SEBI Considers Easing Restraints On Business Activities Of MFs
It has sought public comments by 28 July 28 on the proposals
The Securities and Exchange Board of India (SEBI) has allowed Asset Management Companies (AMCs) and their subsidiaries to offer additional fund management services, including acting as Points of Presence (POP) for pension schemes and serving as global distributors for the funds they manage or advise.
Currently, AMCs and their subsidiaries are only allowed to provide services related to management and advisory of pooled funds. The pension fund managers may be allowed to offer POP services and receive compensation as permitted by the Pension Fund Regulatory and Development Authority (PFRDA).
The market regulator has also relaxed broad-basing requirements for AMCs to serve pooled non-broad-based funds, subject to strong governance and regulatory controls. AMCs should ensure that the interests of mutual fund (MF) investors are not affected.
Presently, AMC subsidiaries can act as POP for pension funds under the direct plan, but are not allowed to receive commission or fees directly or indirectly from investors or pension funds.
According to SEBI’s consultation paper, on global distribution, AMCs can market and sell only direct plans of their mutual funds, including internationally, through overseas subsidiaries. However, they are not allowed to receive commissions or fees for distributing direct plans.
On distributing other non-MF schemes globally, subject to compliance with relevant regulations, AMCs may be allowed to manage or advise them outside India through their subsidiaries.
As regards broad basing requirement relaxation, a few conflicts could arise, such as differential fees for pooled non-broad based funds and diversion of resources, risk of contrary trade positions and front-running, risk of insider trading and inter business transfer of assets on unfavorable business terms for MF investors.
To address these concerns, the regulator has “proposed that AMCs may be required to ensure that the resources dedicated to pooled non-broad based funds should be proportionate to the fee earned by AMC from such funds vis-a-vis fees from investors in mutual fund schemes”.
In addition, MF investors should not be made to pay for servicing mandates regarding pooled non-broad based funds.