Small MFs set to plan new launches with Sebi's new offer

India’s small mutual fund (MF) houses, yet to meet the new net worth rule of Rs 50 crore, are pleased at the capital market regulator allowing them to launch a maximum of two schemes annually till they meet the threshold.

Since the net worth threshold was scaled up, it was increasingly becoming difficult for these fund houses to launch schemes as they were considered non-serious entities. However, the Securities and Exchange Board of India (Sebi) has eased the process, with caveats.

“Such permission would be considered on a case to case basis, depending on such asset management companies (AMCs) demonstrating that serious efforts are being made by them to meet the net worth requirements within the prescribed timelines,” said Sebi.

Waqar Naqvi, chief executive officer (CEO) of Taurus MF, said: “It’s a positive move from the regulator and has given relief to players like us. Now, since there is an easing, we will start planning new launches.”

Currently, there are about 10 AMCs below the floor of Rs 50 crore in capital. These include Taurus, Escorts, PPFAS, Quantum, Sahara and Shriram, as on end-March.

Dhirendra Kumar, CEO of fund tracking firm Value Research, said: “It’s an extremely positive move from the regulator, signalling that regulations are not meant to drive the smaller players out of business. With new launches, it will help these fund houses reach the net worth threshold.”

Early this year, when Sebi scaled up the capital infusion requirement by five times from Rs 10 crore to Rs 50 crore, the move caught many by surprise. Most experts had been anticipating Rs 25 crore as the new norm. Though the regulator had given three years ending May 2017 to comply, the step had invited criticism from several stakeholders. Now, with things settling, there is increasing acceptance and seriousness among fund houses to meet what the regulator wants.

Niranjan Risbood, director (fund research) at Morningstar India, said: “The original intent of the regulator was to have serious players in the business. With this move, at least these players can increase their revenues by launching schemes and meet the net worth criteria. I believe more AMCs will get to fit in the new norms, sooner or later.”

So far this year, about 55 schemes in the equity category have been launched, garnering reasonable assets. However, almost all these were from large or mid-sized fund houses.