Mahindra and Mahindra Financial Services, India Infoline and Indiabulls Financial Services are among the 25 companies waiting for over three years for markets regulator SEBI to clear their applications to start a mutual fund business. There has been no communication to explain the delay, said two people familiar with the impasse.

The business plans of many of these companies are stuck since they can neither scrap the project nor proceed with it since they have invested capital and hired people, the two people said. An internal memo circulating within SEBI talks about the strengths and weaknesses of the various companies that have sought a licence to start an asset management company, but it does not specify if any of the companies should be given a licence, those people said.

An e-mail sent to SEBI executive director KN Vaidyanathan, in charge of mutual funds, seeking reasons for the delay in clearing applications made since 2008 was unanswered. Indiabulls did not respond to an e-mail sent by ET.

Union Bank of India (Feb 2009), Bajaj Finserv (July 09), and Enam Asset Management (Sept 09) are the others waiting for the regulatory nod, according to the SEBI's website. The site says these applications are "under process". Motilal Oswal, Mirae Asset and the state-run IDBI are some of recent entrants in the business.

"We have received SEBI's in-principle approval and are waiting for the final nod. We are very keen on starting our mutual fund business," said Harshad Apte, head of strategy at India Infoline. There is no specific time period for SEBI to grant a mutual fund licence. However, a company has to launch a scheme within six months of SEBI approving its schemes.

Many companies want to enter the mutual funds market to benefit from the rising income of the Indian middle class due to the near 9% economic growth. The mutual funds industry has grown by 9% in the last five years. It now has assets of 6.2 lakh crore under management. The industry has been complaining that fund inflows have dwindled due to the abolition of entry loads, but a Morgan Stanley research found that was not the case. Many funds with small initial capital have been profitable, while the new ones are struggling.

The difficultly in reaching out to investors in the far-flung areas of the vast nation and the downturn in 2008-09 had deterred some applicants from pursuing their plan, the people said. For others, the delay could be because they had faced charges of regulatory violations in the past.

SEBI had fined Indiabulls Securities 15 lakh in 2007 for unfair trade practices in the derivatives segment. Karvy Stock Broking and Indiabulls were accused in the 2006 initial public offering scandals, but Indiabulls was given a clean chit later. Karvy was banned for three months from trading. First Global Financial Services, too, was banned from trading for a year in 2009. India Infoline was penalised 25 lakh.

SEBI is right in restricting "people" it thinks are not eligible, since in mutual funds, people's money is involved, Jagannadham Thunuguntla of SMC Global Securities said. Karvy and First Global could not be reached for comments.