Context:
The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing relaxation of the broad-basing requirement for pooled investment funds, following representations by the Association of Mutual Funds in India (AMFI) and other industry stakeholders.
What Are Non-Broad-Based Funds?
- Funds with fewer than 20 investors or where one investor holds more than 25% of the corpus.
- Previously, SEBI regulations favored broad-based funds to mitigate risks related to preferential treatment or insider dealings.
Key Proposals by SEBI
- Advisory Services via Separate Unit
- AMCs will be allowed to offer advisory services to pooled funds (with fewer than 20 investors or a single investor holding over 25% of the corpus) through a distinct and ring-fenced unit with dedicated personnel and separate infrastructure.
- Target Funds
- Covers pooled non‑broad‑based funds, including offshore institutional funds and family-office structures that didn’t qualify as broad-based.
- Governance & Conflict Safeguards
SEBI’s proposal includes:- Defined trade allocation and disclosure policies
- Bans on performance-linked fee structures
- Adherence to insider-trading norms
- Operational segregation to prevent conflicts between mutual fund operations and advisory services
- Expanded Ancillary Services
- AMCs and their subsidiaries may also:
- Serve as global distributors of their investment vehicles
- Act as Points of Presence (PoP) for pension schemes (in compliance with PFRDA guidelines)
- Undertake fund distribution and marketing activities aligned with fund management
- AMCs and their subsidiaries may also:
Why It Matters
- Business Expansion: Facilitates entry into institutional advisory and structured products
- Investor Choice: Allows high-net-worth individuals, family offices, and foreign partners to access AMC expertise
- Regulatory Balance: Ensures investor protections and market integrity while enabling AMCs to diversify
BS & TET
