Sebi hikes net worth to set up mutual funds

Mumbai: Markets regulator Securities and Exchange Board of India (Sebi) on Thursday raised the minimum net worth of asset management companies to ₹ 50 crore, up from ₹ 10 crore earlier, a move that is likely to see small mutual fund houses scramble for more money.

Raising the minimum worth will ensure that mutual funds attain a reasonable size and are able to work towards financial inclusion, Sebi said in a statement.

“I expect Sebi to issue a circular soon where it will explain the modalities on how soon or otherwise this net worth will be increased,” said Sandesh Kirkire, chief executive officer of Kotak Mahindra Asset Management Co. Ltd. “For new firms, obviously, it will be with immediate effect; but I hope that Sebi gives reasonable time for existing (small) firms to comply.”

The regulator’s move is unjustified, an expert said.

“This decision is completely misplaced and without any justification. Nearly everybody opposed it in the Sebi meetings when the Sebi mutual fund committee members had debated, except the Sebi officials present there. Even the committee members who were leaning towards increasing the net worth were of the view that the increase, if done, should be reasonable, like ₹ 25 crore. But to increase it to ₹ 50 crore is absurd,” said Dhirendra Kumar, chief executive officer of Value Research, a mutual fund tracker. “Smaller fund houses have brought in a lot of innovation.”

Net worth is not the right yardstick to measure the seriousness of an asset management company, said Kumar, who is also a member of Sebi’s mutual fund advisory committee.

To bring in more ownership towards fund performance, Sebi has introduced the concept of seed capital at 1% of the amount raised by each scheme, which has to be invested by the fund houses in all open-ended schemes, subject to a limit of ₹ 50 lakh.

“It’s likely that existing schemes will also have to align to this directive,” said the chief executive officer of a fund house who did not want to be named.

The regulator has also proposed that the limit of Section 80-C of the Income Tax Act may be raised to ₹ 2 lakh from the current ₹ 1 lakh for equity-linked savings schemes and an additional tax incentive of ₹ 50,000 be introduced for a long-term product called mutual fund-linked retirement plan.

The regulator said that the Employees Provident Fund Organisation (EPFO) should be allowed to invest up to 15% of their corpus in equities and mutual funds and employees who earn more than ₹ 6,500 a month should be given option that a part of their contribution be invested in a mutual fund scheme of their choice.

Sebi has also proposed introducing capital market concepts and financial planning as core curriculum in schools and colleges.