Asset management companies (AMCs) will use a certain portion of their assets under management (AUMs) to fund the operating costs of Self Regulatory Organisation (SRO), according to media reports.

The SRO was proposed by SEBI (Securities and Exchange Board of India) to regulate their agents and distributors. Capital market regulator agreed to create an SRO to regulate the MF distribution business after the suggestions made by its Mutual Fund Advisory Committee (MFAC).

While the initial investment for setting up the SRO would be provided by SEBI and AMFI (Association of Mutual Funds in India), some AMCs have also shown interest to fund the operating costs of the proposed SRO, the reports added.

A fair and transparent process for selection of the sponsor for the SRO would be followed by SEBI. Recurring cost for the operations of SRO may be funded by AMCs in the form of 2-3 basis points which comes to 0.02%-0.03% of the AUM. The average AUM of all AMCS rose for the first time in four quarters in the three-month period ended June 30, 2012. It stood at Rs 6.92 trillion against Rs 6.65 trillion in the previous quarter.

The proposed SRO could be a registered company under the Section 25 of the Companies Act, wherein all profits would be invested back into its operations, and will regulate distributors of securities like mutual fund, portfolio management and related products.