Market regulator SEBI on Wednesday warned the non-serious mutual fund players of regulatory disincentives and asked the fund houses to commit capital for long-term growth of the sector and move to non-metro markets.

“We have given very reasonable incentives to the AMCs (asset management companies) for going beyond the top 15 cities. I am sure that in the new MF policy we are going to have disincentives for those who do not meet this requirement,” SEBI Chairman U K Sinha told reporters on the sidelines of a CII-organised MF summit here.

“If you want to be an MF player you got to be serious. Serious means you have to commit capital...so some sort of regulatory disincentives to meet the larger legislative intent is needed for those, who are not serious,” Mr Sinha said, adding the regulator has appointed a committee on this matter which will submit its report in the next two-three months.

“SEBI has set up a group for framing a long-term policy for the MF industry. I do expect that in the next two-three months they are going to submit their report,” the Chairman said indicating his seriousness about clamping down on the non-serious players, who unfortunately are the large majority.

Noting that top 10 players from 48-odd AMCs control 77 per cent of the AUM, and the bottom 10 control just 1 per cent of the business, while the rest 38 are sticking to the top 15 cities, he said, “if you are not keen to go to retail, there are perhaps other avenues for you (and not MF business).”

He also flagged the low retail contribution as a percentage of total assets, which has been going down. In 2011, the retail contribution was 28 per cent, which come down to 27 per cent in 2012 and so far in 2013, it is just 23 per cent. Along with this decline, he noted that there has also been a decline in the number of folios.

“And the above percentage hasn’t changed substantially in the past five years. This gives an impression that we have got some non-serious players in the industry. If year after year, the composition remains the same we need to rethink,” Mr Sinha warned.

But he was quick to add that those who meet the regulatory and legislative objectives will be rewarded.

Indicating there needs to be some consolidation in the industry; he said SEBI is very clear that the MF industry needs some very serious players.

But he stopped short of a putting a number saying, “I don’t know the exact number. Maybe there are some 48 AMCs. Now if the bottoms 10 per cent of MFs are continuously having less than 1 per cent of AUMs, then it is time that they think of a different business model.”

Noting that these 48 AMCs together have only 1,600 branches, he said, “We need to re-look fundamentally how we do our business.”

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