Capital market watchdog Sebi on Friday came out with a regulatory framework for private equity funds sponsoring a mutual fund house as well as for self-sponsored Asset Management Companies (AMCs).
Under the framework for private equity (PE) funds, Sebi said the applicant is required to have a minimum of five years of experience in the capacity of fund manager and an experience of investing in the financial sector. It should have managed, committed and drawn-down capital of at least Rs 5,000 crore.
The mutual fund sponsored by the PE would not participate as an anchor investor in the public issue of an investee company, where any of the schemes and funds managed by the sponsor PE has an investment of 10 per cent or more or a board representation.
“The experience, track record, and eligibility regarding the fit and proper criteria of any applicant PE to become a sponsor of a mutual fund shall be ascertained through its conduct in the respective home jurisdiction,” Sebi said in a circular.
In a bid to boost the penetration of the industry, and to facilitate new types of players to act as sponsors of mutual funds, an alternative set of eligibility criteria is introduced. This is to facilitate the flow of capital into the industry, foster innovation, encourage competition, and provide ease of consolidation, and ease of exit for existing sponsors.
Currently, any entity that owns 40 per cent or more stake in a mutual fund is considered a sponsor and is required to fulfill the eligibility criteria.
Also, Sebi said “Self Sponsored AMCs” can continue the mutual fund business. This is subject to AMCs fulfilling certain conditions. The move would give the original sponsor flexibility to voluntarily disassociate itself from the MF without needing to induct a new and eligible sponsor.
According to Sebi, an AMC can become a self-sponsored subject to certain conditions — the AMC should have been carrying on business in financial services for at least 5 years, should have a positive net worth in all the immediately preceding five years, and net profit of Rs 10 crore in each of the immediately preceding five years.
Any sponsor proposing to disassociate should have been a sponsor of the concerned mutual fund for at least five years and the shareholding proposed to be reduced by a sponsor should not be under any encumbrance or lock-in.
Any sponsor proposing to disassociate can reduce shareholding below 10 per cent within 5 years in the case of listed AMC, while the same will be three years in the case of unlisted AMCs.