 "MF seed capital needs may rise to Rs 382 cr")
The Securities and Exchange Board of India’s (Sebi) decision to ask mutual funds (MFs) to invest their own money as seed capital into their schemes would translate into investments of up to Rs 382 crore.
There are 764 open-ended schemes which collectively manage Rs 9.36 lakh crore according to data from industry body the Association of Mutual Funds in India(Amfi). At Rs 50 lakh per scheme, the amount of seed capital comes to Rs 382 crore.
A statement released following the Sebi board meeting last week had said the amount would apply to open ended schemes.
The board decided to introduce the concept of seed capital by which one per cent of the amount raised (subject to a maximum of Rs 50 lakh) is to be invested by asset management companies (AMCs) in all the open-ended schemes during its life time.
The regulator released the minutes of the board meeting earlier this week which said that the seed capital requirement would apply even to existing schemes.
“For existing schemes, a cutoff date may be notified for calculation of the one per cent seed capital on the assets under management of said schemes on that date. A reasonable time period of one year may be given for compliance,” it said.
The regulator, however, has added this capital would also count towards the AMCs’ net worth requirements. Sebi raised the net worth requirements for mutual funds five-fold, from Rs 10 crore to Rs 50 crore, in the same board meeting.
“The sponsor/AMC would have to invest and keep invested during the lifetime of the scheme. The seed capital would form part of the net worth requirement,” said the board meeting minutes.
Experts say the fact that the seed capital would count towards meeting net worth requirements would come as a relief, but said operational guidelines will need to address how market fluctuations and their effect on net worth are to be handled.
“Sebi has allowed them to use this seed capital for meeting net worth requirements. One will have to see the operating guidelines on how the fluctuations in the value of their investments are to be dealt with, especially in situations like 2008, when the net asset value of equity schemes declined by 50 per cent,” said Dhirendra Kumar, chief executive officer of fund tracker, Value Research.
Jimmy Patel, chief executive officer of Quantum Asset Management Company agreed that there is a need for clarity on how changes in net worth on account of market fluctuations are to be handled.
“All the investments are mark-to-market. If the scheme is not doing well and the net worth dips, it is not clear if the company will be required to bring in additional capital,” he said.
“Mutual funds with a large number of schemes and whose net worth is not very high will be affected. Since a lot of their capital would go into their schemes, there would not be too much left over to conduct business,” he added.
There are 764 open-ended schemes which collectively manage Rs 9.36 lakh crore according to data from industry body the Association of Mutual Funds in India(Amfi). At Rs 50 lakh per scheme, the amount of seed capital comes to Rs 382 crore.
A statement released following the Sebi board meeting last week had said the amount would apply to open ended schemes.
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The board decided to introduce the concept of seed capital by which one per cent of the amount raised (subject to a maximum of Rs 50 lakh) is to be invested by asset management companies (AMCs) in all the open-ended schemes during its life time.
The regulator released the minutes of the board meeting earlier this week which said that the seed capital requirement would apply even to existing schemes.
“For existing schemes, a cutoff date may be notified for calculation of the one per cent seed capital on the assets under management of said schemes on that date. A reasonable time period of one year may be given for compliance,” it said.
The regulator, however, has added this capital would also count towards the AMCs’ net worth requirements. Sebi raised the net worth requirements for mutual funds five-fold, from Rs 10 crore to Rs 50 crore, in the same board meeting.
“The sponsor/AMC would have to invest and keep invested during the lifetime of the scheme. The seed capital would form part of the net worth requirement,” said the board meeting minutes.
Experts say the fact that the seed capital would count towards meeting net worth requirements would come as a relief, but said operational guidelines will need to address how market fluctuations and their effect on net worth are to be handled.
“Sebi has allowed them to use this seed capital for meeting net worth requirements. One will have to see the operating guidelines on how the fluctuations in the value of their investments are to be dealt with, especially in situations like 2008, when the net asset value of equity schemes declined by 50 per cent,” said Dhirendra Kumar, chief executive officer of fund tracker, Value Research.
Jimmy Patel, chief executive officer of Quantum Asset Management Company agreed that there is a need for clarity on how changes in net worth on account of market fluctuations are to be handled.
“All the investments are mark-to-market. If the scheme is not doing well and the net worth dips, it is not clear if the company will be required to bring in additional capital,” he said.
“Mutual funds with a large number of schemes and whose net worth is not very high will be affected. Since a lot of their capital would go into their schemes, there would not be too much left over to conduct business,” he added.