Small mutual funds may approach CCI

At present, 19 fund houses do not meet the new net worth norms. They account for six per cent of the mutual fund sector's assets

Hit by the Securities and Exchange Board of India (Sebi)’s decision to raise the net worth requirement, smaller asset management companies (AMCs) are considering approaching the Competition Commission of India (CCI).

Last week, Sebi had raised the net worth requirement for AMCs from Rs 10 crore to Rs 50 crore, a move that surprised many, as experts had recommended the net worth capital requirement at Rs 25 crore or less.

According to officials at small fund houses, the new norms are anti-competition and favour only well-capitalised, bigger players operating in a cartel. “How can the regulator have the same net worth (criterion) for all players, irrespective of their asset size? Do only rich parents’ companies have the right to run fund management businesses?” asked the executive.

Currently, 19 fund houses do not meet the new net worth norms. These account for six per cent of the sector’s assets. To raise net worth, Sebi has given these fund houses three years.

A sector executive told Business Standard, “The decision of raising net worth was not at all needed. We are not banks, we are a pass-through vehicle of investments…I am ready to go to the Supreme Court if promoters back me…It’s a question of survival; if I do not have capital, it does not mean I am not serious.”

Companies that do not want to challenge Sebi’s authority appeared to be supportive of the step. “I doubt whether higher net worth will have its desirous results. I do not want to lock horns with the regulator for obvious reasons, but I am delighted if others take the case up to the CCI,” said a CEO.

If raising net worth had solved the sector’s redemption problems, it would already have been done, they said.

However, lawyers say such regulatory decisions are hard to challenge, even in high courts. Ramesh Vaidyanathan, managing partner at Advaya Legal (a law firm that advises on competition issues), said, “I do not think there is any merit in challenging the Sebi regulations. The regulator is free to determine the appropriate criteria to classify industry players, and its actions cannot be successfully challenged in the high court. Unless these fund houses prove such regulations are anti-competitive, there is very little scope for any challenge.”

Tussles between big and small fund houses aren’t a secret. Earlier, there have been various instances of small companies talking of de-associating themselves from industry body Association of Mutual Funds in India (Amfi). They allege Amfi is being ruled by the big boys, which tend to mould regulations in their favour. The charge has been denied by large companies.