Regulation 7 - Eligibility criteria - Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

Eligibility criteria 7. For the purpose of grant of a certificate of registration, the applicant has to fulfill the following, namely- 9 [ (a) the sponsor should have a sound track record and general reputation of fairness and integrity in all business transactions. Explanation : For the purposes of this clause sound track record shall mean the sponsor should, i. be carrying on business in financial services for a period of not less than five years; and ii. ensure that the networth is positive in all the immediately preceding five years; and iii. ensure that the positive liquid networth is more than the proposed capital contribution of the sponsor in the asset management company and ensure that in case of change in control of the existing asset management company due to acquisition of shares, the positive liquid net worth of the sponsor or funds tied up by the sponsor is to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher; and iv. have net profit after providing for depreciation, interest and tax in each of the immediately preceding five years; and v. have average net annual profit after depreciation, interest and tax during the immediately preceding five years of at least rupees ten crore: Provided that if the requirements specified under Explanation to clause (a) are not fulfilled, the sponsor shall,- (i) adequately capitalize the asset management company such that the net worth of the asset management company is not less than rupees one hundred fifty crore; and (ii) ensure that the initial shareholding equivalent to capital contributed to the asset management company to the extent of not less than rupees one hundred fifty crore is locked-in for a period of five years; and (iii) appoint experienced personnel in asset management company such that the total combined experience of Chief Executive Officer, Chief Operating Officer, Chief Risk Officer, Chief Compliance Officer and Chief Investment Officer should be at least thirty years; and (iv) ensure that in case of acquisition of existing asset management company, the sponsor shall have minimum positive liquid net worth equal to incremental capitalization required to ensure minimum capitalization of the asset management company and the positive liquid net worth of the sponsor or the funds tied up by the sponsor are to the extent of aggregate par value or market value of the shares proposed to be acquired, whichever is higher; and (v) ensure that in case of acquisition of stake in an existing asset management company, the shareholding equivalent to at least rupees one hundred fifty crore shall be locked in for five years; and (vi) ensure that other conditions in this regard as may be specified by the Board from time to time are adhered to: Provided further that a private equity fund or a pooled investment vehicle or a pooled investment fund may also be permitted to sponsor mutual funds subject to such other conditions as may be specified by the Board from time to time. ] 1 [(aa) the applicant is a fit and proper person;] (b) in the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has been approved by the Board; (c) the sponsor has contributed or contributes at least 40% to the net worth of the asset management company: Provided that any person who holds 40% or more of the net worth of an asset management company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in these regulations; (d) the sponsor or any of its directors or the principal officer to be employed by the mutual fund should not have been guilty of fraud or has not been convicted of an offence involving moral turpitude or has not been found guilty of any economic offence; (e) appointment of trustees to act as trustees for the mutual fund in accordance with the provisions of the regulations; (f) appointment of asset management company to manage the mutual fund and operate the scheme of such funds in accordance with the provisions of these regulations; 8 [ (g) appointment of custodian in order to keep custody of the securities or goods or gold or gold related instruments or silver or silver related instruments or other assets of the mutual fund held in terms of these regulations, and provide such other custodial services as may be authorised by the trustees. ] ************ NOTES:- 1 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 1998, w.e.f. 12-1-1998. 2 Substituted by the SEBI (Mutual Funds) (Amendment) Regulations, 2008, w.e.f. 16-4-2008. Prior to its substitution , clause (g) read as under; (g) appointment of a custodian in order to keep custody of the securities *[or gold and gold related instruments] and carry out the custodian activities as may be authorised by the trustees. [*Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2006, w.e.f. 12-1-2006.] 3. Inserted vide NOTIFICATION No. SEBI/LAD-NRO/GN/2019/011 dated 26-04-2019 4. Inserted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 5. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 before it was read as (iii) the networth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company; and 6. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 before it was read as ; 7. Inserted vide Notification No. SEBI/LAD-NRO/GN/2021/08 dated 04-02-2021 w.e.f. 30th day from the date of their publication in the Official Gazette, that is 04-02-2021 8. Substituted vide Notification No. SEBI/LAD-NRO/GN/2021/56 dated 09-11-2021 w.e.f. 09-12-2021 before it was read as 2 [(g) appointment of custodian in order to keep custody of the securities or 3 [ or goods ] gold and gold related instrument or other assets of the mutual fund held in terms of these regulations, and provide such other custodial services as may be authorised by the trustees.] 9. Substituted vide Notification No. SEBI/LAD-NRO/GN/2023/134 dated 26-06-2023 w.e.f. 01-08-2023 before it was read as, (a) the sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions. Explanation: For the purposes of this clause sound track record shall mean the sponsor should- (i) be carrying on business in financial services for a period of not less than five years; and (ii) 4 [ ensure that ] the networth is positive in all the immediately preceding five years; and 5 [ (iii) ensure that the networth is more than the proposed capital contribution of the sponsor in the asset management company and ensure that in case of change in control of the existing asset management company due to acquisition of shares, the networth of the sponsor is more than the aggregate par value or market value of the shares so acquired, whichever is higher; and ] (iv) the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year 6 [ : ] 7 [ Provided that the applicant shall have a networth not less than rupees one hundred crore in case the aforementioned requirement is not fulfilled. ]