AMC stocks rise over 3% as Sebi mulls easing mutual fund business norms

Economic Times

2 days ago

Shares of asset management companies (AMCs) such as HDFC AMC, Aditya Birla Sun Life AMC, Nippon Life India AMC, and others rose up to 3.5% on Tuesday after the Securities and Exchange Board of India (Sebi) proposed easing regulations related to mutual fund (MF) business operations.
ADVERTISEMENT HDFC Asset Management Company shares rose as much as 3.3% to touch a high of Rs 5,162.30 during the session. Nippon Life India Asset Management also saw strong buying interest, climbing 3.2% to hit Rs 804.95. Aditya Birla Sun Life AMC advanced 3.15% to reach a day's high of Rs 837.65, while UTI Asset Management gained 1.4%, hitting an intraday peak of Rs 1,327.95.
In a circular issued on Monday, Sebi proposed relaxing the broad-basing requirement under Regulation 24(b) of the MF Regulations. This would allow AMCs to offer management and advisory services to non-broad-based pooled funds, subject to stringent governance standards and regulatory oversight.
Currently, AMCs are permitted to offer such services only to broad-based pooled assets. Those seeking to serve non-broad-based funds must obtain a Portfolio Management Services (PMS) licence.Sebi acknowledged that several AMCs have raised concerns that the existing rules limit their ability to compete with other intermediaries offering similar services. The restrictions, they said, have acted as a barrier to entry and hindered access to new opportunities in managing pooled assets—an area where AMCs already possess strong domain expertise.'However, restrictions due to the broad-basing criteria do not permit AMCs to take up such mandates,' Sebi noted in the circular.
ADVERTISEMENT Sebi has sought public comments on the proposal by July 28.In addition, Sebi has proposed an expansion of permissible activities for AMCs and their subsidiaries, allowing them to undertake operations ancillary to their core business—such as distribution and marketing services. These activities must fall under the regulatory oversight of a domestic or foreign regulator, ensuring that all such operations remain within the ambit of a recognized regulatory framework, the circular added.
ADVERTISEMENT The circular has addressed four potential conflicts that may arise if these norms are relaxed. These include: diversion of resources and fees charged, contra-trade and front running, trading based on inside information, and inter-business transfer of assets on unfavourable terms to mutual fund investors.AMCs will be required to ensure that resources allocated to pooled non-broad-based funds are proportionate to the fees earned from such funds, and that mutual fund (MF) investors are not made to bear the cost of these products. Sebi may also prescribe a range of fees that AMCs can charge from their pooled non-broad-based funds.
ADVERTISEMENT Key personnel responsible for investment decision-making and fund management will need to be segregated. A fund manager may be common only if the investment objectives and asset allocation are the same and replicated across all the funds managed by that individual, the circular stated.
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