Sebi modifies framework for limited purpose clearing corporation by MFs

Sebi | Representative image

Markets regulator Sebi on Tuesday tweaked its framework pertaining to contribution of asset management companies (AMCs) for setting up of limited purpose clearing corporation by mutual funds. The regulator had in February issued guidelines wherein AMCs were required to contribute Rs 150 crore as share capital for setting up of limited purpose clearing corporation (LPCC) by mutual funds.

It was prescribed that such contribution from AMCs needs to be in proportion to the average assets under management (AUM) of open-ended debt oriented mutual fund schemes (excluding overnight, gilt fund and gilt fund with 10-year constant duration but including conservative hybrid schemes) managed by them for the financial year 2019-20. In the latest circular, Sebi said the contribution of AMCs will be based on average AUM of debt oriented schemes for the financial year 2020-21.

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This comes following representation from industry body the Association of Mutual Funds in India (Amfi). The LPCC is an entity established to undertake the activity of clearing and settlement of repo transactions.

The decision to allow the MF industry to set up LPCC was based on recommendation of a working group set up by the mutual fund advisory committee. Market experts believe that LPCC would help fund houses in tackling with redemption pressure and settle transactions in corporate bond markets.