Sebi modifies investment framework for asset management companies

Market regulator Sebi on Friday modified its framework for asset management companies (AMCs) making investment from the funds raised through a new fund offer.

The move is aimed at ensuring money remains within the scheme, which will provide some cushion to mutual fund unitholders in case of winding up of a scheme, industry experts said.

Under the mutual fund norms, the sponsor or AMC is required to invest at least one per cent of the amount which would be raised in the new fund offer (NFO) or Rs 50 lakh, whichever is less in such option of the scheme.

Now, the regulator has decided that this investment will be made in growth option of the scheme. It further said for such schemes where growth option is not available, the investment will be made in the dividend reinvestment option of the scheme.

Further, for such schemes where growth option as well as dividend reinvestment option are not available, the investment will be made in the dividend option of the scheme, the regulator said in a circular.

"This will ensure that the money remains within the scheme, whether in growth or reinvestment option. The idea is that the corpus remains with scheme instead of it being paid out as dividend. This is to fence the unitholders in case there is wind up,"said Omkeshwar Singh, who is head RankMF at Samco.

"This is part of an effort to have some capital with the scheme in case something happens and scheme is wind up. This will provide some cushion to the unitholder in such conditions," he added.

This new framework will come into force with immediate effect, the Securities and Exchange Board of India (Sebi) said.