- SEBI revokes the profitability criteria for fintech startups to enter the mutual fund business
- The modification carried out to encourage startups to go public
In a board meeting conducted on Wednesday, the Securities and Exchange Board of India (SEBI) announced the modification in the regulation for fintech startups and related operations to take up Mutual fund business.
SEBI has loosened up the norms to enable the new fintech startups and private equity players who are yet to generate profits to enter the Mutual Fund business.
What Were The Previous Regulations?
Before the modification, the applicants needed to satisfy certain criteria to get a green card from the regulator. This included a minimum five years of experience in the financial services business, an exhibition of profit for three consecutive years as well as maintenance of a net worth of INR 50 Cr.
What Changes Did SEBI Make In The Norms?
The fintech companies can now enter the mutual fund business if they have a net worth of at least Rs 100 crore irrespective of the company’s profits.
“Sponsors that are not fulfilling profitability criteria at the time of making the application shall also be considered eligible to sponsor a mutual fund, subject to having a net worth of not less than INR 100 Cr for the purpose of contribution toward the net-worth of the asset management company (AMC),” SEBI announced while revealing the modifications.
On the other hand, the regulations are not applicable to companies that are already sponsoring mutual fund business even with a net-worth of Rs 50 crore. This will be applied to the new players in the market.
SEBI also made some of the other changes according to which asset management companies will have to maintain their minimum net worth regularly and not just towards the end of the year.
Why Are These Modifications Carried Out?
SEBI believes that these modifications will ‘facilitate innovation and enhance reach to more investors at a greater pace, including tech-enabled solutions’
Dhirendra Kumar, CEO at Value Research says, “There are many companies that are waiting to set-up a mutual fund business in India which are yet to make profits. With these announcements, regulators have facilitated such players to start the mutual fund operations in India.”
Besides these modifications will encourage the startups to make themselves public as there is no rush to make profits now. This was the only reason startups were holding back their plans for executing initial public offering (IPO).
This is in coherence with the recent proposals released by SEBI that include a voluntary tender to startups circulating an IPO. The proposals also suggested that startups can sell 60% of their shares to selected investors on a temporary basis before opening the IPO to all the investors.