Regulatory Framework for Sponsors of a Mutual Fund

Sponsor eligibility expanded for mutual funds; new rules for capital deployment, PE sponsors, and self-sponsorship.

The circular revises sponsor regulation by requiring AMCs to deploy the minimum net worth in liquid, unencumbered instruments; permitting acquisition funding by borrowings only where sponsors have other encumberable assets and requiring incremental capitalization to be funded from acquirer net worth; restricting pooled vehicle sponsors to private equity funds subject to experience, track record and safeguards including prohibition of specified off-market transactions and lock-in of initial shareholding; and establishing conditions, reporting, trustee composition and timelines for voluntary sponsor disassociation and for an AMC to qualify as a self-sponsored AMC, with provisions for re-association and unitholder exit without exit load.