The Securities and Exchange Board of India (Sebi) is currently re-evaluating the restrictive regulations governing asset management firms, specifically focusing on Clause 24(B). This clause restricts these companies to performing only management and advisory functions related to pooled assets. During the 18th CII National Mutual Fund Summit, executive director Manoj Kumar emphasized the necessity for this significant review, acknowledging that many industry insiders view regulation 24(B) as a substantial barrier.
Industry Insights on Regulation 24(B)
In a subsequent panel discussion, Sundeep Sikka, the CEO of Nippon Life India Asset Management, pointed out a critical challenge facing foreign investments. He stated that Japanese capital is eager to enter the Indian market, but Clause 24(B) stands in the way. “A major overhaul is essential,” he noted, highlighting that relaxing this regulation could significantly attract more foreign capital into India.
Current Exemptions and Future Expectations
Interestingly, Clause 24(B) is not applicable to funds managed by Category I and Category II foreign portfolio investors, which are classified as broadly regulated funds under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014. A broad-based fund is defined as one with at least 20 investors and no single investor holding more than 25% of the fund’s total assets. Industry experts speculate that Sebi might consider easing these investor limits to encourage greater participation.
A Comprehensive Review Ahead
Kumar expressed concern over the complexity of mutual fund regulations, noting that they are among the most extensive within Sebi’s framework. “This necessitates a thorough review,” he stated, adding that the chairman has already indicated a commitment to reform. The goal is to foster a more conducive environment for industry growth.
Addressing Market Concerns
He also acknowledged some discomfort in the market due to recent regulatory changes. “For instance, our institutional mechanism framework has undergone extensive back-testing, yet we still face issues that need resolution,” he explained. Furthermore, changes to the "skin in the game" requirement have encountered operational challenges, which the regulator is actively addressing. “We pride ourselves on being dynamic and responsive,” Kumar added.
Moving Forward with Fewer Restrictions
Regarding Clause 24(B), Kumar asserted that it hampers industry players from fully utilizing their expertise and expanding their operations. “Our objective is to eliminate as many restrictions as we can,” he affirmed. Additionally, Sebi has reached out to the Association of Mutual Funds in India to streamline the categorization and naming conventions of mutual funds, aiming for greater clarity and efficiency in the sector.
This comprehensive review of regulation 24(B) could potentially reshape the landscape for asset management companies in India, paving the way for increased foreign investment and more robust market participation.
