To be eligible to sponsor a mutual fund in India, what specific track record and financial criteria must the applicant fulfill under SEBI (Mutual Funds) Regulations?

[ A ]Operating any retail commercial business for 2 years with a minimum annual sales turnover of Rs. 5 crore

[ B ]Carrying on financial services business for at least 5 years, positive net worth in all 5 preceding years, net profit after tax in each of the 5 preceding years, and average annual net profit of at least Rs. 10 crore[ CORRECT ]

[ C ]Maintaining a paid-up equity share capital of Rs. 500 crore without any requirement of past profitability

[ D ]Operating exclusively as a scheduled commercial bank with at least 1,000 branch locations across India

Takeaway

Option B is correct: Carrying on financial services business for at least 5 years, positive net worth in all 5 preceding years, net profit after tax in each of the 5 preceding years, and average annual net profit of at least Rs. 10 crore

Derivation

Under Regulation 7 of SEBI (Mutual Funds) Regulations, 2026, an eligible Sponsor must: (1) be in financial services for not less than 5 years, (2) have positive net worth in all 5 immediately preceding years, (3) have positive liquid net worth exceeding its proposed capital contribution in the AMC, (4) have net profit after depreciation, interest, and tax in each of the 5 preceding years, and (5) have an average annual net profit of at least Rs. 10 crore over those 5 years. This question tests exact statutory qualification standards. A frequent mistake is confusing AMC net worth (Rs. 50 crore) with Sponsor profitability thresholds.

Why the others fail

A — Operating any retail commercial business for 2 years with a minimum annual sales turnover of Rs. 5 crore

A 2-year general commercial trading record is ineligible; SEBI mandates at least 5 years in financial services with stringent profit criteria.

C — Maintaining a paid-up equity share capital of Rs. 500 crore without any requirement of past profitability

High capital alone without 5 consecutive years of positive net profits after tax does not satisfy SEBI's sponsor eligibility norms.

D — Operating exclusively as a scheduled commercial bank with at least 1,000 branch locations across India

Non-banking financial corporate entities and foreign financial institutions can sponsor mutual funds; bank status is not mandatory.