AMC's need to stay away from portfolio business
Capital market regulators, Securities and Exchange Board of India (SEBI) has made a proposal whereby it wants to review the regulations governing the mutual fund (MF) industry. And a part if this is the one that covers the portfolio management done by the asset management companies (AMCs).
SEBI calls for the clear demarcation to be drawn between the two different businesses. This is happening as SEBI wants that there should be no conflict of interest between the two businesses.
Some of the leading AMCs in India provide both the services together. They do so for the sake on using the inbuilt infrastructure so that the costs are reduced. They often use the same brand name as well.
And in the process, information of the two segments gets shared or influences the decisions and that is why they need to be separated from each other.
However, the main concern for SEBI is that the AMC will prioritize the portfolio business over the MF. This can happen mainly because the remuneration of the distributors is fixed on the basis of the services provided.