SEBI, by way of its Notification dated June 26, 2023, had amended the SEBI (Mutual Funds) Regulations, 1996 (‘MF Regulations’) to inter alia introduce alternative eligibility criteria, permit private equity fund (‘PE Funds’) or pooled investment vehicles (‘PIV’) or pooled investment funds to sponsor mutual funds. Our write-up on the aforesaid amendments to the MF Regulations can be accessed here.
Pursuant to the abovementioned amendments, SEBI has, by way of a Circular dated July 7, 2023, prescribed the regulatory framework for sponsors of mutual funds. The key provisions of the Circular are set out below:
i. Deployment of Liquid Net-worth: The Circular specifies the assets in which an Asset Management Company (‘AMC’) can deploy its minimum net-worth. Such assets include inter alia cash, money market instruments, Government securities, treasury bills and such other instruments as set out in the Circular. Such investments are required to be unencumbered;
ii. Acquisition of an AMC: In case of change of control of an existing AMC due to acquisition of its shares, SEBI has permitted the sponsor to borrow the cost of acquisition, provided the sponsor has sufficient other assets to encumber for borrowings. The sponsor’s stake in an AMC is required to be free from any encumbrance at all times; and
iii. Pooled Investment Vehicles as Sponsor: While the Notification provided for PIV, PE Funds, or a pooled investment fund to sponsor a mutual fund, the Circular provides that among PIV, only PE Funds can sponsor a mutual fund, subject to compliance with safeguards and guidelines prescribed in the Circular.
The clarification on the deployment of liquid net worth by an AMC will come into force from January 1, 2024, while the remaining provisions of the Circular will come into effect from August 1, 2023.