Securities and Exchange Board of India in a board meeting conducted on Wednesday announced the change in the regulation for fintech start-ups and related operations to take up mutual fund business. Securities and Exchange Board of India revokes the profitability criteria for fintech start-ups to enter the mutual fund business. Earlier, the regulator required entrants to have 5 years of experience in the financial services business among other criteria for mutual funds. Now, entities can be considered eligible to sponsor mutual funds, if they maintain a net worth of Rs 100 Cr, until the time they can demonstrate profitability for 5 years. The waiving of the profitability requirement is seen as a boost for Indian start-ups, most of whom are waiting to turn a profit.
While revealing the modifications Securities and Exchange Board of India announced that 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 minimum of Rs 100 crore for contribution toward the net-worth of the asset management company (AMC). The regulations of SEBI do not apply to a company that is already in the mutual fund business even with a net-worth of Rs 50 crore. This new rule will be applied to new companies in the market.
Securities and Exchange Board of India 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. Securities and Exchange Board of think that these modifications will facilitate innovation and enhance reach to more investors at a greater speed, including tech-enabled solutions.
According to Dhirendra Kumar, CEO at Value Research, many start-ups are waiting to start a mutual fund business in India which are yet to make profits. With these new regulations, SEBI has facilitated such players to start mutual fund operations in India.
Besides these changes in regulation by SEBI, it will encourage the start-ups to make themselves public as there is no rush to make profits now. This was the only reason fintech start-ups were holding back their plans for executing initial public offering. This is in continuity with the recent proposals released by the Securities and Exchange Board of India that include a voluntary tender to start-ups circulating an initial public offering. The proposals also suggested that start-ups can sell 60 percent of their shares to selected investors temporarily before opening the initial public offering to all the investors.
