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SEBI mulls opening mutual fund ‘sponsor’ door to private equity funds

Private equity funds have been indirectly holding stakes in sponsors of mutual funds. Further, sponsors looking for an exit from the mutual fund business have not been able to find good offers from entities other than PE funds.

January 13, 2023 / 18:19 IST
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The SEBI Working Group also considered the fact that PE funds can act as a sponsor to Real Estate Investment Trusts or Asset Reconstruction Companies and that IRDAI has issued specific guidelines in 2017 allowing private equity funds and AIFs to be promoters of insurance companies.

The Securities and Exchange Board of India (SEBI) has released a consultation paper, seeking comments from the public over permitting private equity funds to operate as sponsors of mutual funds.

A sponsor is any person who either in his individual capacity or in concert with another body corporate establishes a mutual fund.  The sponsor is responsible for all the steps for setting up a mutual fund such as obtaining necessary approvals, funding, incorporating and setting up an asset management company.

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Regulation 7 of the SEBI (Mutual Fund) Regulations, 1996 mandates the eligibility criteria for the sponsors of a mutual fund. Amongst many stringent parameters, the regulations specify that the sponsor should have a sound track record and a general reputation for fairness and integrity, while simultaneously carrying on business for the last five years with a positive net worth throughout those years.

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