The Securities and Exchange Board of India (Sebi) has just released a proposal to alter the regulations pertaining to the sponsor system for mutual funds. One of the reasons for the proposed changes is that there are two conflicting regulations that need to be clarified. The other reason is that the sponsor system may itself be outdated as it stands, and the proposed changes would allow new entities such as private equity funds and portfolio management services to enter this space.

The concept of the sponsor, as defined by Sebi, is any entity that sets up a mutual fund (perhaps in concert with other entities which are also sponsors.) The sponsor needs to have a five-year track record of positive net worth, a three-year track record of profits after tax, and a five-year history in the financial services industry. The net worth of the sponsor must be more than Rs 100 crore and the total net worth must exceed the proposed contribution by the sponsor to the asset manageme