Even though foreign funds have joint venture with Indian AMCs, it cannot outsource its advisory service to the Indian arm due to SEBI regulations
| Photo Credit:
HEMANSHI KAMANI
Capital markets regulator SEBI plans to allow asset management companies to provide advisory services to pooled non-broad based funds to expand their business opportunities. This move will allow Indian AMCs to advise foreign funds interested in investing in India, according to a consultation paper released by the regulator on Monday.
Even though foreign funds have joint venture with Indian AMCs, it cannot outsource its advisory service to the Indian arm due to SEBI regulations. Currently, AMCs are restricted to manage funds of only ‘broad based’ entities with at least 20 investors and no single investor accounting for over 25 per cent of the corpus of the fund.
Level playing field
Additionally, the regulations restrict AMC to undertake certain other activities such as providing services to non-broad based funds. However, such services were provided through the portfolio management service license, distributing financial products and sharing of resources across various functions.
Over the years, several AMCs have highlighted that the broad basing requirement for managing funds has proven to be a barrier and does not provide level playing field to AMCs compared to other intermediaries engaged in providing advisory services to non-broad based funds.
While AMCs can provide portfolio management and advisory services through a separate unit, very few AMC have taken that route due to high cost of hiring a separate infrastructure and advisory team.
During discussions, the industry also highlighted that there are opportunities related to management and advisory of pooled assets where it has the domain expertise. However, restrictions due to the broad basing criteria do not permit AMCs to take up such mandates, said SEBI.
AMFI has also represented that AMCs may be facilitated to expand their business opportunities by relaxing the broad basing requirement.
Subsequently, SEBI has issued a consultation paper to review and consider relaxing the broad basing requirement and permitting AMCs to serve pooled non-broad based funds, subject to strong governance and regulatory controls to address concerns related to conflicts of interest situations.
Investors can share their views on the consultation paper by July 28, it said.
Safeguarding investors
To ensure the interest of MF investors, SEBI has proposed that AMCs may be required to ensure that the resources dedicated to pooled non-broad based funds should be proportionate to the fee earned by AMC from such funds and fees from investors in mutual fund schemes and that mutual fund investors are not made to bear the cost of servicing mandates for pooled non-broad based funds.
SEBI has also proposed to cap the fees charged to non-broad based funds and restrict the performance linked fees. AMCs should also disclose the performance of pooled non-broad based funds compared to mutual fund schemes on a half yearly basis to all investors.
The key personnel involved in investment decision-making, back office operations or fund management, including fund managers for pooled non-broad based funds need to be segregated, it said.
To address the issue of front running by pooled non-broad based funds, AMCs have to follow the current rules on the principle of fair and equitable treatment besides following the current norms on Prohibition of Insider Trading.
Additionally, SEBI said the information used for the advantage of pooled non-broad based fund should not put mutual fund investors at any disadvantage.
Published on July 7, 2025