SEBI caps cross-shareholding in mutual funds at 10%

PTI Mumbai | Updated on January 09, 2018 Published on December 28, 2017

(from right) Ajay Tyagi, Chairman, SEBI and G. Mahalingam, Whole Time Member addreesing a press conference in Mumbai on Thursday   -  SHASHI ASHIWAL

To avoid any potential conflict of interest, markets regulator SEBI on Thursday decided to put a 10 per cent cross-shareholding cap in mutual funds.

The new measure may have an impact on the shareholding pattern of UTI Asset Management Company (AMC), requiring its promoters to lower their stake to 10 per cent or below in next one year.

State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Life Insurance Corporation (LIC) are having their own mutual funds and at the same time they hold 18.24 per cent stake each in UTI AMC.

The board of Securities and Exchange Board of India (SEBI) has decided that any shareholder owning at least 10 per cent stake in an AMC will not be allowed to have 10 per cent or more stake in another mutual fund house operating in the country, SEBI Chairman Ajay Tyagi told reporters here.

Further, a sponsor of a mutual fund, its associates, group company and its asset management company will be restricted from holding 10 per cent or more stake in a rival AMC.

In addition, such entities will be barred from having a representation on the board of another mutual fund house.

The moves are aimed at avoiding any conflict of interest and help in strengthening the governance structure for mutual funds.

Advisory and distributor roles

In addition, SEBI has decided to come out with a fresh consultation paper on Investment Advisor in order to segregate advisory and the role of a distributor, Tyagi said.

However, mutual fund distributors, while distributing the investment product, can explain the features of the product to client.

To prevent the conflict of interest that exists between ‘advising’ of investment products and ‘selling’ of investment products by the same entity/person, there should be clear segregation between these two activities, the regulator said.

Existing registered investment advisors, who are offering distribution services through a separate division, would be given an option to choose between providing investment advice and distribution service before March 31, 2019.

From April 1, 2019, any person, including their immediate relatives or holding or subsidiary or associate entity shall offer either investment advice or distribution services.

SEBI had first issued a discussion paper that outlined the road map of distribution and advice in October 2016 and a revised consultation paper was issued in June.

Further, the regulator will provide an additional method — qualified institutional placement (QIP) — route for listed entities to achieve the minimum public shareholding requirements.

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Published on December 28, 2017
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