Market regulator Sebi plans to cap the life of a mutual fund licence to just one year from the date of issue as it aims to avoid a firm with deteriorated finances to begin operations with a time lag which may put investors' money at risk, two people familiar with the development said.

Any company issued a licence to start a mutual fund has to launch schemes within a year, failing which it has to re-apply with the latest set of financials, they said. The new rules are aimed at keeping the "list clean and current," said a top Sebi official.

"The due diligence that was carried out becomes dated as numbers change and needs to be updated," the official said on condition of anonymity. "If fund houses are unable to launch their operations in a year, they will have to unwind and replay," he said. Union Bank of India-KBC Asset Management, Indiabulls Financial Services and India Infoline are the latest entrants into the 41 member-strong domestic MF industry, which managed assets worth over Rs 7 lakh crore on March 31.

UBI-KBC launched its first scheme last month while India Infoline is said to be on a hunt for a chief executive to head its mutual fund venture.

Dutch financial services group Aegon, which did not launch a mutual fund product in India since receiving a Sebi nod in October 2008, informed the regulator in April it intended to surrender its licence. This is the first instance where a mutual fund surrendered its licence.

The new norm will ensure only "serious players" apply for licence to start an AMC in the country, said a senior industry official, familiar with the matter. Top Sebi officials are said to have raised concerns over financial services groups applying for mutual fund licences, but not showing any serious intent to start operations. Currently, Sebi has 18 applications lying with it to start MFs here. "No regulator in any part of the world allows a lifelong licence to start financial services business.

Some players hung on to their mutual fund licences for a while, which did not go down well with Sebi," said the senior mutual fund official quoted above. Select financial firms, including Goldman Sachs, deferred the launch of AMCs here in the past, as a slew of regulatory restrictions and indecisive market conditions have affected money flow into mutual fund schemes.