India’s mutual fund market is gradually being transformed, thanks in part to a proposed Sebi regulation that will relax restrictions on mutual fund business expansion under Regulation 24.
Breaking Down the Rules
The regulation, implemented in 2011, aimed to prevent mutual fund managers from taking on other business activities that may compromise their independence and impartiality. But the industry has been calling for more leniency, and the relaxation of these rules may signal a bigger shift towards the securitization of the mutual fund market.
- Pre-2011, AMCs were allowed to undertake certain activities without a separate PMS license, provided they segregated key personnel and systems.
- The original rule restricted AMCs from undertaking activities that could compromise their independence and impartiality.
- The proposed relaxation allows AMCs to offer advisory and portfolio management services to non-broad-based pooled vehicles.
The Relaxation of Rule 24(b)
The Sebi proposal to relax Regulation 24(b) is seen as a positive development by the industry. According to Swarup Anand Mohanty, vice-chairman and CEO of Mirae Asset Investment Managers (India), the relaxation will “enhance India’s competitiveness as an investment destination” by allowing AMCs to engage with global investors such as family offices, offshore funds, and institutional mandates.
“In the past, mutual fund managers were limited in their ability to work with a wide range of investors. By relaxing Regulation 24(b), we can now expand our operations and engage with a broader range of investors, including those who are not traditionally considered to be mutual fund investors.”
— Swarup Anand Mohanty, vice-chairman and CEO of Mirae Asset Investment Managers (India)
Addressing Conflicts of Interest
The relaxation of Rule 24(b) aims to address conflicts of interest that may arise due to the differential fee structure for mutual funds versus other products.
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Previous rules: AMCs were required to restrict themselves to management of funds of only ‘broad-based’ entities with at least 20 investors, and no single investor accounting for more than 25% of the corpus of the fund.
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Current situation: The industry has matured, and mutual funds are now a mainstream investment option rather than a niche offering.
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