Procedure for Change in the Controlling Interest of Asset Management Company

Narendra Kumar

13 Sep, 2019

There are all possibilities that due to any reason an existing Asset Management Company(AMC) would like to undergo a change in the control of interest of this Asset Management Company. However, such change cannot be undertaken without prior approval of SEBI, the supreme regulator of the AMCs.

SEBI has given clear guidelines for undertaking such a change in the controlling interest of the AMCs.

A. Provisions of Regulation: As per the provision of Regulation 22(e) of SEBI (Mutual Funds) Regulations, 1996, AMC cannot undertake any change in the controlling interest of the asset management company unless: –

1. prior approval of the trustees and the Board (i.e. SEBI) is to be obtained by AMC for this change;
2. AMC has to send a written communication about the proposed change to each unitholder and further publish an advertisement in one English daily newspaper having nationwide circulation and in a newspaper published in the language(vernacular) of the region where the Head Office of the mutual fund is situated; and
3. AMC has to give an option to the unitholders to exit on the prevailing Net Asset Value(NAV) without any exit load if they need. Further, all the conditions mentioned above are to be complied with. As per the extant guidelines of SEBI, at least 30 days’ time period should be given by the mutual funds to the unitholders to exercise the exit option.

B. New Sponsors: In the case where the applicant intends to take the control of the AMC is not an existing mutual fund having registration with SEBI, it has to apply to SEBI for registration as per the provisions under SEBI (Mutual Funds) Regulations, 1996.

Submission of undertakings by new trustees/Sponsors: In case of new sponsors or taking over by an existing mutual fund, further following undertakings are required to be submitted in the interest of unitholders:

1. Taking full responsibility of the management and administration of the schemes including the matters relating to the reconciliation of accounts (as if the schemes had been floated by the new trustees on the date of taking over).
2. The assumption of the trusteeship of the assets and liabilities of the schemes including unclaimed dividends and unclaimed redemptions.
3. Assuming all responsibilities and obligations relating to the investor grievances, if any, in respect of the schemes taken over, in accordance with and pursuant to the SEBI (Mutual Funds) Regulations.

C. Disclosures to unitholders: While seeking such approval from SEBI^[1], the mutual fund handing over the control to another person, should also file a draft letter to be sent to all the unitholders informing such change. This draft letter to be sent to the unitholders should contain the following information – 1. The current activities of the new sponsor and its financial performance as prescribed in the standard offer document; 2. In case of taking over of the schemes by an existing mutual fund registered with SEBI, the draft letter should also include the summarised financial information of all the schemes in the format prescribed in the standard offer document; 3. The details of the amount of unclaimed redemption and dividend and also the procedure for claiming such amount by the unitholders.

D. Communication by SEBI: In the process of approving the change in controlling interest of the AMC, SEBI may communicate any further observations or requirements, as necessary.

E. Revision of Offer Documents: The information furnished in the offer documents of existing schemes shall be revised and updated due to the change in controlling interest of the mutual fund. Such a list of added items is also required to be filed with SEBI, as required under the SEBI (Mutual Funds) Regulations and Guidelines.

F. Other Situations: Further, apart from the situation like indirect control of the AMC or change in the promoters of the sponsor, etc, the mutual fund has to furnish full information to SEBI for its advice on a further course of action. SEBI will guide the applicant step by step after getting an application for change in the controlling interest of the AMC, in case of any difficulty in the matter. Generally, SEBI replies are sent within 21 working days from the date of receipt of each communication from the applicant in connection with such a process of change in the controlling interest of the asset management company.

Thus on fulfilling such requirements of SEBI for change in the controlling interest of the Asset Management Company, the final approval in the matter is granted by SEBI.