Context:
The Securities and Exchange Board of India (SEBI) is conducting a comprehensive review of Regulation 24 under the Mutual Fund (MF) Regulations.
- This clause restricts Asset Management Companies (AMCs) from engaging in business activities that conflict with the interests of mutual fund schemes.
What is Clause 24?
- Prohibits AMCs from taking up activities that may create a conflict of interest with the management of mutual funds.
- Requires SEBI’s prior approval for AMCs to offer advisory or consultancy services to foreign funds.
- Imposes strict rules for maintaining separate bank and securities accounts and dedicated fund managers for each scheme.
Industry Feedback and Challenges
- AMCs argue that the current regulation limits their ability to diversify and pursue new revenue-generating opportunities.
- The restriction affects their ability to scale advisory operations, especially in global markets.
SEBI’s Broader Review
- SEBI Executive Director Manoj Kumar indicated that Regulation 24 is “the only restrictive clause” in MF rules, warranting specific attention.
- He also noted that the overall MF regulation is among the lengthiest of all SEBI rules, and a comprehensive overhaul is under consideration to streamline compliance.
Possible Implications
- A relaxation of Clause 24 could:
- Enhance AMC competitiveness by enabling entry into lucrative adjacent sectors.
- Expand the global footprint of Indian mutual fund firms through easier cross-border advisory services.
- Align regulatory frameworks with evolving business models and market dynamics.
A Path Toward Regulatory Simplification and Market Expansion
SEBI’s move to review and potentially liberalize mutual fund regulations reflects a shift towards creating a more flexible, growth-oriented regulatory environment for AMCs. If implemented, the changes could open new business avenues and improve the global competitiveness of India’s mutual fund industry.
