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SEBI modified its framework on AMCs contribution to set up LPCC 

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Sebi modifies framework for limited purpose clearing corporation by mutual fundsOn April 06,2021, Securities and Exchange Board of India (SEBI) modified its framework relating to the guidelines on contribution to set up Limited Purpose Clearing Corporation (LPCC) by Asset Management Companies (AMCs) of Mutual Funds(MFs).

Background:

  • In, September 2020, SEBI has approved the MF industry to set up LPCC based on recommendation of a working group set up by the Mutual Fund Advisory Committee (MFAC) for clearing and settling repo transactions incorporate debt securities and in February 2021, it has issued certain guidelines on forming LPCC.

Guidelines of SEBI:

  • AMCs were required to contribute 150 crores as share capital for setting up of LPCC by mutual funds.
  • It also prescribed that the contribution of AMCs is to be in proportion to the Asset Under Management (AUM) of open ended debt oriented mutual fund schemes (excluding overnight, gilt fund and gilt fund with 10-year constant duration but including conservative hybrid schemes) managed by them for FY20.

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Modification over the guideline:

  • Currently, SEBI has modified the proportion to AMU i.e. the contribution of AMCs now will be based on average AUM of debt oriented schemes managed by them for the FY21.

Note – Asset Management Company (AMC) is a firm that invests pooled funds from clients in stocks, bonds, real estate, master limited partnerships. Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients .

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About Securities and Exchange Board of India (SEBI):

Establishment – On April 12, 1992, in accordance with the Securities and Exchange Board of India Act, 1992.
Headquarters – Mumbai, Maharashtra
Chairman – Ajay Tyagi