Markets regulator Sebi on Monday proposed allowing asset management companies (AMCs) or their subsidiaries to offer additional services related to fund management, such as acting as Points of Presence (POP) for pension schemes and serving as global distributors for the funds they manage or advise.
Presently, AMCs and their subsidiaries are only allowed to provide services which are in the nature of management and advisory of pooled funds.
On Points of Presence (POP) for pension funds, Sebi proposed that subsidiaries of AMCs registered as pension fund managers may be allowed to offer POP services and receive compensation as permitted by PFRDA, according to its consultation paper.
However, AMCs should ensure that the interests of mutual fund investors are not affected.
Currently, AMC subsidiaries can act as POP for pension funds under the direct plan, but they are not allowed to receive any commission or fees directly or indirectly from investors or pension funds.
On global distribution, Sebi suggested that AMCs can market and sell only direct plans of their mutual funds (even internationally). AMCs may continue to do this through overseas subsidiaries. However, they cannot receive any commission or fees for distributing direct plans.
On distributing other non-MF schemes globally, AMCs may be allowed to distribute other than mutual fund schemes managed or advised by them outside India through their subsidiaries. This is subject to compliance with relevant regulations.
Also, Sebi has proposed relaxing the broad basing requirement and permitting AMCs to serve pooled non-broad based funds. This is subject to strong governance and regulatory controls that would address any concerns related to conflicts of interest situations.
In case the broad basing requirement is relaxed, few conflicts are likely to arise such as differential fees for pooled non-broad based funds and diversion of resources, risk of contrary trade positions and front-running, risk of insider trading and inter business transfer of assets on unfavorable business terms for mutual funds investors.
To address the concern relating to diversion of resources, Sebi has “proposed that AMCs may be required to ensure that the resources dedicated to pooled non-broad based funds should be proportionate to the fee earned by AMC from such funds vis-a -vis fees from investors in mutual fund schemes”.
Further, mutual fund investors should not made to bear the cost of servicing mandates for pooled non-broad based funds, it added.
The Securities and Exchange Board of India (Sebi) has sought public comments by July 28 on the proposals.