“You must remember one mutual fund company was in deep trouble so overnight we (SEBI and RBI) had to play our role behind the scene to find a buyer,” he said.

Expressing his displeasure at the entities setting shop without much seriousness, Sinha said, “getting registered, then failing and going away, such an approach can affect the sentiment of the entire industry and the market“.

“The requirement of hiking net worth to 50 crore is meant to deal with such episodes. One small mutual fund with assets of 200-300 crore, if it fails, you (media) will be forced to write that a mutual fund has failed and it would not matter whether it was a small or big.

“Besides, 50 crore is not a big amount. If you could pay 10 crore in 1994, you better be ready for 50 crore. That is my argument,” Sinha said.

Sinha further said that there was a virtual run on mutual funds in July last year after RBI hiked short term rates.

All the investors, especially in money market funds, at that time were asking for quick redemptions, he said.

“SEBI took an initiative and went to RBI. And Finance Ministry also supported and a special line of credit was given by RBI. That helped save the mutual funds,” Sinha added.

The SEBI chief said that it could be an extremely difficult situation if 20—30 per cent of investors come and ask for getting back their money from mutual funds.

“Don’t forget that in 2008, the Certificates of Deposits of one PSU bank were not being honoured by another public sector bank because the money market was that bad.

“What I am saying is that (Rs 50 crore level) to ensure the financial market system is okay. And if somebody says 50 crore is a big number I don’t agree,” Sinha said.

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