SEBI Proposes Relaxation of AMC Business Activity Norms Under Regulation 24(b); Public Comments Invited
By Shishta Dutta | Published at: Jul 8, 2025 08:59 AM IST
Mumbai, July: The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing significant amendments to Regulation 24(b) of the SEBI (Mutual Funds) Regulations, 1996. This regulation currently governs the permissible business activities for Asset Management Companies (AMCs) in India. The proposed changes aim to enhance business flexibility for AMCs while simultaneously strengthening safeguards to prevent potential conflicts of interest.
Objective of the Proposed Changes
SEBI is actively seeking public comments on these key proposals, which are designed to:
- Relax the “broad-basing” requirement for pooled assets.
- Permit AMCs to engage in expanded business activities.
- Redefine norms for resource sharing.
- Enable AMC subsidiaries to act as Points of Presence (POPs) for pension funds and as global distributors.
Key Proposal Highlights
1. Relaxation of Broad-Basing Requirement for Pooled Assets
| Current Regulation 24(b) | Proposed Change |
|---|---|
| AMCs can only advise/manage broad-based pooled assets (min. 20 investors, none >25%) | Allow AMCs to manage non-broad-based pooled assets (e.g., few large investors), subject to safeguards |
Concerns Identified:
- Potential fee-based conflicts: Discrepancies in fee structures that might disadvantage mutual fund investors.
- Resource diversion: Resources being diverted from mutual fund (MF) investors to other pooled assets.
- Front-running, insider trading, and contrary trades: Risks associated with using confidential information or taking opposing positions between different fund types.
Proposed Safeguards:
| Risk Identified | Key Safeguard |
|---|---|
| Differential Fee Structures | Cap and floor for fees or fixed max % difference from MF TER |
| Resource Diversion | Allocation must reflect fee contribution; costs should not burden MF investors |
| Preferential Performance Fees | Prohibited |
| Performance Disclosure | Mandatory half-yearly comparisons |
| Governance Oversight | Unit Holder Protection Committee (UHPC) to review all differentials |
| Staff Segregation | Distinct teams unless ≥70% portfolio replication exists |
| Insider Trading | Adherence to SEBI (PIT) Regulations |
| Asset Transfer | Strictly prohibited between pooled non-broad-based and MF portfolios |
2. Resource Sharing Between Mutual Funds and PMS Units
SEBI proposes two options for how AMCs can structure their Portfolio Management Services (PMS) operations:
| Option | Description | Key Features |
|---|---|---|
| Option 1 | PMS through AMC’s subsidiary | Full key personnel segregation; shared research allowed |
| Option 2 | PMS within same AMC, as separate unit | Direct Board reporting by PMS Principal Officer; segregated fund managers, operations; shared research permitted |
This aims to strike a balance between operational efficiency and preventing conflicts of interest, allowing AMCs to leverage their research capabilities across different business verticals.
3. Expansion of Permissible Business Activities
SEBI proposes allowing AMCs and their subsidiaries to undertake additional activities, subject to specific conditions:
| Activity | Conditions |
|---|---|
| Act as POPs under PFRDA | Permitted if regulated by PFRDA and does not compromise MF investors’ interests |
| Global distribution of non-MF schemes | Permissible via subsidiaries; must avoid commissions for distributing direct MF plans |
| Overseas distribution | Allowed if jurisdictions are FATF members or IOSCO MMoU signatories and compliant with Press Note 3 |
4. IFSC Advisory Alignment
SEBI proposes aligning advisory norms for entities investing via non-Foreign Portfolio Investor (FPI) routes from International Financial Services Centres (IFSCs) (e.g., Foreign Direct Investment (FDI), Foreign Venture Capital Investor (FVCI)) with existing norms under Clause 17.3 of SEBI’s Mutual Fund Master Circular. This move aims to ensure regulatory consistency across all AMC operations involving international investments.
Impact and Significance
These proposed changes are seen as a significant step towards modernising India’s mutual fund industry. By relaxing the broad-based requirement and expanding permissible activities, SEBI aims to:
- Enhance business opportunities for AMCs, allowing them to tap into a wider range of investor segments and offer more diversified services.
- Improve cost efficiency for AMCs by enabling better resource utilisation, which could potentially translate into lower expense ratios for investors.
- Promote innovation within the industry by allowing AMCs to develop and manage more tailored investment products.
- Align Indian regulations with global best practices, making the Indian mutual fund industry more competitive on an international scale.
However, SEBI’s strong emphasis on robust safeguards and strict governance mechanisms is crucial to address the inherent conflict of interest risks that arise with expanded business activities. The regulator is keen to ensure that while AMCs gain flexibility, investor protection remains paramount.
Public Comments Invited
SEBI has invited stakeholders to submit their suggestions on these proposals by July 28, 2025. Comments can be submitted either via the online web form provided on the SEBI website or directly via email to peterm@sebi.gov.in, tarung@sebi.gov.in, and gopikaj@sebi.gov.in.
REF: https://www.sebi.gov.in/reports-and-statistics/reports/jul-2025/consultation-paper-on-review-of-regulatory-framework-on-permissible-business-activities-for-asset-management-companies-amcs-under-regulation-24-of-the-sebi-mutual-funds-regulations-1996_95104.html
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