Market regulator Sebi on Wednesday decided to relax profitability criteria for becoming a mutual fund sponsor with a view to facilitating innovation and expansion in the MF sector.
The regulator has also decided to segregate and ring-fence assets and liabilities of mutual fund schemes, Sebi said in a statement after its board meeting.
This is in addition to the existing requirement of segregating bank accounts and securities accounts.
The Sebi board also approved proposals including dispensing with the requirement to issue physical unit certificates, reducing maximum permissible exit load and reducing the timeline for payment of dividend.
Also, the board cleared a proposal for permitting other modes for payment of dividend and providing clarity with respect to payment of interest and penalty in case of delay in dividend payment.
With regards to sponsor eligibility, Sebi said sponsors that are not fulfilling profitability criteria at the time of making application, will also be considered eligible to sponsor a mutual fund.
This is subject to having a net-worth of not less than Rs 100 crore for the purpose of contribution towards the net-worth of the Asset Management Company (AMC).
It, further, said networth of the AMC has to be maintained till the time AMC makes profit for five consecutive years.
Omkeshwar Singh, Head RankMF at Samco Securities, commented that relaxed rules will open gates for new players as sponsor to mutual funds with high net-worth, with no profitability.
At present, a sponsor is required to have profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year, now that requirement is not mandatory for the sponsor of mutual funds, he added.
To streamline the manner of computation of net-worth of the AMC, Sebi decided to make it mandatory for all AMCs to maintain the minimum net-worth on a continuous basis.
On segregation and ring-fencing of assets and liabilities of mutual fund schemes, Sebi said, "All assets and liabilities of each scheme shall be segregated and ring-fenced from other schemes of the mutual fund".
The regulator, in consultation with various stakeholders, undertook a detailed exercise on review of mutual fund rules in order to examine certain policy proposals, to remove redundant provisions, to align with the existing applicable Acts and other Sebi Regulations, and also to address certain operational difficulties.