The Securities and Exchange Board of India (Sebi) on Wednesday paved the way for fintech companies and other startups to set up asset management companies (AMCs) by adjusting the eligibility criteria. The market regulator also tightened the participation standards for companies that were put back into operation after the Corporate Insolvency Resolution Process (CIRP) to ensure fair pricing.
Sebi said a company can sponsor a mutual fund even if it doesn’t meet profitability requirements. However, the company should have a net worth of Rs.100 billion. Currently, MF Sponsors are required to have a profitability record and maintain net worth of Rs 50 billion.
Industry players said the move would encourage new age fintech companies like Paytm, PhonePe and MobiKwik to set up mutual fund units.
“Many fintech companies are far from becoming profitable. Sebi offsets the risks and says you bring double the net worth, ”said Dhirendra Kumar, CEO of Value Research.
Sebi said the stricter wealthy Kreteria could be eased after the AMC made profits for five years.
“The change in the eligibility criteria for sponsoring a mutual fund is positive for emerging market participants such as fintech platforms looking to launch a fund,” added Kaustubh Belapurkar, director (fund research), Morningstar Investment Advisers.
Many fintech companies have announced their intention to venture into the domestic mutual fund space, whose asset growth has soared from Rs 10 trillion in 2014 to Rs 30 trillion at the end of last month. Currently the industry has 40+ players, but the bulk of its assets are concentrated in the five largest players. Despite the high growth, many foreign players have left the business.
“As Sebi has tightened MF regulations, it is becoming clear that more players need to be encouraged to set up AMCs to ensure growth. We have already seen many foreign sponsors leave. The new eligibility criteria could encourage young, tech-driven companies to step into the MF battle, ”said Joydeep Sen, advisor at PhillipCapital Fixed Income Desk.
Meanwhile, Sebi said that companies restarting after the CIRP will need at least 5 percent of the public stake, which must be increased to 10 percent within 12 months and to 25 percent within three years.
The decision to optimize free float norms for CIRP companies is based on the sharp rise in Ruchi Soya Industries’ shares. The company’s shares had risen more than 450 times after being listed again under the CIRP following its takeover by Pantanjali Ayurved. The rise in the extremely low free float of less than one percent had sparked a debate about whether Sebi and the stock exchanges should rethink the rules to ensure fair pricing.
Other decisions the Sebi board made at a meeting on Wednesday included the removal of the minimum contribution from funders and lock-in norms for companies raising additional capital, as well as changes to the fee structure for investment advisors and relaxation of the rules for investment committees alternative investment funds (AIF).
The move to eliminate the need to bring in the promoter contribution of at least 20 percent for companies launching more public offerings will open up that avenue for fundraising, legal experts said.