The Securities & Exchange Board of India (Sebi) is reviewing restrictive rules for asset management companies under Clause 24(B), which prevents them from undertaking any business activities other than management and advisory services provided to pooled assets, executive director Manoj Kumar said on Tuesday.
“Some of the people in the industry are fully aware that regulation 24(B) is an obstacle,” he said at the 18th CII National Mutual Fund Summit. “We are doing a significant review of the regulation.”
Sundeep Sikka, chief executive officer of Nippon Life India Asset Management, identified one of the key hurdles. In a panel discussion after Kumar’s speech, Sikka said Japanese capital is waiting to come to India, but Section 24B is an hindrance. “A big change is required. It will help us get a lot more foreign capital in India.”
Currently, this clause 24(B) does not apply if funds are managed by Category I foreign portfolio investors and/or Category II foreign portfolio investors, which are appropriately regulated broad-based funds, as specified in Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.
By definition, a ‘broad-based fund’ is one having at least 20 investors and no single investor accounting for more than 25% of the corpus of the fund. There are expectations among industry players that the regulator may ease the limit for both investors and the 25% limit for a single account.
“We have noticed that the mutual fund regulation is the lengthiest of all the Sebi regulations. This calls for a very comprehensive review. The chairman has already said that. We are working in the direction so that we can truly bring a conducive approach on the ground,” Kumar said.
He noted that certain recent changes brought by the regulator are causing discomforts in the market and some re-examinations have already started. “For example, the institutional mechanism framework that we articulated has robust back-testing before launch, but still there are some issues, and we are going to resolve those,” he said. Similarly, the recently announced relaxation in the skin in the game saw some operational issues and the regulator has tried to address those. “We are not static in nature, we are dynamic.”
Regarding the 24B clause, Kumar said it is not allowing industry players to use their expertise and expand. “We will remove as many restrictions as possible,” he said, adding that Sebi has requested the Association of Mutual Funds in India to simplify the categorisation of mutual funds and the nomenclature.