Regulatory Framework for Sponsors of a Mutual Fund
Summary
This circular introduces an alternative regulatory framework for sponsors of Mutual Funds to enhance industry penetration and facilitate new players. It establishes specific eligibility criteria regarding the deployment of liquid net worth by Asset Management Companies and conditions for acquiring AMCs. The document also outlines rules for Private Equity funds acting as sponsors, procedures for sponsor disassociation leading to self-sponsored AMCs, and mechanisms for re-association if self-sponsorship fails.
Text
In order to enhance the penetration of the Mutual Fund industry, and to facilitate new types of players to act as sponsors of Mutual Funds, an alternative set of eligibility criteria is introduced.
SEBI (Mutual Funds) Regulations, 1996 have been amended vide notification No. SEBI/LAD-NRO/GN/2023/134 dated June 26, 2023 based on Working Group recommendations.
An AMC shall deploy the minimum net worth required in assets as may be specified by SEBI.
AMCs shall deploy the minimum net worth required either in cash, money market instruments, Government Securities, Treasury bills, Repo on Government securities, or in listed AAA rated debt securities without bespoke structures... such investments shall be unencumbered.
In case of change in control of an existing AMC due to acquisition of shares, the sponsor shall ensure that the positive liquid net worth of the sponsor or funds tied up by the sponsor is to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher.
The cost of acquisition may also be funded out of borrowings by a sponsor but in such cases, the sponsor shall have sufficient other assets to encumber for borrowings other than the shares of the proposed AMC.
The sponsor’s stake in the proposed AMC shall be free from any encumbrance at all times.
Minimum incremental capital contribution required in the AMC shall not be funded through borrowings and shall be funded only out of the net worth of the acquirer.
Second proviso to Regulation 7 (a) of the MF Regulations permits to allow a private equity fund or a pooled investment vehicle or a pooled investment fund to sponsor Mutual Funds subject to conditions as may be specified by SEBI.
Among the pooled investment vehicles, only the private equity funds (PEs) can sponsor a Mutual Fund.
The applicant PE or its manager shall have a minimum of five years of experience... and an experience of investing in the financial sector, where it should have managed committed and drawn-down capital of not less than INR 5,000 Cr.
There shall be no off-market transactions between the schemes of the Mutual Fund and Sponsor PE; or Schemes/ Funds managed by the manager of the sponsor PE; or Investee Companies of schemes/ funds of sponsor PE.
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Source: SecMarx — Regulatory Framework for Sponsors of a Mutual Fund. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.