On February 4, 2021 Securities and Exchange Board of India (SEBI) has released new norms of Securities and Exchange Board of India (Mutual Funds) ( Amendment) Regulations, 2021. This regulation came into force by amending, Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.
i.The amendment will come into force on the 30th day from the date of their publication in the Official Gazette.
ii.SEBI has amended the regulation in exercise of its powers conferred by section 30 read with clause (c) of sub-section (2) of section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).
Easy Profitability Criteria to Become a Mutual Fund Sponsor
i.Under new norms, sponsors who do not fulfill profitability criteria at the time of making an application will also be considered to be eligible to sponsor a Mutual Fund(MF).
ii.This is subject to, where Asset Management Company(AMC) is required to have a net worth of Rs 100 crore and the AMC shall maintain this networth till it has profits for 5 consecutive years.
iii.Currently, a sponsor has to have a profit after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year. Under the new norms, this requirement is not mandatory for the sponsor of MF.
Note– As per SEBI, Any entity which holds 40% or more of the net worth of an AMC shall be deemed to be a sponsor
AMC can launch infrastructure debt fund schemes
The AMC of a MF is eligible to launch only infrastructure debt fund schemes, should have a networth of not less than Rs 10 crore.
Maintain Minimum Networth
It is compulsory for all AMCs to maintain the minimum net-worth on a continuous basis. In addition to this, SEBI has given the requirement to issue physical unit certificates
MF needs to send the dividend payments to the unitholders within 15 days from the record date from the earlier requirement of 30 days.
Issue units in dematerialized form
The AMC must issue units in dematerialized form to a unit holder in a scheme within two working days of the receipt of request from the unit holder
MFs must ensure that the repurchase price of an Open Ended Scheme is not lower than 95% of the Net Asset Value(NAV), when determining the price of the units.
Segregate & Ring-fence Assets and Liabilities
In addition to the existing requirement of trustees and AMCs to segregate bank accounts and securities accounts, SEBI has asked to segregate and ring-fence assets and liabilities of MF schemes.
What is Ring Fence?
A ring-fence is a virtual barrier that segregates a portion of an individual’s or company’s financial assets or profits from the rest without being operated as a separate entity.
Recent Related News:
On September 10, 2020, the Securities and Exchange Board of India (SEBI) publicized a partially modified portfolio structure for multi-cap mutual funds category through a circular stating minimum investment in equity & equity related instruments and definition of large-cap, mid-cap and small-cap.
About Securities and Exchange Board of India (SEBI):
Establishment– April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
Chairman– Ajay Tyagi
Headquarters– Mumbai, Maharashtra