Sebi clears slew of reforms: e-IPOs to be reality soon

Mutual fund policy committee on the anvil

The Securities and Exchange Board of India (Sebi) on Thursday approved a wide range of comprehensive reforms to revamp primary markets and mutual funds. It has cleared the norms for e-IPOs on one hand and has given flexibility to mutual funds for using expense charges.

Addressing reporters after the board meet, Sebi Chairman U K Sinha said the regulator will ensure a minimum lot of shares for retail investors in initial public offers (IPOs) and approves e-IPO procedure for electronic bidding in public offers. Simply put, it would allow investors to bid for IPOs electronically and without any physical paperwork.

For mutual funds, Sebi said it gave flexibility in using expense charge, while at the same time, made it clear that the entry load for mutual funds would not be reintroduced despite the industry making a pitch for the same.

As such, Sebi board cleared the proposal allowing 30 basis points (bps) hike in the expense ratio for fund houses to manage expenses especially in tier-II cities. The regulator made it clear that fund houses should make complete disclosures in the half yearly report of Trustees to Sebi on actual efforts by mutual funds to increase penetration and the details of opening of new branches especially beyond top 15 cities. Sinha said the steps are being taken to expand market reach. For this, he continued, Sebi will set up a panel for a national mutual fund policy and has sought tax incentives in equity funds under Rajiv Gandhi Equity Savings Scheme. However, it has deferred decision on safety net for retail investor.

On stake divestment, Sinha said domestic companies will be allowed to achieve the minimum 25 per cent public shareholding rule through the allocation of bonus or rights shares.

Market regulations stipulate that all listed companies must have a minimum 25 per cent public shareholding by June 2013.  As such, Sebi’s move would force many controlling stakeholders to pare down shares, but many companies have failed to meet this owing to poor market conditions.

Besides, the board said it will recommend the government to make equity MF schemes eligible for Rajiv Gandhi Equity Savings Scheme. Also, it said it will seek tax incentives in equity funds under the scheme.

Sebi will be setting up a committee for a national mutual fund policy. For strengthening regulatory framework for mutual Funds, Sebi said asset management companies (AMCs) are to make monthly portfolio disclosures on their website. To ensure fair treatment to existing investors of MF schemes, it was decided to harmonise applicability of NAV across various schemes based on the day on which the funds are available for utilisation, for an amount equal to or more than Rs 2 lakh.

It also suggested setting up of a self-regulatory body in the near future for regulation of distributors. AMCs are also to disclose half-yearly financial results of mutual funds on their websites and an advertisement in this regard would be published in at least one national and one regional newspaper.

Sebi also approved a framework for registration and regulation of investment advisors done in consultation with RBI, Irda, PFRDA and comments from public on the concept paper disseminated for this purpose. Under this, financial planners will be required to be registered as investment advisors.