Smaller MFs get 3 years to raise net worth to Rs 25 cr

A regulatory committee is to suggest that smaller asset management companies (AMCs) get more time to meet a recommended revision in the minimum net worth criteria for mutual funds.

A committee advising the Securities and Exchange Board of India (Sebi) crystallised the suggestions on Tuesday, according to a person with direct knowledge of the matter.

It has suggested revising the existing net worth criterion from Rs 10 crore to Rs 25 crore and giving three years for MFs with assets of less than Rs 1,000 crore to meet the new norms.

Those with assets under management (AUM) of more than Rs 1,000 crore should not be given more time to meet the Rs 25 crore criterion.

"The Sebi Board will now take a call on the implementation," said the person cited above.

The MF advisory committee is a 16-member body, headed by Janki Ballabh, former chairman of the board of trustees at UTI MF and also former chairman of State Bank of India.

The mandate includes advising Sebi on matters relating to regulation of MFs for ensuring investor protection and on issues related to development of the sector.

A sub-committee had been set up to decide upon the amount to which the minimum net worth should be raised. Its members are said to include A Balasubramanian, the chief executive officer for Birla Sun Life AMC and Dhirendra Kumar, chief executive officer of fund tracker Value Research. This sub-committee finalised its suggestions on Tuesday.

There are 10 MFs with average assets of less than Rs 1,000 crore, according to the Association of Mutual Funds in India. The 44-strong MF sector has an average AUM of Rs 18,000 crore. It manages total assets of Rs 8.08 lakh crore, with the top 10 fund houses accounting for Rs 6.36 lakh crore.

The increase in net worth comes even as at least half the fund houses had declared losses for 2012-13, says Value Research.

Parag Parikh, director at Parag Parikh Financial Advisory Services, whose MF arm had average assets under management of Rs 267 crore, said as MFs were pass-through vehicles, they should not apply the same criteria as banks and higher barriers of entry would stifle competition.

"The earlier net worth was sufficient. A higher entry barrier will affect the growth of the industry," he said.

Previously, Sebi had put in place a Committee on Review of Eligibility Norms, which had recommended a higher net worth of Rs 50 crore for AMCs, in 2010.