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Guidelines and procedure for change in control of AMCs

Finsec Law Advisors

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SEBI has, vide a circular dated March 04, 2021 (the “Circular”), laid down the procedure for change in controlling interest of asset management companies (“AMCs”) and issued guidelines for new sponsors of mutual funds (“MF”). This follows the recent amendment to the SEBI (Mutual Funds) Regulations, 1996, which altered the profitability criteria for an MF sponsor with a view to facilitate innovation and expansion in the MF sector.

Procedure for change in control of AMC

Regulation 22(e) of the SEBI (Mutual Funds) Regulations 1996 requires, inter alia, the prior approval of trustees and SEBI before any change in control of an AMC, whether direct or indirect, can be made.  In addition to this, a written communication about the proposed change must be sent to each unitholder and advertisements must be issued in nationwide and regional newspapers where the head office of the MF is situated. Further, the unitholders must also be offered an opportunity to exit the concerned scheme on the prevailing net asset value (NAV) without any exit load within a time period of not less than 30 days from the date of communication.

The Circular states that if an applicant proposing to take the control of an AMC is not an existing sponsor of a SEBI registered MF, such applicant must first obtain SEBI approval. The new sponsor is now also required to provide the following undertakings to SEBI and unitholders: a. Taking full responsibility of the management and the administration of the schemes, including matters concerning reconciliation of accounts; b. Assuming the trusteeship of assets and liabilities of the MF schemes, including outstanding borrowings, unclaimed dividends and unclaimed redemptions; and c. Assuming responsibilities and obligations relating to investor grievances.

Disclosures to unitholders

At the time of seeking SEBI approval for change in control, the Circular requires the MF handing over the control of the AMC to also file a draft letter/email to be sent to the unitholders along with the draft advertisement to be published in the newspapers. The letter/email should contain information about the new sponsors’ activities, financial track record, and performance, and also contain information regarding the unclaimed redemption and dividend and procedure for claiming the same. In case schemes of an existing MF are being taken over, the draft letter/email should also include condensed financial information of all schemes.

Pursuant to change in control, the information given in all offer documents of existing schemes are required to be revised and updated. Furthermore, the Circular prescribes that the MF must provide full details of the information to SEBI for further course of action in case of indirect change in control of the AMC or indirect change in promoters of the sponsor(s) which was beyond the sponsor(s)’ control etc.

With the sustained growth of the MF industry, there is a renewed interest in sponsoring a MF or acquiring an existing one. Regulatory directions like the recent amendment and this circular are positive steps which will lead to growth of the MF industry and higher penetration of MFs in the country.