The chairman of India’s securities regulator, U.K. Sinha, has told AsianInvestor that the nation has too many domestic fund management firms.

At present India has 44 fund houses, which is less than half the number in mainland China (98), but Sinha – who was appointed to a second three-year term at the Securities and Exchange Board of India (Sebi) in February 2014 – said it was still too many.

“After I came [to Sebi in February 2011] we discovered that many [fund houses] were not serious in the work they were doing, they are me-too type of companies,” said Sinha.

He stressed that while fund management was not a capital-intensive industry, prospective fund houses still had to be able to satisfy Sebi that they had enough money and a strategic plan to run the company for at least two to three years.

“Our requirement now is you must have a minimum of $8.5 million, which in my opinion is still not enough,” he said.

In fact, in response to manager grumbles over the state of India’s funds industry, Sinha suggested the real question to be asked was whether mutual fund houses were making enough efforts to reach out to investors in the first place.

“India has a serious problem that 85% of industry AUM came from the top 15 (T15) cities,” said Sinha. “So in 2012 Sebi gave managers an incentive to go beyond T15 and be given extra commission.

“Now 27% of equity AUM is from B15 cities, from less than 22% three years ago. I want quality fund managers, not quantity.”

Asked whether the current regulatory environment was too much in favour of large fund houses, given that a handful of firms gathered assets before a blanket ban on upfront commissions was imposed in 2009, Sinha was unequivocal.

“Let’s go back to a time when we did not have this minimum capital requirement,” he said. “The bottom 20 managers still had less than 1% of total AUM.”

He argued that back in the late 1990s and early 2000s, many firms seemed to think that the mutual fund industry was a good one to enter because the capital requirement was low. “That was the wrong approach,” said Sinha.

He suggested mutual fund investors in India could be divided into two groups: one in their 20s and 30s who are tech-savvy, well educated and able to take investment decisions; and the other in their 40s to 60s who had only been able to save money in the latter part of their lives and were not tech-savvy.

“Yet look at the figures for direct fund sales now, people are making orders on their mobiles and electronic devices,” said Sinha, noting that gross inflow for direct fund sales in 2014-15 was 14%. “It has grown faster than ecommerce business in India,” he observed.