What’s Happening?
- The Securities and Exchange Board of India (Sebi) is conducting a comprehensive review of Regulation 24, which governs the business activities of Asset Management Companies (AMCs).
- Manoj Kumar, Executive Director at Sebi, confirmed the development, indicating a potential policy shift.
Current Regulatory Framework
- AMCs are restricted from engaging in businesses that conflict with their core function: managing mutual funds.
- They must:
- Seek Sebi’s approval to offer foreign fund consultancy.
- Maintain strict separation (“hard walls”) between different fund accounts.
Rationale Behind Restrictions
- The primary aim is to prevent AMCs from prioritizing their own profits over investor interests.
- Regulations are intended to reduce conflicts of interest and ensure investor protection.
Why a Review is Needed
- Critics argue that the current rules may be too restrictive, limiting AMCs from:
- Diversifying revenue streams
- Leveraging their expertise in other financial services
- A more balanced approach may involve:
- Enhanced disclosures about AMCs’ non-core activities
- Allowing investors to make informed decisions about such engagements
Investor Risk Perspective
- The evolving view suggests that investors are aware of inherent risks and that over-regulation may stifle innovation and growth.
- A shift toward greater operational freedom with transparent disclosures could be a more pragmatic regulatory stance.
