The Securities and Exchange Board of India (SEBI) is set to review and possibly relax Clause 24(B), a long-standing restriction on business activities of Asset Management Companies (AMCs). This was announced by SEBI's Executive Director Manoj Kumar during the CII Mutual Fund Summit 2025, held in Mumbai on April 15.

What is Clause 24(B)?

Clause 24(B) of the SEBI Mutual Fund Regulations limits the business activities that an AMC can undertake. The regulation states:

“The asset management company shall not undertake any other business activities except activities in the nature of portfolio management services, management of offshore funds, advisory services, and such other activities as financial services as may be permitted by the Board.”

In simpler terms, AMCs are prohibited from engaging in unrelated or non-financial businesses unless explicitly permitted by SEBI. This has long been seen as a barrier to innovation and business diversification in India’s mutual fund industry.

Why is SEBI Reviewing Clause 24(B)?

During his address, Manoj Kumar emphasized that Clause 24(B) is “one of the serious obstacles for the mutual fund industry”. He noted that this clause stands out as the most restrictive in the entire mutual fund regulatory framework.

Kumar said:

“We are doing a significant review of regulation 24… Mutual fund regulation is the lengthiest of all the regulations, and we are actively working on it.”

This signals that SEBI is keen on simplifying and updating outdated rules that no longer align with the rapidly evolving financial ecosystem in India.

Collaboration Under New SEBI Leadership

The new SEBI Chairperson, Tuhin Kanta Pandey, is bringing a more collaborative and industry-inclusive approach. Kumar highlighted that SEBI is focusing on working hand-in-hand with the industry, aiming to co-create regulations that reflect ground realities.

He said:

“We are extremely collaborative regulators… Many of the changes we are looking at are through co-creation. We rely on the creativity of the industry and aim to provide flexibility.”

This approach is a marked shift from traditional top-down rule-making, moving towards a model where feedback and industry insights shape regulatory decisions.

What Could Change for AMCs?

If Clause 24(B) is relaxed, AMCs may be allowed to enter new business verticals, such as fintech collaborations, credit services, or other adjacent areas in the financial services ecosystem. This could:

• Boost revenue diversification for mutual fund companies

• Enable strategic partnerships and innovation

• Align Indian regulations with global fund management standards

However, SEBI is expected to lay down clear conditions under which these expansions will be allowed, ensuring investor protection remains paramount.

No Timeline Yet, But Work in Progress

Although SEBI did not announce a specific timeline for implementing changes, Kumar assured that the work is underway. His statements indicate that the regulator understands the urgency of reforms and is prioritizing this matter.

“We are actively working on it,” he said, without offering a firm deadline.

Skin in the Game Norms Relaxed

Apart from Clause 24(B), Kumar also mentioned recent relaxations in the ‘skin in the game’ norms. Initially introduced to ensure fund managers have their own money invested in the schemes they manage, the rule faced pushback over operational challenges.

SEBI, acknowledging the concerns, has revised the implementation of these rules. Kumar remarked:

“We believe it was a good concept, but there were operational issues. Hopefully, the industry will rejoice after seeing the changes we have brought.”

This shows SEBI’s willingness to listen to the industry and adapt regulations accordingly.

Institutional Mechanism Framework Also Under Review

Kumar also highlighted SEBI’s focus on the institutional mechanism framework. Although a robust system had been outlined earlier, there were still practical challenges in execution.

“We have articulated a very robust practice… but still, there are some issues, so we are taking this up with the industry.”

This further reinforces SEBI’s commitment to consultative policymaking and addressing real-world bottlenecks.

Shift from KRA-Based System to Trust-Based Regulation

In a significant philosophical shift, Kumar hinted that SEBI may move away from a rigid KRA (Key Responsibility Area)-based model towards a trust-based and collaborative regulatory framework. He emphasized:

“We are moving towards co-creation and regulatory flexibility… If we can bring this little regulatory focus approach, we can withstand the volatility happening in the market.”

This could mark the beginning of a more dynamic and innovation-friendly regulatory regime for India’s asset management sector.

What Does This Mean for Investors and the Mutual Fund Industry?

The proposed reforms carry wide-ranging implications:

• For AMCs: Greater freedom to innovate, diversify revenues, and partner with other financial entities.

• For investors: Potentially better products, improved services, and greater efficiency from fund houses.

• For the industry: A more modern, globally aligned regulatory environment that enables healthy competition and innovation.

Conclusion: A Turning Point for Mutual Fund Regulations

SEBI’s move to review and possibly revise Clause 24(B) is a major development that could redefine the future of mutual funds in India. Coupled with relaxations in ‘skin in the game’ norms and a collaborative regulatory attitude, it appears that SEBI is serious about ushering in an era of regulatory reform.

As Manoj Kumar rightly summarized, co-creation and flexibility will be key pillars of SEBI’s approach going forward. This presents new opportunities for the industry, with investor protection and transparency still at the core.

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