these are Sebi-prescribed fees to charge from their pooled non-broad-based funds, and the key personnel responsible for investment decision-making and fund management will also need to be segregated.
