MF advisory panel to discuss norms for capital adequacy

Shishir Sinha New Delhi | Updated on July 16, 2012

SEBI will finalise a package for the industry after the proposal

The Mutual Fund Advisory Committee of the Securities and Exchange Board of India is expected to discuss norms for capital adequacy and liquid funds besides others in its meeting on Tuesday.

Change in expenses ratio and providing flexibility are also on the agenda of the meeting. Based on the recommendations, the SEBI board, in its next meeting, will finalise a package for the mutual fund industry. A person familiar with the development told Business Line, “Earlier, there was thinking to enhance the minimum capital requirement for setting up an asset management company (AMC) for operating mutual fund companies. But a need is felt to change this thinking along with bringing in some conditions.”

A deterrent

At present, the minimum capital requirement is Rs 10 crore for setting up an AMC. The thinking was to raise this to Rs 50 crore. This issue was discussed in the last meeting of the advisory committee.

“However, it was felt that such a move could deter small players to enter into mutual fund industry and restrict competition,” he added.

So, instead of enhancing the capital requirement, the proposal is to ask the fund houses to bring at least Rs 50 lakh in any new scheme they launch. This may be termed as seed capital.

Call on flexibility

This will also give confidence to the investors. “You may call it the first lot of money to be in and last money to be out from a scheme,” he explained.

The committee is also likely to finalise its views on raising the total expense ratio along with providing flexibility. Expense ratio is a measure of what it costs an investment company to operate a mutual fund.

Operating expenses are taken out of a fund's assets and lower the return to a fund's investors. So, will any increase hurt the investor’s interest? Experts say, no as the impact will be minimal.

Published on July 16, 2012

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