Queue for MF licences thins amid quick Sebi approval, withdrawals

At the end of September, the regulator had only 2 pending applications

The queue for mutual fund (MF) licences has thinned down due to quick clearances by the Securities and Exchange Board of India (Sebi) alongside applications being withdrawn amid regulatory changes.

There were, at the end of September, only two pending MF applications: By AngelOne and Unifi Capital. By comparison, there were 11 applications lying before the market regulator at the start of calendar year 2023.

Since March 2023, Sebi has given final approvals to four asset management companies (AMCs), namely Bajaj Finserv, Old Bridge Capital Management, Helios Capital and Zerodha. The companies had already obtained in-principle approvals before the year started.

Of the remaining seven applicants — Alpha Alternatives, Unifi Capital, Alchemy Capital Management, Angel One, Emkay Global Financial Services, Abira Securities and Wizemarkets Analytics — most names are missing in the latest list put out by Sebi. The reasons for their absence can either be withdrawal of application or a technical issue. Fintech firm PhonePe, which was one of the prominent names in queue for MF licence, withdrew its application last year.

"We are not continuing with the AMC licence as we will focus on our distribution strength and will not get into manufacturing of products," said a PhonePe spokesperson.

Emkay Global, which received in-principle approval in April 2023, withdrew its application in September citing changes in net worth criteria and other norms for sponsors and AMCs.

"…the sponsor company has reviewed these newly implemented provisions of the said Sebi notification and its potential impact on our mutual fund/AMC application as sponsor, and the management has decided not to pursue the application," the company told exchanges.

Deepak Shenoy, founder and chief executive officer of CapitalMind, said the company has withdrawn its application owing to modifications in eligibility criteria and also a change in the company's name. "We will be reapplying soon," he said.
 

Other applicants, whose names are not in Sebi’s list, could not be reached for comments.

Sebi in June brought material changes to the regulatory framework for MF sponsors to facilitate entry of new players and ensure the financial stability of sponsors.

One key change was higher net worth criteria for those taking the alternative eligibility criteria. The minimum net-worth criteria for applicants not meeting the profitability requirements was raised to Rs 150 crore from Rs 100 crore previously.

"These recent amendments have ushered in significant changes, and their potential impact on the industry is multifaceted. Firstly, the stricter eligibility criteria for sponsors may serve as a double-edged sword. While they aim to enhance financial stability, these amplified requirements might create financial barriers for smaller sponsors, potentially leading to market concentration favouring larger sponsors. This could result in reduced diversity and competition, which has been a hallmark of the MF industry," said Roopal Bajaj, Leader - Funds, Singhania & Co.

New applications for MF licences have come down too. The joint venture of Jio Financial and Blackrock had not filed an application as September ended. Besides applying for a new license, a new entrant can even scoop up an existing MF player.

Businesses, including start-ups and portfolio management services (PMS) players queued up for MF licences after Sebi introduced the alternative eligibility criteria in December 2020. The alternate route opened the doors for companies that failed to meet the three-year profitability criteria, provided they had a net worth of over Rs 100 crore.

Sebi has sped up clearing MF applications across processes. The pendency of new fund offering (NFO) applications has also come down compared to the last year. In several cases, NFOs have obtained regulatory clearances in less than a month.

Scaling up

Rs 47 trillion Current size of MF industry

73% Growth in AUM in last 3 years

40 million Number of unique MF investors; has doubled since March 2020

Entrants since 2020
 

Whiteoak Capital, NJ, Helios, Navi, Bajaj Finserv, Samco, Trust, Groww, and Old Bridge Capital

Source: Amfi