Sebi notifies easier profitability rule for mutual fund sponsor

By: |
February 05, 2021 6:09 PM

Further, Sebi has dispensed with the requirement to issue physical unit certificates and reduced the timeline for payment of dividend.

The new framework will facilitate innovation and enhanced reach to more investors at a faster pace, including tech-enabled solutions.The new framework will facilitate innovation and enhanced reach to more investors at a faster pace, including tech-enabled solutions.

Capital market watchdog Sebi has notified easier profitability criteria for becoming a mutual fund sponsor to facilitate innovation and expansion in the sector.

The move comes after the Sebi board approved a proposal in this regard in December last year.

Under the new norms, sponsors that are not fulfilling profitability criteria at the time of making an application would also be considered eligible to sponsor a mutual fund.

This is 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), Securities and Exchange Board of India (Sebi) said in a notification issued on Thursday.

It further said the net worth of the AMC has to be maintained till the time it makes a profit for five consecutive years.

According to Sebi, any entity which holds 40 per cent or more of the net worth of an asset management company shall be deemed to be a sponsor.

At present, a sponsor is required to have profit after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year, now that requirement is not mandatory for the sponsor of mutual funds.

The new framework will facilitate innovation and enhanced reach to more investors at a faster pace, including tech-enabled solutions.

To streamline the manner of computation of net-worth of the AMC, Sebi has made it mandatory for all AMCs to maintain the minimum net-worth on a continuous basis.

Further, Sebi has dispensed with the requirement to issue physical unit certificates and reduced the timeline for payment of dividend.

“The asset management company shall issue units in the dematerialised form to a unit holder in a scheme within two working days of the receipt of request from the unit holder,” Sebi noted.

Now, the fund house needs to despatch to the unitholders the dividend payments within 15 days from the record date from the earlier requirement of 30 days.

While determining the price of the units, Sebi said the mutual fund need to ensure that the repurchase price of an open-ended scheme is not lower than 95 per cent of the Net Asset Value (NAV).

In addition, the regulator has asked to segregate and ring-fence assets and liabilities of mutual fund schemes.

This is in addition to the existing requirement of segregating bank accounts and securities accounts.

“Trustees and asset management companies shall ensure that the assets and liabilities of each scheme are segregated and ring-fenced from other schemes of the mutual fund; and bank accounts and securities accounts of each scheme are segregated and ring-fenced,” Sebi said.

The new norms Sebi (Mutual Funds) Amendment) Regulations, 2021 will come into force on the 30th day from the notification issued by the regulator.

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