On July 07, 2025, the Securities and Exchange Board of India (“SEBI”) has released a consultation paper[1] proposing a significant revamp of Regulation 24(b) of the SEBI (Mutual Funds) Regulations, 1996 (“MF Regulations”), which governs the permissible business activities of Asset Management Companies (“AMCs”). The aim is to modernize the regulatory framework, address longstanding industry concerns, and expand the operational scope of AMCs while introducing strict safeguards to prevent conflicts of interest and protect retail investors.
Key Highlights
1. Relaxation of “Broad-Based” Requirement: SEBI proposes allowing AMCs to manage and advise pooled non-broad based funds, currently restricted under Regulation 24(b) of the MF Regulations, without requiring a separate Portfolio Management Services (“PMS”) licence. This could open doors for AMCs to serve high-net-worth clients or small group investors under 1 (one) pool, provided strict governance standards are followed.
2. Mitigating Conflicts of Interest: SEBI identifies several risks if AMCs are allowed to manage both mutual funds and non-broad based pools such as fee-based bias, resource diversion, front-running, and unfair asset transfers.
To counter these, SEBI suggests:
(a) Fee caps or bands, with monitoring by the AMC board and Unit Holder Protection Committee (UHPC).
(b) Banning performance-based fees for non-broad based clients.
(c) Segregated investment teams unless portfolios overlap by at least 70% (seventy percent).
(d) Common compliance officers allowed, but key investment roles must be distinct unless portfolios are identical.
3. PMS Activity Structuring: 2 (two) models are proposed for PMS:
(a) Option 1: Run PMS via a subsidiary with separate key personnel and governance.
(b) Option 2: Run PMS as an internal unit within the AMC, but with independent reporting to the board and fully segregated operations.
4. Permitting Ancillary Activities: SEBI proposes allowing AMC subsidiaries to:
(a) Act as Point of Presence (POP) for pension funds under Pension Fund Regulatory and Development Authority (Registration of Pension Funds) Guidelines, 2021; and
(b) Serve as global distributors for offshore funds managed or advised by the AMC, provided they distribute only direct plans and do not receive commission.
5. Clarifying IFSC and FDI/FVCI Rules: The framework also extends to AMCs advising foreign funds operating through IFSCs investing via routes other than FPIs (e.g., FDI, FVCI). SEBI clarifies that similar safeguards will apply to these funds to ensure alignment with domestic investor protection standards.
6. Public comments are invited until 28 July 2025 through SEBI’s online portal or email. SEBI aims to finalise the framework based on industry feedback.
[1]https://www.sebi.gov.in/reports-and-statistics/reports/jul-2025/consultation-paper-on-review-of-regulatory-framework-on-permissible-business-activities-for-asset-management-companies-amcs-under-regulation-24-of-the-sebi-mutual-funds-regulations-1996_95104.html