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Asset management companies (AMCs) will get three years to meet the Rs 50 crore minimum capital requirement under the new rule. And, sponsors will get a year to invest Rs 50 lakh as seed capital in all their open-ended schemes.
Last week, the Securities and Exchange Board of India (Sebi), at a board meeting, took a decision to increase the minimum net worth five-fold, to Rs 50 crore. And, introduced the concept of seed capital for the Rs 8 lakh crore asset-worth mutual fund sector.
As on September 2013, of the 45 Sebi-registered AMCs, 19 had a net worth less than Rs 50 crore, of which 11 were below Rs 25 crore. The bulk of the assets under management (AUM) of the sector were managed by the other 26 entities with a net worth of more than Rs 50 crore, 94 per cent, says Sebi.
Quantum MF, IDBI MF, BOI AXA, ING MF, Motilal Oswal MF, Sahara, Taurus, India Bulls and IIFL are among the fund houses with net worth below Rs 50 crore. Sebi has exempted funds specialising in only infrastructure debt funds (IDFs) from the higher net worth requirement.
Sebi’s decision to raise the requirement is aimed at increasing the sector’s 'robustness', has upset the smaller houses. Despite agreeing that AMCs are pass-through investment vehicles and asset-linked capitalisation isn't warranted, the Sebi board decided to increase the net worth to tide over unforeseen stress situations.
“In case of huge redemptions, at times, schemes have to borrow heavily and the cost of such borrowing has to be borne by the AMCs. If they are not well capitalised, the investors' interest will not be protected,” the board meeting note adds. “If any AMC fails to meet its redemption obligations, there will be serious damage to the reputation of the entire mutual fund industry.”
The regulator for the first time also prescribed the concept of 'seed capital', where the sponsor of a fund house will have to keep invested one per cent of the amount raised in a New Fund Offer, subject to a maximum of Rs 50 lakh, through the lifetime of the scheme.
For existing schemes, Sebi has said, it will notify a cutoff date for calculation of the seed capital. It has also said a 'reasonable time period of one year may be given for compliance.’ The seed capital can form a part of the net worth requirement.
