Regulate, don't restrict, MFs

Revisiting 24(B) Of SEBI Regulations Not Just Legal Reform But Also A Strategic Pivot

- SANDEEP PAREKH

The recent CII Mutual Fund (MF) Summit, Securities and Exchange Board of India (Sebi) executive director Manoj Kumar catalyzed industry optimism by signaling a potential revisit of regulation 24(b) of the Sebi (Mutual Funds) Regulations, 1996.

The provision, long seen as a constraint, prohibits asset management companies (AMCs) from taking up fund management activities beyond MFs except through Sebi-approved subsidiaries. It also mandates separate teams for fund management, even for back-office functions. Even some distinction between broad-based and non-broad-based funds should be done away with so long as it is clean money.

While rooted in investor protection and systemic prudence, these restrictions may be misaligned with today's integrated financial ecosystem. As India's MF industry surpasses ₹64 lakh crore in assets under management, it is time to ask if such constraints are serving or stifling investor interests and innovation.

One of the most glaring missed opportunities is the management of foreign investments. Despite their competence, Indian AMCs are largely excluded from managing India-focused offshore funds which are instead run from jurisdictions like Singapore or the UAE. The core asset management expertise of Indian fund houses remains underutilized, costing the domestic industry potential leadership in global India-focused capital management. While significant tax considerations are at play here, this piece focuses on the regulatory bottlenecks.