SEBI allows fintechs to apply for mutual fund licenses

The Securities and Exchange Board of India (Sebi), in its board meeting on Wednesday, eased the criteria for the new players to enter the asset management business in India. The markets regulator announced that sponsors that did not fulfill the profitability criteria would also be eligible to sponsor a mutual fund—subject to having a net-worth of not less than Rs 100 crore. Participants in the industry say that this move will allow ‘new-age’ fintech companies and even private equity players to start a mutual fund.

Sebi, in its release, said that to facilitate innovation and enhanced reach to more investors at a faster pace, including tech-enabled solutions, sponsors that are not fulfilling profitability criteria at the time of making application, shall also be considered eligible to sponsor a mutual fund subject to having a net-worth of not less than Rs 100 crore for the purpose of contribution towards the net-worth of the Asset Management Company (AMC). This networth of the AMC has to be maintained till the time AMC makes profit for five consecutive years.

Dhirendra Kumar, CEO at Value Research says, “There are many companies that are waiting to set-up a mutual fund business in India which are yet to make profits. With this announcements regulator have facilitated such players to start the mutual fund operations in India.” The regulator also wants to streamline the manner of computation of net-worth of the AMC and expects all AMCs to maintain the minimum net-worth on a continuous basis.

However, for existing players having a net-worth of Rs 50 crore will continue and Wednesday’s announcement is only for new players entering mutual fund business. Current regulations also say that the sponsor is required to have profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year. At present, there are 45 mutual funds in India having an average asset under management of Rs 27.60 lakh for the July-September quarter.

Sebi also stated that all assets and liabilities of each scheme shall be segregated and ring-fenced from other schemes of the mutual fund in addition to the existing requirement of segregating bank accounts and securities accounts. The board of Sebi has further approved proposals including dispensing with the requirement to issue physical unit certificates, reducing maximum permissible exit load, and reducing the timeline for payment of dividend.