Sebi Has Given Zerodha In-Principle Approval To Start Mutual Fund Business
India's largest retail broker by registered users, Zerodha, gets Sebi's in-principle clearance which will allow the company to develop its own mutual funds.
Sebi had loosened requirements for fintech businesses looking to enter the mutual fund market in December 2019.
The Securities and Exchange Board of India (Sebi), the capital markets regulator of the country, has granted Zerodha permission to establish an Asset Management Company (AMC). According to the founder and chief executive Nithin Kamath, Sebi's in-principle clearance will allow the company, which is India's largest retail broker by registered users, to develop its own mutual funds (MFs).
Nithin Kamath confirmed the news on Twitter saying: "So, we just got our in-principle approval for our AMC (MF) license. I guess now comes the hard part." In a February 2020 tweet, Kamath stated that mutual funds as a product must be redesigned to increase capital market involvement from the present 1.5 crore and to address people who do not currently invest (millennials).
According to The Economic Times, In February 2020, Zerodha applied to the capital market regulator, just months after Sebi authorised fintech businesses to enter the mutual fund industry.
However, Sebi loosened requirements for fintech businesses looking to enter the mutual fund market in December 2019. It said that firms having a net worth of $100 million and a track record of profitability for the previous five years were qualified to sponsor MFs.
While talking about Sebi's relaxation in January this year, Kamath said during an interview that without a doubt, this is a fantastic move and Zerodha had also applied for a licence, but the market was stalled by Covid-19. He stated that more players in this industry are needed to stimulate innovation.
"The entry barrier has stopped many (from entering the MF industry). The problem with mutual funds today is that they are very complex for retail investors. With newer players coming in, I think the products will become simpler and innovative," Kamath added.
Since the onset of the Covid-19 pandemic, Zerodha has led a pack of new-age fintech brokers, including Groww, Upstox, and Paytm Money, which have seen strong traction on their platforms from retail investors as millions of Indians flocked to stock investments, attracted by the Nifty and the Sensex, which have consistently reached new highs.
However, Bajaj Finserv acquired regulatory approval to launch its mutual fund business on 24 August this year. According to SEBI guidelines, it would set up an Asset Management Company and a Trustee Company, either directly or indirectly.
On 28 September last year, the company applied for a mutual fund licence. The online discount stock broker Samco Securities has already received SEBI permission for the launch of its mutual fund business. Additionally, Helios Capital Management, Alchemy Capital Management, Frontline Capital Services, Unifi Capital and Wizemarkets Analytics are among the companies that have applied to SEBI for a mutual fund licence.
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