SEBI Reviews Mutual Fund Regulations

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.

Mint