Sebi seeks to throw open out-of-bounds business areas for mutual funds | Stock Market News

Mutual funds may be allowed to enter various business areas currently out of bounds for them, with the stock market regulator reviewing regulations that govern asset management companies.

The Securities and Exchange Board of India (Sebi) is conducting a major review of mutual fund regulation, which is “the lengthiest of all regulations”, executive director Manoj Kumar said. The provision restricting business activities of asset management companies (AMCs) will be particularly in focus.

Mutual funds, unbound

Regulation 24(b) of Sebi’s MF regulations, which limits permissible business activities, is the only clause with ‘restriction’ in its title, Kumar said at the Confederation of Indian Industry (CII) Mutual Fund Summit on Tuesday. While regulations generally try to facilitate things, this clause imposes a restriction, Kumar said. “We will remove as many restrictions as possible so that industry should have a clean playing ground.”

According to Kumar, the specific clause has prevented mutual funds from using their full expertise and expanding. Sebi identified certain areas and has been talking to the industry to remove the obstacles.

At present, AMCs are restricted from managing offshore pooled assets or funds unless specific conditions are met.

The move, initiated over a week ago, aligns with Sebi’s stated focus on streamlining the regulatory landscape rather than expanding it—highlighted by Sebi chairman Tuhin Kanta Pandey in his first media address.

In a fireside chat at the Mint India Investment Summit, Pandey had affirmed Sebi’s commitment to streamlining regulations, stating the regulator will “weed out” outdated policies and rationalize necessary ones to achieve optimal regulation, reduce compliance burdens, and lower the cost of doing business.

Pandey reiterated during an interview with The Economic Times that Sebi intended to carry out the review in a more intensive manner. He said the regulator was planning to study the purpose of each regulation and assess whether the same objective could be achieved with lower compliance and cost. He also indicated that the regulator will work with stakeholders, hold discussions, and identify opportunities for simplification before preparing a plan.

Pandey’s move to optimize regulation aligns with the objectives outlined in the Economic Survey of 2024–25. “Unleashing the potential of domestic-led growth in India via enhancement of investment and economic efficiency will entail a combination of efforts, viz., assessing the actual/true cost of regulation, undertaking systematic deregulation…,” the Survey stated.

Read more: Mint Explainer: Why Sebi set up a committee to review conflict of interest norms

Kumar also said that Sebi had asked for suggestions from the Association of Mutual Funds in India (Amfi) to overhaul categorization and nomenclature.

“We have urged Amfi to streamline naming conventions to help boost mutual fund awareness and adoption,” he added.

He said the regulator was re-examining provisions like the institutional mechanism framework or a set of procedures and surveillance systems that AMCs are required to implement to prevent market abuse. This framework is overseen by Sebi and enforced by Amfi.

“There are still some issues, and we are engaging with the industry to resolve them,” he said.

He emphasized a shift in regulatory philosophy, moving away from a purely key results area or KRA-based system to a more cooperative model where regulators work closely with industry stakeholders. “Many of the upcoming changes are being developed through co-creation. We’re prioritizing this model because it allows us to tap into the industry’s creativity while providing more flexibility around data and information-sharing. With a slightly lighter regulatory touch, we believe we can better navigate the market’s volatility.”