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TMI BlogRegulatory Framework for Sponsors of a Mutual FundX X X X Extracts X X X X X X X X Extracts X X X X ..... he objective of facilitating fresh flow of capital into the industry, fostering innovation, encouraging competition, providing ease of consolidation and easing exit for existing sponsors. 2. In this regard, a Working Group was formed by SEBI to examine the aforesaid issues. The recommendations of the Working Group were deliberated in the Mutual Funds Advisory Committee (MFAC) and subsequent to that, SEBI (Mutual Funds) Regulations, 1996 ( MF Regulations ) have been amended vide notification No. SEBI/LAD-NRO/GN/2023/134 dated June 26, 2023. 3. In furtherance to the same, the following has been decided: A. Deployment of liquid net worth by Asset Management Company (AMC) i. In terms of Regulation 21(1)(f) of the MF Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st proviso to Regulation 7 (a) of the MF Regulations , the sponsor has to ensure that in case of acquisition of an existing AMC, the sponsor shall have minimum positive liquid net worth equal to incremental capitalization required to ensure minimum capitalization of the AMC 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. iv. In this regard, the following has been decided. a. In case of change in control of the existing AMC due to acquisition of shares, the cost of acquisition may be funded out of borrowings by a sponsor but the sponsor shall have sufficient other assets to encumbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication made to SEBI. d. The following additional safeguards shall also be applicable for PEs acting as Mutual Fund sponsor. I. There shall be no off-market transactions between the schemes of the Mutual Fund and a) Sponsor PE; or b) Schemes/ Funds managed by the manager of the sponsor PE; or c) Investee Companies of schemes/ funds of sponsor PE, where it holds more than 10% stake; or has a board representation or a right to nominate Board representation. II. As per clause (ii) of the first proviso to Regulation 7(a) of the MF Regulations , an initial shareholding of sponsor equivalent to capital contributed to an AMC to the extent of not less than INR 150 Cr. shall be locked-in for a period of 5 years. In such cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: a. The AMC should have been carrying on business in financial services for a period of not less than 5 years; b. The AMC should have positive net worth in all the immediately preceding five years; c. Net profit of the AMC after providing for depreciation, interest and tax in each of the immediately preceding five years and average net annual profit after providing for depreciation, interest and tax during the immediately preceding 5 years should be at least INR 10 cr. iv. Any sponsor proposing to disassociate should have been a sponsor of the concerned Mutual Fund for at least 5 years before the proposed date of disassociation; v. The shareholding proposed to be reduced by a sponsor shall not be under any encumbrance or lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished by them respectively. xii. The constitution of trustee company of a self- sponsored AMC shall be as under: a. In case of trustee company of a MF with an unlisted AMC, the shareholding of trustee company shall be a mirror image of the shareholding of the AMC at all times. b. In case of trustee companies of a MF with a listed AMC, the financial investors shall continue to hold shares in the trustee company that is a mirror image of their holding in the AMC. Further, the shareholding in the trustee company that is equivalent to the public shareholding in the AMC, shall be held with a trust whose beneficial owner shall be the erstwhile sponsor with Independent directors of the trustee company as its trustees. xiii. Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining approval as a sponsor from SEBI. iii. In such cases, an exit option shall be provided to the unitholders of the existing schemes of the concerned Mutual Fund, without any exit load. 4. Applicability All provisions except paragraph 3 (A) of this circular shall come into force with effect from August 1, 2023. Paragraph 3 (A) of this circular shall come into force with effect from January 1, 2024. 5 . This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 , read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996 , to protect the interests of investors in securities and to promote the development of, and to regula ..... X X X X Extracts X X X X X X X X Extracts X X X X
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