A SEBI-constituted panel on mutual funds in October 2011 retained the minimum capital requirement to start a fund house at Rs 10 crore, rejecting a proposal to increase the net worth criterion. The move was welcomed by smaller fund houses and firms planning to enter the asset management business in Asia's third-largest economy, India.
A mutual fund advisory committee in 2010 had proposed to raise the capital base of asset management companies to Rs 50 crore from Rs 10 crore to ward off non-serious players and to ensure higher safety for investors. SEBI however pointed out that higher capital requirement will be a difficult barrier for smaller institutions wanting to start the fund management business.
It was pointed out that even developed nations have lower capital requirement than India. In the US, the base capital required to start an asset management business is Rs 55 lakh, if converted into Indian rupees.
The first guideline on base capital criteria, which mandated funds to have a minimum capital of Rs 3 crore, came out in 1993. Sebi increased the net worth criterion to Rs 6 crore and then to Rs 10 crore after CRB Mutual Fund collapsed in 1996-97.
The mutual fund advisory committee had in 2010 also recommended a higher net worth requirement to protect investors and funds from short-term liquidity stress. Well-capitalised funds, the committee argued would be better placed to handle unforeseen redemption and issues arising from lower market liquidity.
No comments:
Post a Comment