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SEBI allows fintechs to apply for mutual fund licenses with relaxed norms

The market regulator has relaxed the profitability criteria for companies looking to start mutual fund businesses

December 16, 2020 / 07:42 PM IST
(Image: Forbes)

(Image: Forbes)

In its board meeting held on Wednesday, the Securities and Exchange Board of India (SEBI)  decided that even sponsors that don’t meet the profitability criteria can apply for mutual fund (MF) licenses.

“This move will help fintechs that are looking at entering the mutual fund (MF) industry to seek MF license,” says the chief executive officer of a fund house, requesting anonymity.

However, the fintech company will have to demonstrate the existence of a Rs 100 crore net-worth in the mutual fund, till it records five years of continuous profitability.

Easing of norms

Without this relaxation, it may have been difficult for fintechs to get into the fund management business, as SEBI regulations required both the profitability track-record of the sponsor and a minimum net-worth of Rs 50 crore.

Close

In its statement SEBI said that the move envisaged to “facilitate innovation and enhanced reach to more investors at a a faster pace, including tech-enabled solutions.”

MF intermediaries say it may not be easy for fintech players to compete with other MFs, unless they are able to differentiate.

"There are 40-plus fund houses in the industry. While a fintech company entering the fund management business could quickly capture assets through its own distribution arm, it would need to back it up with performance and differentiation to get a strong foothold in the industry," says Rushabh Desai, MF distributor.

Tech entrepreneur Sachin Bansal, former co-founder of Flipkart had also been in the process of acquiring Essel Mutual Fund through his company BAC Acquisitions.

Fintech players that are in the business of distributing mutual funds include the likes of PayTM, Zerodha, Groww and Kuvera. Earlier in the year, Zerodha had approached SEBI for an MF license.

Bajaj Finserv, NJ India and Samco Securities are other players that are awaiting final approval from SEBI on their applications after getting an in-principle nod from the regulator.

Continuous tracking

SEBI also wants MFs to streamline the manner in which they compute their net-worth and wants them to maintain the requirements on a continuous basis.

Among other changes, the market regulator said that there should be ring-fencing of every scheme’s assets and liabilities from those of every other scheme. Industry insiders say that this was already a widely-followed practice, but SEBI may have wanted this to be a part of the regulatory framework.

Regulations already stated segregation of bank and securities accounts for each mutual fund scheme.

SEBI also approved the reduction in the timeline for dividend payment, decrease in the maximum permissible exit loads and did away with the requirement of issuing physical unit certificates, among others a few other proposals.
Jash Kriplani
first published: Dec 16, 2020 06:26 pm

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