Sebi puts 10% cross-shareholding cap in mutual funds

Mumbai: To avoid any potential conflict of interest, markets regulator Sebi on Thursday decided to put a 10 percent cross-shareholding cap in mutual funds.

The new measure may have an impact on the shareholding pattern of UTI Asset Management Company (AMC), requiring its promoters to lower their stake to 10 percent or below in next one year.

State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Life Insurance Corporation (LIC) are having their own mutual funds and at the same time they hold 18.24 percent stake each in UTI AMC.

The board of Securities and Exchange Board of India (Sebi) has decided that any shareholder owning at least 10 percent stake in an AMC will not be allowed to have 10 percent or more stake in another mutual fund house operating in the country, Sebi Chairman Ajay Tyagi told reporters here.

Further, a sponsor of a mutual fund, its associates, group company and its asset management company will be restricted from holding 10 percent or more stake in a rival AMC.

In addition, such entities will be barred from having a representation on the board of another mutual fund house.

The moves are aimed at avoiding any conflict of interest and help in strengthening the governance structure for mutual funds.

In addition, Sebi has decided to come out with a fresh consultation paper on Investment Advisor in order to segregate advisory and the role of a distributor, Tyagi said.

However, mutual fund distributors while distributing the investment product can explain the features of the product to client.

To prevent the conflict of interest that exists between 'advising' of investment products and 'selling' of investment products by the same entity/person, there should be clear segregation between these two activities, the regulator said.

Existing registered investment advisers who are offering distribution services through a separate division would be given an option to choose between providing investment advice and distribution service before March 31, 2019.

From April 1, 2019, any person, including their immediate relatives or holding or subsidiary or associate entity shall offer either investment advice or distribution services.

Sebi had first issued a discussion paper that outlined the road map of distribution and advice in October 2016 and a revised consultation paper was issued in June.

Further, the regulator will provide an additional method --qualified institutional placement (QIP) -- route for listed entities to achieve the minimum public shareholding requirements.