To avoid the potential conflict of interest, markets regulator Sebi is considering to put a 10 per cent cross-shareholding cap in mutual funds, senior officials said.

The new measure may have an impact on the shareholding pattern of UTI Asset Management Company (AMC).

State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Life Insurance Corporation (LIC) are having their own mutual funds and at the same time they hold 18.24 per cent stake each in UTI AMC.

The issue would be taken up at the board meeting of Securities and Exchange Board of India (Sebi) tomorrow, they added.

Under the proposal, any shareholder owning at least 10 per cent stake in an AMC will not be allowed to have a 10 per cent or more stake in another mutual fund house operating in the country.

Further, a sponsor of a mutual fund, its associates, group company and its asset management company will be restricted from holding 10 per cent or more stake in a rival AMC.

In addition, such entities will be barred from having a representation on the board of another mutual fund house.

The new norms are aimed at avoiding any conflict of interest and help in strengthening the governance structure for mutual funds.

In addition, Sebi may come out with a new framework for Investment Advisor in order to segregate advisory and the role of a distributor.

However, mutual fund distributors while distributing the investment product can explain the features of the product to client.

To prevent the conflict of interest that exists between 'advising' of investment products and 'selling' of investment products by the same entity/person, there should be clear segregation between these two activities, the officials said.

Existing registered investment advisers who are offering distribution services through a separate division would be given an option to choose between providing investment advice and distribution service before March 31, 2019.

"From April 1, 2019, any person, including their immediate relatives or holding or subsidiary or associate entity shall offer either investment advice or distribution services," an official said.

Further, the board may come out with a fresh consultation paper in this regard.

Sebi had first issued a discussion paper that outlined the road map of distribution and advice in October 2016 and a revised consultation paper was issued in June.