Sebi mulls new rules to protect investors, deepen markets

Market regulator Sebi will consider tomorrow new rules to protect the investors' interest and to expand the country's investment culture with greater and more cost-effective access to products like IPOs and mutual funds.

At its board meeting scheduled here tomorrow, the Sebi (Securities and Exchange Board of India) is likely to consider some wide-ranging reforms in its regulations for mutual funds and initial public offers (IPOs), sources said.

The proposals expected to be discussed at the meeting include provision for a 'safety net' guarantee for IPO investors, as also some tax incentives for the new investors.

Besides, the regulator is also likely to consider the introduction of e-IPO, which would allow investors to bid for IPO shares electronically and without any physical paperwork.

In addition to being a cost-effective way, the e-IPO is likely to make it easier for investors across the country to tap the IPO market. Besides, the regulator is also likely to consider ways to encourage investors and distributors in the mutual fund space. Sebi chairman U K Sinha had met Finance Minister P Chidambaram yesterday.

Tomorrow's meeting also holds significance for being the first board meeting of the capital market regulator after an announcement by the new Finance Minister P Chidambaram that various decisions could be made soon to attract more investors to mutual funds and other investment products.

In his first press conference after assuming charge, Chidambaram said last Monday that a number of decisions would be taken soon to encourage more people to invest in mutual funds, insurance polices and other instruments.

A major tax incentive proposal relates to stock investments as well, as Sebi would consider finalising the fine-print of Rajiv Gandhi Equity Scheme, which was announced in this year's Union Budget and aims to provide tax benefits to first time investors in the stock market.

At the upcoming board meet, Sebi is also likely to discuss a new definition for 'small or retail investors' as there is some ambiguity in current regulations.

For IPOs, the investors putting in up to Rs two lakh are considered retail investors.
However, listed companies distinguish small and large individual shareholders as those holding shares worth up to Rs one lakh and those holding shares worth more than Rs one lakh, respectively.

For mutual funds, the regulator will consider giving the fund houses flexibility in using their expense ratio. At present, the fund houses are required to divide their expense ratio (an amount deducted from investors' funds) as per a fixed formula between the fund management fees and other expenses.