SEBI Considers Broadening Mutual Funds' Operational Scope

In keeping with the concept of light-touch regulation, SEBI is currently contemplating sweeping changes to its mutual fund regulations which may enable AMCs to pursue otherwise restricted business segments. The proposal is aimed at updating the regulatory environment and allowing mutual funds to operate more flexibly.

Re-evaluating Regulation 24(b)

At the heart of this reform is SEBI's review of Regulation 24(b) under SEBI (Mutual Funds) Regulations, 1996, which prohibits asset management companies from conducting activities not directly linked to fund management. Through the reevaluation of this clause, the regulator intends to empower the mutual fund industry to be able to take on the new-age financial landscape for innovation and competition.

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Introduction of Specialised Investment Funds

SEBI has in this regard put into operation a framework for Specialised Investment Funds (SIFs) with effect from April, 2025. SIFs provide an interface between traditional mutual funds and portfolio management services, giving a unique class of investors' flexibility in investment opportunities, while remaining under the purview of regulatory supervision. For SIFs, the minimum investment has been put at ₹10 lakh at the PAN level across all schemes of an AMC, ensuring greater clarity and uniformity for the investors.

Industry Response and New Entrants

SEBI's initiatives have garnered a positive response from the mutual fund industry. Three new entrants – Capitalmind Financial, Jio BlackRock, and Pantomath Capital Advisors – are soon to unveil their mutual funds. While Capitalmind Financial is said to have received final approval for the launch of its schemes, the other two players are waiting for their approval.

SEBI's Broader Regulatory Reforms

The recent actions taken by SEBI are representative of a wider strategy to strengthen the mutual funds sector. In 2023, the regulator made changes to mutual fund rules, now permitting private equity firms to sponsor schemes and set up self-sponsored Asset Management Companies. In addition, SEBI has also brought forth a uniform application format to be used by mutual funds, intending to set up special investment funds, which is aimed at promoting uniformity and expediting the processing of such applications.

Implications for Investors

With these regulatory changes, more horizons of investment options are opened for investors, catering to varying risk profiles and time horizons. With an eye toward changing the business landscape, amending the regulations will allow SEBI to strengthen the mutual fund industry by increasing its resilience and diversification.

Conclusion

The ongoing recalibration of regulations on mutual funds intends to drive innovation or flexibility within the Indian financial sector. Stakeholders anticipate the evolution of the regulatory framework into a more robust and adaptable mutual fund ecosystem for better resolution of investment demands at diverse levels.