SEBI Floats Consultation Paper to Relax Business Restrictions on Mutual Funds

SEBI has issued a consultation paper suggesting changes to relax the current rules governing the operations of Asset Management Companies (AMCs) managing Mutual Funds. One of the key proposals is to allow mutual funds to act as Points of Presence (POP) for pension funds and also serve as global fund distributors under specific conditions. 

These steps aim to provide greater flexibility in how AMCs can function, including offering investment advisory and management services to pooled investment vehicles such as family offices or offshore funds with a limited number of investors. Feedback on these proposals has been invited until 28th July.

Expanded Role for AMCs and Governance Requirements

The paper proposes that subsidiaries of AMCs registered as pension funds be allowed to offer POP services and receive relevant compensation from the Pension Fund Regulatory and Development Authority (PFRDA). However, AMCs must safeguard the interests of mutual fund investors.

Additionally, AMCs may act as global distributors via overseas branches, though they cannot accept commissions for distributing direct mutual fund plans. Distribution and management of non-mutual fund schemes abroad must comply with local foreign regulations. 

SEBI also considers easing the broad-basing requirement, which currently restricts AMCs from catering to funds with fewer investors, provided robust governance measures are in place to prevent conflicts of interest.

Fee Regulations and Investor Protection

To avoid misuse of mutual fund resources for non-broad-based funds, AMCs may be required to allocate resources proportionately based on the revenue earned from such clients. Measures are also being recommended to prevent front-running, including strict internal policies, the use of automated order systems, and clear separation of roles. 

SEBI has suggested banning security transfers between pooled non-broad-based funds and mutual fund schemes to avoid unfair pricing. Furthermore, fee ranges for such pooled clients may be regulated, and performance-linked fees could be prohibited to prevent preferential treatment. 

AMCs must also ensure that confidential information from mutual fund operations is not used to benefit non-broad-based funds, protecting retail investors from any potential disadvantage.

Read More: SEBI Integrates Proxy Advisory Recommendations into Investor App; Boosts Market Surveillance!

Conclusion 

SEBI’s proposed reforms aim to enhance the operational flexibility of Mutual Funds while ensuring robust safeguards to protect investor interests. By introducing clear governance norms, regulating fees, and maintaining transparency, SEBI seeks to strike a balance between expanding AMC activities and upholding the integrity of mutual fund operations. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.