Sebi asks mutual fund houses to invest in NFO depending on risk level

Capital markets regulator Sebi has amended mutual fund rules, which require fund houses to invest in their own schemes depending on the risk level to ensure 'skin in the game'.

The current rule requires an investment of 1 per cent of the amount raised in a New Fund Offer (NFO) or an amount of Rs 50 lakh, whichever is less.

In a notification, Sebi said the asset management companies (AMCs) will have to invest in their own schemes based on its risk level.

"The asset management company shall invest such amounts in such schemes of the mutual fund, based on the risks associated with the schemes, as may be specified by the Board from time to time," Sebi said.

However, the regulator has not quantified the minimum amount that needs to be invested by the fund houses.

According to market experts, fund houses will have to invest more in riskier schemes like equity funds compared to less risky offers like debt funds.

In case of violation of the new provisions, Sebi may pass an order suspending the launch of any scheme of a mutual fund for a period not exceeding one year and forfeit the amount invested by an asset management company in any of its schemes.

This is subject to the condition that the no order will be passed without giving an opportunity of hearing to the party, the regulator said.

The new mutual fund rules will come into force on the 270th day from the date of their publication in the official Gazette, according to the notification dated August 5.

In June, Sebi's board had approved amendment to mutual fund rules to provide for investment of a minimum amount as 'skin in the game' in the MF schemes by AMCs based on the risk, instead of the current requirement of 1 per cent of the amount raised in NFO or Rs 50 lakh, whichever is less.

In a separate notification dated August 3, the regulator said it will have the right to investigate into complaints received from investors and clients in respect of the rating of securities.

Sebi will have the power to "investigate into complaints received from investors and clients in respect of the rating of securities or any other person on any matter having a bearing on activities of credit rating agency which relate to the rating of securities that are listed or proposed to be listed on a stock exchange."

To give effect to this, the Securities and Exchange Board of India (Sebi) has amended credit rating agencies rules.