The Securities and Exchange Board of India (SEBI) on June 27, 2023, issued the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2023 to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.
The following amendments have been stated:
• In regulation 7 which states ‘Eligibility criteria’, clause (a) shall be substituted with the following, namely, -
“(a) the sponsor should have a sound track record and general reputation of fairness and integrity in
all business transactions.
Explanation: For the purposes of this clause “soundtrack record” shall mean the sponsor should, —
i. be carrying on business in financial services for a period of not less than five years; and
ii. ensure that the net worth is positive in all the immediately preceding five years; and
iii. ensure that the positive liquid net worth is more than the proposed capital contribution of the sponsor in the asset management company and ensure that in case of change in control of the existing asset management company due to the acquisition of shares, the the positive liquid net worth of the sponsor or funds tied up by the sponsor is to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher; and
iv. have net profit after providing for depreciation, interest, and tax in each of the immediately preceding five years; and
v. has average net annual profit after depreciation, interest, and tax during the immediately preceding five years of at least rupees ten crores:
Provided that if the requirements specified under Explanation to clause (a) are not fulfilled, the sponsor shall, -
(i) adequately capitalize the asset management company such that the net worth of the asset of the management company is not less than rupees one hundred fifty crore; and
(ii) ensure that the initial shareholding equivalent to capital contributed to the asset management company to the extent of not less than rupees one hundred fifty crores is locked in for a period of five years; and
(iii) appoint experienced personnel in the asset management company such that the total combined experience of Chief Executive Officer, Chief Operating Officer, Chief Risk Officer, Chief Compliance Officer and Chief Investment Officer should be at least thirty years; and
(iv) ensure that in case of acquisition of an existing asset management company, the sponsor shall have a minimum positive liquid net worth equal to incremental capitalization required to ensure minimum capitalization of the asset management company and the positive liquid networth of the sponsor or the funds tied up by the sponsor is to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher; and
(v) ensure that in case of acquisition of a stake in an existing asset management company, the shareholding equivalent to at least rupees one hundred fifty crores shall be locked in for five years; and
(vi) ensure that other conditions in this regard as may be specified by the Board from time to time are adhered to:
Provided further that a private equity fund or a pooled investment vehicle or a pooled investment fund may also be permitted to sponsor mutual funds subject to such other conditions as may be specified by the Board from time to time."
• After regulation 7B which states ,Norms for Shareholding and Governance in Mutual Funds’, the following regulation shall be inserted, namely,-
“7C (1) The sponsor may be permitted to disassociate from the asset management company and the mutual fund subject to such conditions as may be specified by the Board.
(2) In the event of the sponsor disassociating itself from the asset management company and the mutual fund as specified in sub-clause (1) above, the asset management company of the existing mutual fund may act as sponsor of the same mutual fund subject to such conditions and in the form and manner as may be specified by the Board.
(3) In the event of the disassociation of the sponsor from the asset management company and the mutual fund, the shareholding for any shareholder in the asset management company shall be below 10%.
(4) In the event of the sponsor disassociating itself from the asset management company and the mutual fund, the board of directors of such asset management company shall have at least two third independent directors.
(5) If the asset management company fails to fulfill the conditions specified under sub-clause (2) above, the dissociated sponsor or any new entity may become the sponsor of the mutual fund subject to such conditions as may be specified by the Board from time to time.”
• After regulation 25 which states ‘Asset management company and its obligations’, the following regulation shall be inserted, namely, -
“Meeting of the board of directors of the trustee company and the board of directors of the asset management company.
25A. The board of directors of the trustee company and the board of directors of the asset management company, including any of their committees, shall meet at such frequency as may be specified by the Board from time to time.”
• Regulation 31A shall be substituted with the following, namely, -
“In-principle approval from recognized stock exchange(s).
31A. For a listing of units of any scheme of a mutual fund on the recognized stock exchange(s), the asset management company of that mutual fund shall take all necessary steps and obtain the ‘in principle’ approval from the recognized stock exchange(s) in the manner as specified by such exchange(s) from time to time.”
They shall come into force on such dates as the Board may by notification in the Official Gazette appoint.
[Notification No. No. SEBI/LAD-NRO/GN/2023/134]
