Mutual fund industry body Amfi is understood to have informally met market regulator Sebi to discuss the net worth requirement pertaining to fund houses.
“Amfi has tried to rationalise with Sebi and asked it to have a relook at the net worth requirement,” said a person familiar with the matter. “Amfi has stressed on the point that the net worth requirement should not act as an entry barrier for serious players. Also, net worth alone should not be looked at as the only criteria for judging the seriousness of the players.”
In February, Sebi’s board of directors had approved a proposal to raise the minimum capital requirement for an AMC to R50 crore from R10 crore. Earlier, the MF advisory committee had suggested raising the net worth requirement to R25 crore.
“Even if Amfi takes up the matter with Sebi, it is highly unlikely that the market regulator will ask its board to reconsider the decision,” said a fund house CEO, on condition of anonymity. Fund officials are expecting the net worth requirement to be notified soon. Amfi could not be reached for comments for the story.
As on September 2013, 19 fund houses had a net worth of less than R50 crore, of which 11 were below R25 crore. The fund houses include Quantum MF, PPFAS MF, IDBI MF, BOI AXA, IIFL and Motilal Oswal.
Several fund officials have argued that the net worth critieria is unjustified given that AMCs are a pass-through vehicle, meaning the losses incurred by a scheme have to be borne by investors, not the AMCs. They also said that net worth is not the right yardstick to measure the seriousness of an AMC and there were other parameters that needed to be considered, including performance of schemes, innovativeness and the AMC's corporate governance set-up.
“There is no need for increasing the net worth requirement if a fund house has prudent investment policies in place and passes on the risk to the investor after appropriate disclosures,” said Jimmy Patel, CEO, Quantum MF.