SEBI Gives Green Light To Fintech Startups For Launching Mutual Funds

SEBI Opens Doors For Fintech Startups To Launch Mutual Funds

SUMMARY

Until now, the regulator required entrants to have five years of experience in the financial services business among other criteria for mutual funds

Now, entities can be considered eligible to sponsor MFs, if they maintain a net worth of INR 100 Cr, until the time they can demonstrate profitability for five years

The waiving of the profitability requirement is seen as a boost for Indian startups, most of whom are waiting to turn a profit

The Securities and Exchange Board of India (SEBI) has relaxed the norms to allow fintech startups and other entities to enter the mutual fund (MF) business.

Until now, the regulator required entrants to have five years of experience in the financial services business and demonstrate three years of profitability, and to maintain a net worth of INR 50 Cr. However, SEBI has now waived these norms.“To facilitate innovation and enhanced reach to more investors at a faster pace including tech-enabled solutions”, the regulator said on Wednesday after its board meeting.

“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 added.

Thus, entities can be considered eligible to sponsor MFs, if they maintain a net worth of INR 100 Cr, until the time they can demonstrate profitability for five years.

Some of the other changes made in the norms include requiring AMCs to maintain their minimum net worth continuously and not just towards the year-end.

Experts believe that the change in norms could facilitate the entry of tech startups in the mutual fund business. Specifically, the waiving of the profitability requirement is seen as a boost for Indian startups, most of whom have put their initial public offering (IPO) plans on the backburner, waiting to turn a profit.

Recently, SEBI also released a set of proposals for encouraging Indian startups to go public. These include a discretionary quote to startups floating an IPO. The startups can allot up to 60% of the shares to be sold in the IPO to select investors on a discretionary basis before the issue opens to all investors, the regulator.

In September this year, Parliament passed the Companies (Amendment) Bill, 2020, empowers the central government to allow certain classes of public companies to list classes of securities (as may be prescribed) in foreign jurisdictions.